FAQsGST

FAQs: Levy of and Exemption from GST

Q 1. Where is the power to levy GST derived from?

Ans. Article 246A of the Constitution, which was introduced by the Constitution (101st Amendment) Act, 2016 confers concurrent powers to both, Parliament and State Legislatures to make laws with respect to GST i. e. central tax (CGST) and state tax (SGST) or union territory tax (UTGST). However, clause 2 of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to inter-State trade or commerce i.e. integrated tax (IGST).

Q 2. What is the taxable event under GST?

Ans. A taxable event under GST is the supply of goods or services or both. CGST and SGST/ UTGST will be levied on intra-State supplies. IGST will be levied on inter-State supplies.

Q 3. Whether supplies made without consideration will also come within the purview of supply under GST?

Ans. Yes, but only those activities which are specified in Schedule I to the CGST Act / SGST Act. The said provision has been adopted in IGST Act as well as in UTGST Act also.

Q 4. Will giving away essential commodities by a charitable institution be taxable activity?

Ans. In order to be a supply that is taxable under GST, the transaction should be in the course or furtherance of

business. As there is no quid pro quo involved in supply for charitable activities, it is not a supply under GST.

Q 5. Who can notify a transaction to be a supply of goods or services?

Ans. Central Government or State Government, on the recommendations of the GST Council, can notify an activity to be the supply of goods and not the supply of services or supply of services and not supply of goods or neither a supply of goods nor a supply of services.

Q 6. What are composite supply and mixed supply?

How are these two different from each other?

Ans. Composite supply is a supply consisting of two or more taxable supplies of goods or services or both or any combination thereof, which are bundled in natural course and are supplied in conjunction with each other in the ordinary course of business and where one of which is a principal supply. For example, when a consumer buys a television set and he also gets a warranty and a maintenance contract with the TV, this supply is a composite supply. In this example, the supply of TV is the principal supply, warranty, and maintenance service are ancillary.

A mixed supply is a combination of more than one individual supply of goods or services or any combination thereof made in conjunction with each other for a single price, which can ordinarily be supplied separately. For example, a shopkeeper selling storage water bottles along with a refrigerator. Bottles and the refrigerator can easily be priced and sold separately.

Q 7. What is the treatment of composite supply and mixed supply under GST?

Ans. The composite supply shall be treated as the supply of the principal supply. Mixed supply would be treated as supply of that particular goods or services which attracts the highest rate of tax.

Q 8. Are all goods and services taxable under GST?

Ans. Supplies of all goods and services are taxable except alcoholic liquor for human consumption. Supply of petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, and aviation turbine fuel shall be taxable with effect from a future date. This date would be notified by the Government on the recommendations of the GST Council.

Q 9. What is meant by Reverse Charge?

Ans. It means the liability to pay tax is on the recipient of supply of goods and services instead of the supplier of such goods or services in respect of notified categories of supply.

Q 10. Is the reverse charge mechanism applicable only to services?

Ans. No, reverse charge applies to supplies of both goods and services, as notified by the Government on the recommendations of the GST Council.

Q 11. What will be the implications in case of

receipt of supply from unregistered persons?

Ans. In case of receipt of supply from an unregistered person, the registered person who is receiving goods or services shall be liable to pay tax under the reverse charge mechanism.

Q 12. Can any person other than the supplier or recipient be liable to pay tax under GST?

Ans. Yes, the Central/State government can specify categories of services the tax on which shall be paid by the electronic commerce operator, if such services are supplied through it and all the provisions of the Act shall apply to such electronic commerce operator as if he is the person liable to pay tax in relation to supply of such services.

Q 13. What is the threshold for opting to pay tax under the composition scheme?

Ans. The threshold for the composition scheme is Rs. 50 Lakhs of aggregate turnover in the preceding financial year. The benefit of the composition scheme can be availed up to the turnover of Rs. 50 Lakhs in a current financial year.

Q 14. What are the rates of tax for the composition scheme?

Ans. There are different rates for different sectors. In normal cases of supplier of goods (i.e. traders), the composition rate is 0.5 % of the turnover in a State or Union territory. If the person opting for the composition scheme is a manufacturer, then the rate is 1% of the turnover in a State or Union territory. In the case of restaurant services, it is 2.5% of the turnover in a State or Union territory. These rates are under one Act, and the same rate would be applicable in the other Act also. So, effectively, the composition rates (combined rate under CGST and SGST/UTGST) are 1%, 2%, and 5% for a normal supplier, manufacturer, and restaurant service respectively.

Q 15. A person availing composition scheme during a financial year crosses the turnover of Rs.50 Lakhs during the course of the year i.e. say he crosses the turnover of Rs.50 Lakhs in December? Will he be allowed to pay tax under the composition scheme for the remainder of the year

i.e. till 31st March?

Ans. No. The option availed shall lapse from the day on which his aggregate turnover during the financial year exceeds Rs.50 Lakhs.

Q 16. Will a taxable person, having multiple registrations, be eligible to opt for a composition scheme only for a few registrations?

Ans. All registered persons having the same Permanent Account Number (PAN) have to opt for a composition scheme. If one registered person opts for a normal scheme, others become ineligible for the composition scheme.

Q 17. Can composition scheme be availed of by a manufacturer and a service supplier?

Ans. Yes, a manufacturer can opt for a composition scheme generally. However, a manufacturer of goods, which would be notified on the recommendations of the GST Council, cannot opt for this scheme. This scheme is not available for the services sector, except for restaurants.

Q 18. Who are not eligible to opt for the composition scheme?

Ans. Broadly, five categories of registered persons are not eligible to opt for the composition scheme. These are:

  1. supplier of services other than the supplier of restaurant service; 
  2. supplier of goods that are not taxable under the CGST Act/SGST Act/UTGST Act.
  3. an inter-State supplier of goods;
  4. person supplying goods through an electronic commerce operator;
  5. manufacturer of certain notified goods.

Q 19. Can the registered person under the composition scheme claim the input tax credit?

Ans. No, a registered person under the composition scheme is not eligible to claim the input tax credit.

Q 20. Can the customer who buys from a registered person who is under the composition scheme claim composition tax as an input tax credit?

Ans. No, a customer who buys goods from a registered person who is under a composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.

Q 21. Can composition tax be collected from customers?

Ans. No, the registered person under the composition scheme is not permitted to collect tax. It means that a composition scheme supplier cannot issue a tax invoice.

Q 22. How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?

Ans. The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means the value of all outward supplies (taxable supplies +exempt supplies +exports + inter-state supplies) of a person having the same PAN and it excludes taxes levied under central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax(IGST) and compensation cess. Also, the value of inward supplies on which tax is payable under reverse charge is not taken into account for the calculation of ‘aggregate turnover.

Q 23. What are the penal consequences if a person opts for the composition scheme in violation of the conditions?

Ans. If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of section 73 or 74 shall be applicable for the determination of tax and penalty.

Q 24. Does the GST Law empower the Government to exempt supplies from the levy of GST?

Ans. Yes. In the public interest, the Central or the State Government can exempt either wholly or partly, on the recommendations of the GST council, the supplies of goods or services or both from the levy of GST either absolutely or subject to conditions. Further, the Government can exempt, under circumstances of an exceptional nature, by special order any goods or services or both. It has also been provided in the SGST Act and UTGST Act that any exemption granted under CGST Act shall be deemed to be an exemption under the said Act.

Q 25. When exemption from whole of tax collected on goods or services or both have been granted absolutely, can a person pay tax?

Ans. No, the person supplying exempted goods or services or both shall not collect the tax in excess of the effective rate.

TaxClue Team

Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building. TaxClue is a team of young professionals. We started in December 2016 with the mission of knowledge sharing. TaxClue would like to hear your valuable suggestion. Please write to our editorial team at [email protected]

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