Sections 1-2 CGST Act explained: this guide covers what Sections 1-2 CGST Act means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 2 CGST Act — The Foundation of Every GST Dispute
Section 2 of the CGST Act contains 130 definitions that form the bedrock of the entire GST framework. Getting a definition wrong changes everything — whether you qualify for composition scheme depends on "aggregate turnover" (Sec 2(6)), whether your transaction attracts GST depends on "supply" (Sec 2(90)), and whether you can claim ITC depends on "input tax" (Sec 2(62)).
The 20 Most Litigated Definitions
1. Aggregate Turnover — Section 2(6)
Total value of ALL supplies (taxable + exempt + exports + inter-state) of a person with the SAME PAN, across India. Excludes: CGST, SGST, IGST, and cess. Why it matters: Rs. 20 lakh threshold for registration (Rs. 10 lakh for special category states), Rs. 1.5 crore for composition scheme, Rs. 5 crore for e-invoice. Common mistake: people exclude exempt supplies from aggregate turnover — they should not. Exempt supplies ARE included in aggregate turnover even though no tax is payable on them.
2. Supply — Section 2(90) read with Section 7
"Supply" includes all forms of supply of goods or services or both — sale, transfer, barter, exchange, license, rental, lease, disposal — made for a consideration by a person in the course or furtherance of business. This is the widest possible definition. Even a club supplying food to members is a "supply" after the 2021 amendment overturning the SC judgment in Calcutta Club.
3. Goods — Section 2(52) and Services — Section 2(102)
Goods: every kind of movable property OTHER than money and securities. Includes actionable claims, growing crops, grass, things attached to land that are agreed to be severed. Services: anything other than goods, money, and securities. This means: if it is not goods, money, or securities, it MUST be a service. Software delivered electronically = service. Software delivered on physical media = goods. This classification determines: CGST+SGST (intra-state) vs IGST (inter-state), and the applicable rate schedule (goods or services).
4. Input Tax — Section 2(62)
CGST, SGST, IGST, or UTGST charged on any supply of goods or services used or intended to be used in the course or furtherance of business. This is what you claim as ITC. Key: "in the course or furtherance of business" — personal purchases even with GSTIN do not qualify.
5. Taxable Person — Section 2(107)
A person registered or liable to be registered under the Act. Once your aggregate turnover crosses Rs. 20 lakh (Rs. 10 lakh for special category), you BECOME a taxable person — even if you have not yet registered. Consequences of being a taxable person without registration: liable to pay tax, interest, and penalty on all supplies from the date you should have registered.
6. Consideration — Section 2(31)
Any payment in money, or otherwise, for supply. Includes: deposit (where the supplier retains it as consideration), and any amount that the supplier is liable to pay in relation to the supply but which is paid by another person. Subsidies linked to price are consideration. Government subsidies NOT directly linked to price are not consideration (AAR rulings vary).
7. Business — Section 2(17)
Includes trade, commerce, manufacture, profession, vocation, adventure, wager — whether or not for profit. Also includes any activity incidental or ancillary to the above. A charitable trust running a bookshop is in "business" for GST purposes — the bookshop activity attracts GST even if profits go to charity.
8. Composite Supply — Section 2(30) and Mixed Supply — Section 2(74)
Composite: two or more supplies naturally bundled and supplied together (one principal supply). Example: goods sold with transport and insurance — principal supply is goods, transport/insurance are bundled. Rate = rate of principal supply. Mixed: two or more supplies NOT naturally bundled but supplied together for a single price. Example: Diwali gift hamper with sweets, dry fruits, and a silver coin. Rate = HIGHEST rate among the items. Getting this classification wrong can mean the difference between 5% and 18%.
Other Important Definitions
Capital Goods — Section 2(19)
Goods whose value is capitalized in books AND used or intended for use in the course or furtherance of business. ITC on capital goods available in full in the year of purchase (no phased credit like old CENVAT). If capital goods used partly for business, partly for personal: proportionate ITC only.
Casual Taxable Person — Section 2(20)
Person who occasionally makes taxable supply in a state where they do not have a fixed place of business. Must register before starting supply, deposit estimated tax in advance. Example: company from Delhi setting up a stall at a trade fair in Mumbai for 10 days — must register as casual taxable person in Maharashtra.
Exempt Supply — Section 2(47)
Supply that attracts NIL rate, or is wholly exempt by notification, or is a non-taxable supply. Exempt supply is INCLUDED in aggregate turnover but NOT included in taxable turnover. Making exempt supplies alongside taxable supplies triggers ITC reversal under Rule 42/43.
Reverse Charge — Section 2(98)
Tax liability that falls on the RECIPIENT instead of the supplier. Two situations: (a) specified goods/services where recipient pays (advocate services, GTA, import of services), (b) supplies from unregistered person to registered person above Rs. 5,000/day (this threshold effectively makes it negligible for most transactions).
Practical Impact of Definitions — Real Scenarios
Scenario 1: Cloud kitchen in Mumbai delivers food via Swiggy. Is the supply "goods" (food) or "services" (restaurant service)? Answer: restaurant service (SAC 9963) at 5% WITHOUT ITC. But if the same kitchen sells packaged food through e-commerce: goods (HSN Chapter 16-21) at applicable rate WITH ITC. Same food, different classification, different tax treatment.
Scenario 2: Software company licenses software to a client. Perpetual license = supply of goods (intangible). Subscription/SaaS model = supply of services. If supplied from Bangalore to Delhi client: IGST on services (place of supply = location of recipient). If goods (perpetual license on CD): IGST based on delivery location.
Scenario 3: Landlord rents commercial property and charges maintenance separately. Rent = exempt if residential, taxable at 18% if commercial. Maintenance charges by RWA: exempt if per member per month does not exceed Rs. 7,500. Above Rs. 7,500: entire amount taxable at 18% (not just excess).