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Levy of CGST & SGST

CA Rishi Goyal 
on 20 September 2016


1. Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by the authority of law. Charging Section is a must in any taxing statute for the purpose of levy and collection of tax.

2. Section 7 is the charging provision of the CGST / SGST Act. It provides that all intra-state (since on inter-state, IGST shall be charge) supplies would be liable to CGST / SGST. It also provides for the rate of tax applicable on such supplies, the manner of collection of tax by the Govt and the person who will be liable to pay such tax. As similar to the earlier provisions of indirect taxation, the levy of tax on supply of goods and / or services is in two parts – first, in the hands of the supplier or second, in the hands of the recipient of goods / services under RCM. In RCM, the following conditions would be mandatory:

(a) Recommendation of the Council.
(b) Notification specifying the categories of supply of goods and / or services.

3. Levy of tax: Every supply shall be liable to tax, if both conditions listed above are fulfilled: (i) It involves goods and / or services – viz., wholly goods or wholly services. Prima facie, where the supply includes both goods and services, Schedule II of the Act provides for clarity on the same by specifying that such supply would qualify, either as services or as goods, as mentioned therein. (ii) The supply is an intra-State supply if the location of the supplier and the place of supply are within the same State.

4. Tax payable: Every supply will attract CGST and SGST, as follows:

a. Imposition of CGST by Central Govt.
b. Imposition of SGST by State Govt.

The rate of tax will be as specified in Schedule on the value of supplies as determined under Section 15.

5. Reverse charge mechanism:- In normal case, The supplier of goods and / or services will be liable to discharge tax liability on the supplies made. However, the Central or State Governments upon recommendation of the GST Council are empowered to specify by notification the categories of supplies in respect of which the recipient of goods and / or services will be liable to discharge the tax. All other provisions of this Act will apply to the recipient of such goods and / or services, as if the recipient is the supplier of such goods and / or services hence the recipient would be deemed to be the ‘supplier’ for the aforesaid transactions.

6. Comparison with Existing Tax System:- Under the current tax laws, Central Excise is levied on ‘manufacturing of goods’, VAT / CST is levied on sale of goods and service tax is levied on ‘service provided or agreed to be provided’. However under the GST law, only one time it is ‘supply’ which would be taxable.

In the current law, there are so many transactions which apparently qualify as both ‘sale of goods’ as well as ‘provision of services’. E.g. In restaurant, we have to pay State VAT as well as Service Tax, to avoid this type of situation, a transaction would qualify either as a ‘supply of goods’ or as ‘supply of services’ by introducing a deeming fiction in GST law. Accordingly, a transaction in the nature of composite contracts would either qualify as goods or as services, under the GST law (for more detail refer Schedule II of the Act).

7.  Provisions related to Levy Of tax

Statute

Section / Rule

Description

Remarks

GST

Section 3 read with Schedule I and II

Definition of ‘supply’

Every supply of goods or services would be liable to tax. Thus, it becomes essential to understand the meaning of ‘supply’.

GST

Section 2(17)

Definition of ‘business’

Defines Business.

GST

Section 7

Levy and collection of CGST & SGST

Charging Section under CGST & SGST.

GST

Section 35

Payment of tax

Provides for method and timelines for remittance of tax by the registrant.

IGST

Section 3A

Meaning of intrastate supplies

Defines intra-State supplies of goods and / or services for the purposes of levy of tax under the CGST Act.

IGST

Section 4

Levy and collection of IGST

Charging Section under IGST.

8. Frequently Asked Questions:

Q1. Is the reverse charge mechanism applicable only to services?

Ans. No, reverse charge shall apply on supplies of both goods and services.

Q2. What will be the implications in case of purchase of goods from unregistered dealers?

Ans. The receiver of goods could be liable to pay tax under reverse charge.

Q3. Whether money is included in service?

Ans. No, money is not included in the definition of service.

Q4. What are examples of ‘disposal’ as used in supply?

Ans. “Disposal” could include donation or supplies in manner other than sale.

Q5. Will a not for-profit-entity be liable to tax on any sales effected by it - e.g.: sale of assets received as donation?

Ans. Yes, it would be liable to tax on price paid to it for said sale of donated assets.


Tags : GST

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