As the name suggests, GST is a tax on goods and services. The levy of tax or the imposition of GST is on supply of goods or services or both. To empower the Government to simultaneously levy tax on goods and services, the Constitution of India was amended in 2016. Finally the tax was introduced with much fanfare on July 1, 2017.
Levy of GST
Section 9 of the CGST/SGST Act read with related provisions is the core of the GST law and deals with levy of GST. It provides for levy of GST on supply of goods and services with liability to pay tax put on the taxable person. The section also provides that in some cases, GST leviable on a transaction will be paid by a person other than the supplier (such as the recipient). This is popularly called as reverse charge.
Concept of Supply, Goods and Services
GST has been levied on supply of goods and services. Supply has been defined in Section 7 of the CGST Act and the definition has a wide connotation to sweep in a wide range of transactions in a business. To take an example, the term supply includes sale, transfer, barter, exchange, lease, license, rental, and disposal. However, these transactions qualify as a supply only if undertaken for a consideration and in course or furtherance of business. Thus free supplies are not subject to GST. Further, transactions which are not done in course of business, such as sale of a personal motor car, are not subject to GST even if made for a consideration.
In addition to the above, certain transactions without consideration have been deemed to be a supply. A pet example is branch transfer among two branches of the same entity. Further, to ease out disputes prevalent in the pre-GST era, certain transactions have deemed to be supply of goods and vice versa.
Though GST is applicable on supply of all goods and services, due to different GST rate structure and some provisions, it is imperative to classify a transaction as a supply of goods or a service. The definition of goods is similar to as available in the Sale of goods Act and includes every kind of movable property (whether tangible or non-tangible). Service has been defined as anything other than goods. Though effort has been made to iron out issues pertaining to classification of a transaction as a good or service, some litigation cannot be ruled out.
Composite & Mixed Supply
It is quite common that two or more goods/services are bundled together while supplying to a customer. To cater to such transactions, two concepts have been introduced – Composite supply and Mixed supply.
- Composite supply is a transaction where two or more goods or services are naturally bundled. Example could be supply of transportation with goods. In such cases, the transaction will be treated as a supply of the principal / main supply. Thus in the example given above, goods being the main supply, the tax rate and other provisions relating to taxation of goods will apply on the whole supply.
- Mixed supply is a transaction consisting of two of more goods / services for a single consideration which are not naturally bundled. Mixed supplies will taxed according to the GST rate of the item attracting the highest rate of tax.
Reverse Charge concept in GST has been borrowed from the erstwhile service tax law. It means that the recipient deposits the tax with the Government instead of the supplier. Two types of reverse charges have been introduced in GST:
- Certain specifically notified services such as import of service, legal services, services by goods transportation agency, etc. have been kept under reverse charge.
- Supply of goods or services by an unregistered person to a registered person has also been brought under reverse charge. Thus all expenses / purchases of a GST registered person (even if composition dealer) will invariably be subjected to GST. Taking cognizance of the hardships of the industry, exemption has been provided from payment of GST if total payment to unregistered person(s) is less than Rs.5,000 per day.
Exemptions under GST
GST has levied on supply of all goods and services except few goods which have been kept outside the ambit of GST. However, in the interest of the economy, supply of certain goods and services has been kept outside GST. The list of exempt services is primarily similar to the one under service tax law. The list of exempt goods has been pruned bringing in a number of untaxed sectors in the GST regime.