CHAPTER 3

CHARGE OF GST
Examples/illustrations/Questions and Answers given in the Chapter are based on
the position of GST law existing as on 31.10.2020

LEARNING OUTCOMES
After studying this Chapter, you will be able to –
 explain the extent and commencement of CGST Act, IGST
Act, SGST Act & UTGST Act.
 describe the provisions pertaining to levy and collection of
CGST & IGST.
 identify and analyse the services on which tax is payable
under reverse charge mechanism.
 understand and analyse the composition levy- eligibility for
the same and conditions to be fulfilled.

© The Institute of Chartered Accountants of India

 3.2 INDIRECT TAXES

CHAPTER OVERVIEW

collection of GST

Extent and commencement of CGST Act/

UTGST Act/ SGST Act/IGST Act
Levy and

in India

Levy and collection of CGST/IGST

Composition levy

1. INTRODUCTION
Power to levy tax is drawn from the Constitution of India. To pave way for the
introduction of Goods and Services Tax (“GST”), 101st Constitutional Amendment
Act, 2016 was passed. By virtue of this Act, enabling provision was made to levy
GST on supply of goods or services or both in India. Central excise duty, State
VAT and certain State specific taxes and service tax were subsumed into a
comprehensive GST [Discussed in detail in Chapter-1: GST in India – An
Introduction].
The very basis for the charge of tax in any taxing statute is the taxable event i.e
the occurrence of the event which triggers levy of tax. As discussed earlier, the
taxable event under GST is SUPPLY. CGST and SGST/UTGST are levied on all
intra-State supplies of goods and/or services while IGST is levied on all inter-
State supplies of goods and/ or services.
The provisions relating to levy and collection of CGST and IGST are contained in
section 9 of the CGST Act, 2017 and section 5 of the IGST Act, 2017, respectively.
Let us now have a fundamental idea of intra-State supply and inter-State supply.

As a general rule, where the location of the supplier and the place of supply of
goods or services are in the same State/Union territory, it is treated as intra-State
supply of goods or services respectively.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.3

Similarly, where the location of the supplier and the place of supply of goods or
services are in (i) two different States or (ii) two different Union Territories or (iii) a
State and a Union territory, it is treated as inter-State supply of goods or
services respectively.

2. RELEVANT DEFINITIONS

Central tax: means the central goods and services tax levied under
section 9 of the CGST Act [Section 2(21) of the CGST Act].
Integrated tax: means the integrated goods and services tax levied under
the Integrated Goods and Services Tax Act [Section 2(58) of the CGST Act].
State tax: means the tax levied under any State Goods and Services Tax Act
[Section 2(104) of the CGST Act].
Goods: means every kind of movable property other than money and
securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed
before supply or under a contract of supply. [Sec. 2(52) of CGST Act].
Exempt supply: means supply of any goods or services or both which
attracts nil rate of tax or which may be wholly exempt from tax under
section 11, or under section 6 of the Integrated Goods and Services Tax
Act, and includes non-taxable supply [Section 2(47) of CGST Act].
Aggregate turnover: means the aggregate value of all taxable supplies
(excluding the value of inward supplies on which tax is payable by a person
on reverse charge basis), exempt supplies, exports of goods or services or
both and inter-State supplies of persons having the same Permanent
Account be computed on all India basis but excludes central tax, State tax,
Union territory tax, integrated tax and cess [Section 2(6) of CGST Act].

© The Institute of Chartered Accountants of India

 3.4 INDIRECT TAXES

Business: includes –

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or

any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to (a)

above;

(c) any activity or transaction in the nature of (a) above, whether or not there is
volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital assets and services in

connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any
other consideration) of the facilities or benefits to its members, as the case may be;

(f) admission, for a consideration, of persons to any premises; and

(g) services supplied by a person as the holder of an office which has been accepted
by him in the course or furtherance of his trade, profession or vocation;

(h) activities of a race club including by way of totalisator or a license to book

maker or activities of a licensed book maker in such club;

(i) any activity or transaction undertaken by the Central Government, a State

Government or any local authority in which they are engaged as public authorities

[Section 2(17) of CGST Act].

Consideration: in relation to the supply of goods or services or both
includes:
any payment made or to be made, whether in money or otherwise,
in respect of, in response to, or for the inducement of, the supply
of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central
Government or a State Government,
the monetary value of any act or forbearance, in respect of, in
response to, or for the inducement of, the supply of goods or
services or both, whether by the recipient or by any other person

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.5

but shall not include any subsidy given by the Central Government
or a State Government.
However, a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless
the supplier applies such deposit as consideration for the said supply.
[Section 2(31) of CGST Act].
Person: includes [Section 2(84) of CGST Act]-

An individual A HUF A company

An association of persons
or a body of individuals,
A Limited Liability
A firm whether incorporated or
Partnership
not, in India or outside
India

Any corporation established Any body corporate A co-operative society

by/under any Central, State or
incorporated by or registered under any
Provincial Act or Government
company as defined in section under the laws of a law relating to
2(45) of Companies Act, 2013 country outside India cooperative societies

Society as defined
Central
under the Societies
A local authority Government/State
Government Registration Act,
1860

Every artificial juridical

Trust person, not falling
above

Recipient: of supply of goods and/or services means-

(a) where a consideration is payable for the supply of goods or
services or both, the person who is liable to pay that consideration,

© The Institute of Chartered Accountants of India

 3.6 INDIRECT TAXES

(b) where no consideration is payable for the supply of goods, the

person to whom the goods are delivered or made available, or to
whom possession or use of the goods is given or made available,
and
(c) where no consideration is payable for the supply of a service, the
person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be
construed as a reference to the recipient of the supply and shall include
an agent acting as such on behalf of the recipient in relation to the
goods or services or both supplied. [Section 2(93) of CGST Act]
Reverse charge: means the liability to pay tax by the recipient of supply of
goods or services or both instead of the supplier of such goods or services
or both under section 9(3)/9(4), or under section 5(3)/5(4) of the IGST Act
[Section 2(98) of CGST Act].
Services: means anything other than goods, money and securities but
includes activities relating to the use of money or its conversion by cash
or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate
consideration is charged [Section 2(102) of CGST Act].
Explanation.––For the removal of doubts, it is hereby clarified that the
expression “services” includes facilitating or arranging transactions in
securities.
Supplier: in relation to any goods or services or both, shall mean the
person supplying the said goods or services or both and shall include an
agent acting as such on behalf of such supplier in relation to the goods
or services or both supplied. [Section 2(105) of CGST Act]

Taxable supply: means a supply of goods and/or services which is

leviable to tax under CGST Act. [Section 2(108) of CGST Act]

Non-taxable supply: means a supply of goods or services or both which

is not leviable to tax under CGST Act or under IGST Act. [Section 2(78) of
CGST Act]

Taxable person: means a person who is registered or liable to be

registered under section 22 or section 24 of the CGST Act. [Section 2(107)
of CGST Act]

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.7

It is important to note that a person who is liable to be registered but

does not take a registration and remains an unregistered person shall be
construed as a taxable person. Similarly, a person not liable to be
registered, but has taken voluntary registration and got himself
registered is also a taxable person.
Section 22 enumerates the persons liable to be registered under CGST Act and section
24 lists the persons liable to be registered compulsorily under the GST law. The said
sections and the concept of taxable person thereto has been discussed in detail in
Chapter 7 – Registration.

3. EXTENT & COMMENCEMENT OF GST LAW

(i) Central Goods and Services Tax Act, 2017 extends to the whole of India
[Section 1 of the CGST Act].

India: “India” means-

territory of India as referred to in article 1 of the Constitution

its territorial waters, seabed and sub-soil underlying such

waters, continental shelf, exclusive economic zone or any
other maritime zone as referred to in the Territorial Waters,
Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976

the air space above its territory and territorial waters

© The Institute of Chartered Accountants of India

 3.8 INDIRECT TAXES

[Section 2(56) of CGST Act].

12 24 200
NM NM NM

Territorial
Waters
(TWI) Contiguous High Sea
Zone

Exclusive Economic Zone

Baseline

Continental Shelf

(ii) State GST law of the respective State/Union Territory with Legislature
[Delhi, Puducherry and Jammu & Kashmir]* extends to whole of that
State/Union Territory.
(1) Maharashtra GST Act, 2017 extends to whole of the State of the
Maharashtra.
*State: includes a Union territory with Legislature [Section 2(103) of the CGST
Act].
(iii) Integrated Goods and Services Tax Act, 2017 extends to the whole of
India [Section 1 of the IGST Act].
(iv) Union Territory Goods and Services Tax Act, 2017 extends to the Union
territories** of the Andaman and Nicobar Islands, Lakshadweep, Dadra and
Nagar Haveli and Daman and Diu, Ladakh 1, Chandigarh and other

1
Students may note that the erstwhile State of Jammu and Kashmir has been reorganised
into the Union territory of Jammu and Kashmir (with Legislature) and Union territory of
Ladakh vide the Jammu and Kashmir Reorganisation Act, 2019. Further, the erstwhile
Union territories of Dadra and Nagar Haveli and Daman and Diu have been merged into a
new Union territory of Dadra and Nagar Haveli and Daman and Diu vide the Dadra and
Nagar Haveli and Daman and Diu (Merger of Union Territories) Act, 2019.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.9

territory, i.e. the Union Territories without Legislature [Section 1 of the

UTGST Act].
**Union territory: means the territory of—
(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli and Daman and Diu;
(d) Ladakh
(e) Chandigarh; and
(f) other territory.
Explanation––For the purposes of this Act, each of the territories specified in
sub-clauses (a) to (f) shall be considered to be a separate Union territory
[Section 2(114) of CGST Act].

Our discussion in this Study Material will principally be confined to the

provisions of CGST and IGST laws as the specific State GST laws are
outside the scope of syllabus.

4. L
LEVY & COLLECTION OF CGST & IGST [SECTION 9
OF THE CGST ACT & SECTION 5 OF THE IGST ACT]

STATUTORY PROVISIONS

Section 9 of Levy and collection

the CGST
Act

Sub-section Particulars

(1) Subject to the provisions of sub-section (2), there shall be levied

a tax called the central goods and services tax on all intra-State
supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption, on the value
determined under section 15 and at such rates, not exceeding
twenty per cent., as may be notified by the Government on the

© The Institute of Chartered Accountants of India

 3.10 INDIRECT TAXES

recommendations of the Council and collected in such manner

as may be prescribed and shall be paid by the taxable person.

(2) The central tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas
and aviation turbine fuel shall be levied with effect from such
date as may be notified by the Government on the
recommendations of the Council.

(3) The Government may, on the recommendations of the

Council, by notification, specify categories of supply of goods
or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or
both and all the provisions of this Act shall apply to such
recipient as if he is the person liable for paying the tax in
relation to the supply of such goods or services or both.

(4) The Government may, on the recommendations of the

Council, by notification, specify a class of registered persons
who shall, in respect of supply of specified categories of
goods or services or both received from an unregistered
supplier, pay the tax on reverse charge basis as the recipient
of such supply of goods or services or both, and all the
provisions of this Act shall apply to such recipient as if he is
the person liable for paying the tax in relation to such supply
of goods or services or both.

(5) The Government may, on the recommendations of the

Council, by notification, specify categories of services the tax
on intra-State supplies of which shall be paid by the
electronic commerce operator if such services are supplied
through it, and all the provisions of this Act shall apply to
such electronic commerce operator as if he is the supplier
liable for paying the tax in relation to the supply of such
services.
Provided that where an electronic commerce operator does
not have a physical presence in the taxable territory, any
person representing such electronic commerce operator for

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.11

any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory
and also he does not have a representative in the said
territory, such electronic commerce operator shall appoint a
person in the taxable territory for the purpose of paying tax
and such person shall be liable to pay tax.

ANALYSIS
Central Goods and Services Tax (CGST) shall be levied on all intra-State supplies
of goods or services or both.
The tax shall be collected in such manner as may be prescribed and shall be paid
by the taxable person. However, intra-State supply of alcoholic liquor for human
consumption is outside the purview of CGST.
Value for levy: Transaction value under section 15 of the CGST Act – Discussed in
detail in Chapter 5 – Time and Value of supply.
Rates of CGST: Rates for CGST are rates as may be notified by the Government
on the recommendations of the GST Council [Rates presently notified are 0%,
0.125%, 1.5%, 2.5%, 6%, 9% and 14%]. Maximum rate of CGST can be 20%.

💡💡On inter-State supplies of goods and/or services, Integrated Goods and Services
Tax (IGST) is levied on the transaction value under section 15 of the CGST Act 2.
Since alcoholic liquor for human consumption is outside the purview of GST law, IGST
is also not leviable on the same. IGST is the sum total of CGST and SGST/UTGST.
Maximum rate of IGST can be 40%.
However, CGST/IGST on supply of the following items has not yet been levied. It
shall be levied with effect from such date as may be notified by the Government
on the recommendations of the Council:

2
Goods imported into India: For the goods imported into India, the IGST shall be levied and
collected as per the section 3 of the Custom Tariff Act, 1975 i.e. the additional duty shall be
as per the Custom Tariff Act, 1975 and the value shall also be determined as per the said
Act. This aspect will be discussed in detail at the Final Level.

© The Institute of Chartered Accountants of India

 3.12 INDIRECT TAXES

 petroleum crude
 high speed diesel
 motor spirit (commonly known as petrol)
 natural gas and
 aviation turbine fuel
Tax payable on supply of goods or services or both under Reverse charge
CGST/IGST shall be paid by the recipient of goods or services or both, on reverse
charge basis, in the following cases:
 Supply of such goods or services or both, as notified by the Government on
the recommendations of the GST Council.
 Supply of specified categories of goods or services or both by an
unregistered supplier to specified class of registered persons, as notified by
the Government on recommendation of GST Council.
All the provisions of the CGST/IGST Act shall apply to the recipient in the
aforesaid cases as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both. Let us first understand the concept
of reverse charge mechanism:

Generally, the supplier of goods or services is liable to pay GST. However, under
the reverse charge mechanism, the liability to pay GST is cast on the recipient of
the goods or services.
Reverse charge means the liability to pay tax is on the recipient of supply of
goods or services instead of the supplier of such goods or services in respect of
notified categories of supply.
It may be noted that the underlying principle of an indirect tax is that burden of
tax has to be ultimately passed on to the recipient. GST being an indirect tax, this
principle holds good for GST. Under normal circumstances, the statutory liability
to deposit GST and undertake compliances [i.e. to obtain registration under GST,
deposit the tax with the Government, filing returns, etc.] is on the supplier while he may
recover the same from its recipient. However, under reverse charge mechanism,
the statutory liability to deposit GST and undertaking compliance requirements,

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.13

[i.e. to obtain registration under GST, deposit the tax with the Government, filing returns,
etc.] shifts from supplier to recipient.

There are two type of reverse charge scenarios provided in law.

(i) First scenario occurs in case of supply of specified categories of goods
or services, covered by section 9(3) of the CGST/ SGST (UTGST) Act.
Similar provisions are contained under section 5(3) of the IGST Act.
(ii) Second scenario occurs in case of supply of specified categories of
goods or services made by an unregistered supplier to specified class of
registered recipients, covered by section 9(4) of the CGST Act. Similar
provisions are contained under section 5(4) of the IGST Act. Goods and
services notified under this case have been elaborated subsequently in this
chapter.
Goods and services notified under reverse charge mechanism under section
9(3) of the CGST Act/ section 5(3) of the IGST Act are as follows:
A. Supplies of goods taxable under reverse charge, i.e. supply of the
goods where tax is payable by the recipient: Goods like cashewnuts
[not shelled/peeled], bidi wrapper leaves, tobacco leaves, raw cotton
(when supplied by an agriculturist to any registered person), supply of
lottery (when supplied by State Government, Union Territory or any local
authority to lottery distributor or selling agent), silk yarn (when supplied
by manufacturer of silk yarn to any registered person), used vehicles,
seized and confiscated goods, old and used goods, waste and scrap
(when supplied by Central Government, State Government, Union
Territory or any local authority to any registered person), etc. are taxable
under reverse charge 3.
B. Supply of services taxable under reverse charge under section 9(3)
of the CGST Act, i.e. the services where tax is payable by the
recipient: Notification No. 13/2017 CT (R) dated 28.06.2017 as amended
has notified the following categories of supply of services wherein whole
of the tax shall be paid on reverse charge basis by the recipient of
services:

3
Examples of goods on which tax is payable by the recipient under reverse charge have
been given hereunder only for the knowledge of the students. These are not relevant for
examination purposes.

© The Institute of Chartered Accountants of India

 3.14 INDIRECT TAXES

S. Category of supply of Supplier of Recipient of

No. service service Service

1. Supply of services by a Goods Transport (a) Any factory

Goods Transport Agency (GTA) registered under
Agency (GTA) in respect who has not paid or governed by
of transportation of CGST @ 6% the Factories Act,
goods by road to- [Please refer the 1948; or
(a) any factory analysis given (b) any society
registered under or subsequently.] registered under
governed by the the Societies
Factories Act, 1948; or Registration Act,
(b) any society 1860 or under any
registered under the other law for the
Societies Registration time being in
Act, 1860 or under any force in any part
other law for the time of India; or
being in force in any part (c) any co-
of India; or operative society
(c) any co-operative established by or
society established by or under any law; or
under any law; or (d) any person
(d) any person registered under
registered under the the CGST Act or
CGST Act or the IGST Act the IGST Act or
or the SGST Act or the the SGST Act or
UTGST Act; or the UTGST Act; or
(e) any body (e) any body
corporate established, by corporate
or under any law; or established, by or
(f) any partnership under any law; or
firm whether registered (f) any
or not under any law partnership firm
including association of whether
persons; or registered or not
(g) any casual taxable under any law
person. including

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.15

association of
persons; or
(g) any casual
taxable person;
located in the
taxable territory.
[Hereinafter referred
as Specified
recipients]

However, reverse charge mechanism (RCM) shall not apply to

services provided by a GTA, by way of transport of goods in a
goods carriage by road to-
(a) a Department/ establishment of the Central Government/ State
Government/ Union territory; or
(b) local authority; or
(c) Governmental agencies,
which has taken registration under the CGST Act only for the
purpose of deducting tax under section 51 4 and not for making a
taxable supply of goods or services 5.
2. Services provided by an An individual Any business
individual advocate advocate entity located in
including a senior including a senior the taxable
advocate or firm of advocate or firm territory.
advocates by way of legal of advocates.
services, directly or
indirectly.
“Legal service” means
any service provided in
relation to advice,

4
Provisions relating to tax deducted at source contained in section 51 shall be discussed at
the Final Level.
5
These services have been simultaneously exempted from payment of GST. Thus, there will
be no tax liability in this case. [Refer Chapter 4: Exemptions from GST for discussion on this
exemption]

© The Institute of Chartered Accountants of India

 3.16 INDIRECT TAXES

consultancy or assistance
in any branch of law, in
any manner and includes
representational services
before any court, tribunal
or authority.
3. Services supplied by an An arbitral Any business
arbitral tribunal to a tribunal. entity located in
business entity. taxable territory.
4. Services provided by way Any person Any body
of sponsorship to any corporate or
body corporate or partnership firm
partnership firm. located in the
taxable territory.
5. Services supplied by Central Any business
the Central Government, entity located in
Government, State State the taxable
Government, Union Government, territory.
territory or local Union territory or
authority to a business local authority
entity excluding, -
(1) renting of
immovable property,
and
(2) services specified
below-
(i) services by
the Department of
Posts by way of
speed post, express
parcel post, life
insurance, and
agency services
provided to a person
other than Central
Government, State

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.17

Government or
Union territory or
local authority;
(ii) services in
relation to an aircraft
or a vessel, inside or
outside the precincts
of a port or an
airport;
(iii) transport of
goods or
passengers.
5A. Services supplied by Central Any person
Central Government, Government, registered under
State Government, Union State the CGST Act,
territory or local Government, 2017
authority by way of Union territory or
renting of immovable local authority
property to a person
registered under CGST
Act, 2017
5B. Services supplied by any Any person Promoter
person by way of transfer
of development rights
(TDR) or Floor Space
Index (FSI) (including
additional FSI) for
construction of a project
by a promoter.
5C. Long term lease of land Any person Promoter
(30 years or more) by any
person against
consideration in form of
upfront amount (called
as premium, salami, cost,
price, development

© The Institute of Chartered Accountants of India

 3.18 INDIRECT TAXES

charges or by any other

name) and/or periodic
rent for construction of a
project by a promoter 6
6. Services supplied by a A director of a Company or a
director of a company/ company or a body corporate
body corporate body corporate located in the
to the said company/ taxable territory.
body corporate.
7. Services supplied by an An insurance Any person
insurance agent agent carrying on
to any person carrying insurance
on insurance business. business, located
in the taxable
territory.
8. Services supplied by a A recovery agent A banking
recovery agent company/financial
to a banking company or institution or a
a financial institution or a non-banking
non- banking financial financial
company. company, located
in the taxable
territory.
9. Supply of services by a Music composer, Music company,
music composer, photographer, producer or the

6
Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer are
exempt subject to the condition that the constructed flats are sold before issuance of
completion certificate and tax is paid on them.
Exemption of TDR, FSI, long term lease (premium) is withdrawn in case of flats sold after
issue of completion certificate, but such withdrawal shall be limited to 1% of value in case
of affordable houses and 5% of value in case of other than affordable houses. In such
cases, the liability to pay tax on TDR, FSI, long term lease (premium) has been shifted from
land owner to builder under the reverse charge mechanism (RCM) – as illustrated in table
above.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.19

photographer, artist or artist, or the like like, located in

the like by way of the taxable
transfer or permitting territory.
the use or enjoyment of
a copyright covered
under section 13(1)(a)
of the Copyright Act,
1957 relating to
original dramatic,
musical or artistic
works to a music
company, producer or
the like.
9A. Supply of services by an Author Publisher
author by way of located in the
transfer or permitting taxable territory.
the use or enjoyment of
a copyright covered
under section 13(1)(a)
of the Copyright Act,
1957 relating to
original literary works
to a publisher.
However, an author can choose to pay tax under forward
charge if-
(i) he has taken registration under the CGST Act and filed a
declaration, in the prescribed form, that he exercises the
option to pay CGST on the said service under forward
charge in accordance with section 9(1) of the CGST Act
and to comply with all the provisions as they apply to a
person liable for paying the tax in relation to the supply
of any goods and/or services and that he shall not
withdraw the said option within a period of 1 year from
the date of exercising such option;
(ii) he makes a declaration on the invoice issued by him in
prescribed form to the publisher.

© The Institute of Chartered Accountants of India

 3.20 INDIRECT TAXES

10. Supply of services by the Members of RBI

members of Overseeing Overseeing
Committee to Reserve Committee
Bank of India (RBI) constituted by the
RBI
11. Services supplied by Individual Direct A banking
individual Direct Selling Selling Agents company or a
Agents (DSAs) other than (DSAs) other than NBFC, located in
a body corporate, a body corporate, the taxable
partnership or limited partnership or LLP territory
liability partnership (LLP) firm
firm to bank or non-
banking financial
company (NBFCs).
12. Services provided by Business A banking
business facilitator to a facilitator company, located
banking company. in taxable territory
13. Services provided by an An agent of A business
agent of business business correspondent,
correspondent to correspondent located in the
business correspondent. taxable territory.
14. Security services (services Any person other A registered
provided by way of supply than a body person, located in
of security personnel) corporate the taxable
provided to a registered territory.
person.
However, nothing
contained in this entry
shall apply to:
(i) (a) a Department or
Establishment of
the Central
Government or
State
Government or
Union territory; or

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.21

(b) local authority; or

(c) Governmental
agencies; which
has taken
registration under
the CGST Act,
2017 only for the
purpose of
deducting tax
under section 51
of the said Act
and not for
making a taxable
supply of goods
or services; or
(ii) a registered person
paying tax under
composition scheme.
15. Services provided by Any person, other Any body
way of renting of any than a body corporate
motor vehicle designed corporate who located in the
to carry passengers supplies service to taxable territory.
where the cost of fuel is a body corporate
included in the & doesn’t issue an
consideration charged invoice charging
from the service CGST @6% to
recipient, provided to a service recipient.
body corporate.
16. Services of lending of Lender i.e., a Borrower i.e., a
securities under person who person who
Securities Lending deposits borrows the
Scheme, 1997 securities securities under
(“Scheme”) of Securities registered in his the Scheme
and Exchange Board of name/in the through an
India, as amended name of any approved
other person duly intermediary of
authorised on his SEBI.

© The Institute of Chartered Accountants of India

 3.22 INDIRECT TAXES

behalf with an
approved
intermediary for
the purpose of
lending under
Scheme of SEBI

🔔🔔 All the above services have also been notified for reverse charge under IGST
Act. In addition to them, two additional services are also notified for reverse
charge under IGST law. These services will be discussed at the Final level.
For purpose of this above services, following explanations shall apply-
(a) The person who pays or is liable to pay freight for the transportation of
goods by road in goods carriage, located in the taxable territory shall be
treated as the person who receives the service for the purpose of this
notification.
(b) Body Corporate: has the same meaning as assigned to it in clause (11) of
section 2 of the Companies Act, 2013.
As per section 2(11) of the Companies Act, 2013, body corporate or
corporation includes a company incorporated outside India, but does not
include—
(i) a co-operative society registered under any law relating to co-
operative societies; and
(ii) any other body corporate (not being a company as defined in this
Act), which the Central Government may, by notification, specify in
this behalf.
(c) the business entity located in the taxable territory who is litigant,
applicant or petitioner, as the case may be, shall be treated as the person
who receives the legal services for the purpose of this notification.
(d) the words and expressions used and not defined in this notification but
defined in the Central Goods and Services Tax Act, the Integrated Goods
and Services Tax Act, and the Union Territory Goods and Services Tax Act
shall have the same meanings as assigned to them in those Acts.
(e) Limited Liability Partnership formed and registered under the provisions
of the Limited Liability Partnership Act, 2008 shall also be considered as a
partnership firm or a firm.
(f) Insurance agent means an insurance agent licensed under section 42 of
the Insurance Act, 1938 who receives agrees to receive payment by way

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.23

of commission or other remuneration in consideration of his soliciting or

procuring insurance business including business relating to the
continuance, renewal or revival of policies of insurance [Section 2(10) of
the Insurance Act, 1938].
(g) Renting of immovable property means allowing, permitting or granting
access, entry, occupation, use or any such facility, wholly or partly, in an
immovable property, with or without the transfer of possession or control
of the said immovable property and includes letting, leasing, licensing or
other similar arrangements in respect of immovable property.
(h) the provisions of this notification, in so far as they apply to the Central
Government, State Government, shall also apply to the Parliament and
State Legislature.

GTA services are taxable at the following two rates:

(i) @ 5% (2.5% CGST+2.5% SGST/UTGST or 5% IGST) provided
GTA has not taken the Input Tax Credit (ITC) on
goods or services used in supplying GTA service or
(ii) @ 12% (6% CGST+6% SGST/UTGST or 12% IGST) where GTA opts to pay GST at
said rate on all the services of GTA supplied by it. In this case, there
is no restriction on availing ITC on goods or services used in
supplying GTA service by GTA.
In the following paras, we have explained as to who is the person liable
to pay tax in case of each of the above two rates:

Person liable to pay tax under GTA service

Where GST is payable @ 5% Where GST is payable @ 12%

Recipient** is one of Recipient** is other than Recipient** is one

the Specified of the Specified
Specified Recipients Recipients
Recipients (Unregistered Individual end consumer)

Reverse charge Forward charge

Exempt
from GST
Person liable to pay GST is Person liable to
such recipient pay GST is GTA

© The Institute of Chartered Accountants of India

 3.24 INDIRECT TAXES

** Recipient of GTA service is the person who pays/is liable to pay freight
for transportation of goods by road in goods carriage, located in the
taxable territory.

Service by way of renting of any motor vehicle

designed to carry passengers where the cost of fuel is
included in the consideration charged from the service
recipient are taxable at the following two rates:
(i) @ 5% (2.5% CGST+2.5% SGST/UTGST or 5% IGST) provided supplier of services
has taken only the limited ITC (of input services in the same line
of business) or
(ii) @ 12% (6% CGST+6% SGST/UTGST or 12% IGST) where supplier of services
opts to pay GST at said rate. In this case, there is no restriction
on availing ITC on goods or services used in supplying renting of
motor vehicles service by the supplier of service.
In the following paras, we have explained as to who is the person
liable to pay tax in case of each of the above two rates 7:

Person liable to pay tax under renting of motor vehicle service

Where GST is payable @ 5% Where GST is payable @ 12%

Supplier is other than Supplier is Body

Body Corporate Corporate

Recipient is a Body Recipient is other Forward charge

Corporate than Body Corporate

Person liable to pay GST

Reverse charge is Supplier

**
Person liable to pay GST is Recipient
7
Entry 15 of Notification No. 13/2017 CT (R) dated 28.06.2017 read with Circular No.
130/49/2019 GST dated 31.12.2019

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.25

**
It is important to note here that when any service is placed under RCM, the
supplier shall not charge any tax from the service recipient as this is the settled
procedure under RCM. RCM shall be applicable here only when the supplier does not
issue an invoice charging GST @12% (6% CGST+6% SGST/UTGST or 12% IGST) from the
service recipient.

In order to determine the leviability of tax on the remuneration paid to the

directors, we first need to ascertain whether the director is an employee of
the company or not. Following two situations are possible:
(i) Services provided by the independent directors 8/those directors (by
whatever name called) who are not employees of the said company to
such company, in lieu of remuneration as the consideration for the said
services, are clearly outside the scope of Schedule III of the CGST Act 9
and are therefore taxable. As seen in the table given above illustrating
the reverse charge services (S. No. 6), such remuneration paid to the
directors is taxable in hands of the company, on reverse charge basis.
(ii) In case where it is ascertained that a director, irrespective of name and
designation, is an employee, next step would be to examine whether all
the activities performed by the director are in the course of employer-
employee relation (i.e. a “contract of service”) or is there any element
of “contract for service”.
The part of director’s remuneration which are declared as Salaries in
the books of a company and subjected to TDS under section 192 of the
Income-tax Act (IT Act), are not taxable being consideration for services
by an employee to the employer in the course of or in relation to his
employment in terms of Schedule III.

8
The definition of “independent directors” under section 149(6) of the
Companies Act, 2013 read with rule 12 of Companies (Share Capital and Debentures) Rules,
2014 makes it amply clear that the independent director should not have been an employee
of the company.
9
As per Para I. of Schedule III of the CGST Act, services by an employee to the employer in
the course of or in relation to his employment are non-supplies, i.e. they are neither supply
of goods nor supply of services. The provisions of Schedule III of the CGST Act have been
discussed in detail in Chapter 2 – Supply under GST.

© The Institute of Chartered Accountants of India

 3.26 INDIRECT TAXES

Further, the part of employee director’s remuneration which is declared

separately other than salaries in the company’s accounts and subjected
to TDS under section 194J of the IT Act as fees for professional or
technical services are treated as consideration for providing services
which are outside the scope of Schedule III and is therefore, taxable.
Besides, as already discussed, the recipient of the said services i.e. the
company, is liable to discharge the applicable GST on it on reverse
charge basis 10.

Electronic Commerce Operator (ECO) 11 is any person

who owns/operates/manages an electronic platform for
supply of goods or services or both.
Sometimes, ECO itself supplies the goods or services
through its electronic portal. However, many a times, the
products/services displayed on the electronic portal are
actually supplied by some other person to the consumer. When a consumer
places an order for a particular product/ service on this electronic portal, the
actual supplier supplies the selected product/ service to the consumer. The
price/ consideration for the product/ service is collected by the ECO from the
consumer and passed on to the actual supplier after the deduction of commission
by the ECO.
The Government may, on the recommendations of the GST Council, notify specific
categories of services the tax [CGST/SGST/IGST] on supplies of which shall be paid
by the electronic commerce operator (ECO) if such services are supplied through
it. Few services have been so notified. For instance, service by way of transportation
of passengers by a radio-taxi, motorcab, maxicab and motor cycle, etc.

Broadly, six rates of CGST have been notified in six Schedules

of rate notification for goods, viz., 0.125%, 1.5%, 2.5%, 6%, GST rates
9% and 14%. SGST/ UTGST at the equivalent rate is also for goods
leviable. With regard to IGST, broadly six rates have been

10
as clarified vide Circular No: 140/10/2020 GST dated 10.06.2020
11
Detailed provisions relating to Electronic Commerce Operator shall be discussed at Final
level.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.27

notified in six Schedules of rate notification for goods, viz., 0.25%, 3%, 5%, 12%,
18% and 28% 12. Certain specified goods have been exempted from tax.

In order to determine the rate applicable on a particular supply of goods or

services, one needs to first determine the classification of such goods or services.
Classification of goods and services assumes significance since there are different
rates prescribed for supply of different goods and services. Therefore,
classification is crucial for determining the rate of tax applicable on a particular
product or service.
Classification of goods means identification of the chapter, heading, sub-heading
and tariff item in which a particular product will be classified.

Sections
Chapter
Heading
Sub-heading
heading
Tariff item

Chapter, heading, sub-heading and tariff item are referred in the Schedules of
rate notification for goods under GST are the Chapter, heading, sub-heading and
tariff item of the First Schedule to the Customs Tariff Act, 1975. Indian Customs
Tariff is based on HSN. HSN stands for Harmonized System of Nomenclature. It
is a multipurpose international product nomenclature developed by the World
Customs Organization (WCO) for the purpose of classifying goods across the
World in a systematic manner. It comprises of about 5,000 commodity groups;
each identified by a 6 digit code [code can be extended], arranged in a legal and
logical structure and is supported by well-defined rules to achieve uniform
classification. India has extended the HSN codes upto 8-digits.
Along the lines of HSN, the Indian Customs Tariff has a set of Rules of
Interpretation of the First Schedule and General Explanatory notes. These rules
and the general explanatory notes give clear direction as to how the

12
Students may refer the CBIC website for the complete Schedule of GST Rates for goods for
knowledge purposes.

© The Institute of Chartered Accountants of India

 3.28 INDIRECT TAXES

nomenclature in the schedule is to be interpreted. These Rules for Interpretation

including section and chapter notes and the General Explanatory Notes of the
First Schedule 1314 apply to the interpretation of the rate notification for goods
under GST also.
Consequently, under GST, goods are classified on the basis of HSN in accordance
with the Rules for the Interpretation of the Customs Tariff.
Once classification for a product has been determined on this basis, applicable
rate has to be determined as per the rate prescribed in the rate notification issued
under GST.

A new Scheme of Classification of Services has been devised under GST. It is a

modified version of the United Nations Central Product Classification. Under this
scheme, the services of various descriptions have been classified under various
sections, headings and groups. Chapter 99 has been assigned for services. This
chapter has following sections:
Section 5 Construction Services
Section 6 Distributive Trade Services; Accommodation, Food and Beverage
Service; Transport Services; Gas and Electricity Distribution Services
Section 7 Financial and related services; real estate services; and rental and
leasing services
Section 8 Business and Production Services
Section 9 Community, social and personal services and other miscellaneous
services

13
The provisions relating to Customs Act and Customs Tariff Act will be discussed at Final
Level.
14
Sections: A group of Chapters representing a particular class of goods.
Chapters: Each section is divided into various chapters and sub-chapters. Each chapter
contains goods of one class.
Chapter notes: They are mentioned at the beginning of each chapter. These notes are part
of the statute and hence have the legal authority in determining the classification of goods.
Heading: Each chapter and sub-chapter is further divided into various headings.
Sub-heading: Each heading is further divided into various sub-headings.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.29

Each section is divided into various headings which is further divided into Groups. Its
further division is made in the form of ‘Tariff item’/ Service Codes.

Chapter

Section

Heading

Group

Tariff item/Service Code

Rate of tax is determined in accordance with the Service Code in which the service
is classified.

Broadly, four rates of CGST have been notified for services,

viz., 2.5%, 6%, 9% and 14% 15. Equivalent rate of SGST/
GST rates
UTGST will also be levied. For IGST, four rates have been
for services
notified for services, viz., 5%, 12%, 18% and 28% 1617. For
certain specified services, nil rate of tax has been
notified.
Services of gambling, services by way of admission to entertainment
events/access to amusement facilities including casinos, race club, any sporting
event such as IPL and the like, services provided by a race club by way of
totalisator or a license to bookmaker in such club, attract the highest rate of 28%
(CGST @ 14% and SGST @ 14% or IGST @ 28%).
A number of services are subject to the lowest rate of 5% (CGST @ 2.5% and SGST
@ 2.5% or IGST @ 5%). For instance, GTA service is taxed @ 5% subject to the

15
notified vide Notification No. 11/2017 CT (R) dated 28.06.2017
16
notified vide Notification No. 8/2017 IT (R) dated 28.06.2017.
17
Students may refer the CBIC website for the complete Schedule of GST Rates for services
for knowledge purposes.

© The Institute of Chartered Accountants of India

 3.30 INDIRECT TAXES

condition that credit of input tax charged on goods/services used in supplying

said service has not been taken. Similarly, tax rate for restaurant service is 5%
without any input tax credit.
Services not covered under any specific heading are taxed at the rate of 18%
(CGST @ 9% and SGST @9% or IGST @ 18%).
In the following paras, applicability of GST in real estate sector has been briefly
discussed:
GST rates in real estate sector

The effective rate of GST on real estate sector for the new projects by promoters
are as follows:
(i) 1% without ITC on construction of affordable houses (area 60 sqm in
metros/ 90 sqm in non-metros and value upto ` 45 lakh).
(ii) 5% without ITC is applicable on construction of:
(a) all houses other than affordable houses, and
(b) commercial apartments such as shops, offices etc. in a residential real
estate project (RREP) in which the carpet area of commercial apartments is not
more than 15% of total carpet area of all apartments.
Conditions:
Above tax rates shall be available subject to following conditions:
(a) ITC shall not be available.
(b) 80% of inputs and input services [other than services by way of grant of
development rights, long term lease of land (against upfront payment in
the form of premium, salami, development charges etc.) or FSI (including

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.31

additional FSI), electricity, high speed diesel, motor spirit, natural gas], used
in supplying the service shall be purchased from registered persons 18.
However, if value of inputs and input services purchased from registered
supplier is less than 80%, promoter has to pay GST on reverse charge basis,
under section 9(4) of the CGST Act [discussed
earlier], at the rate of 18% on all such inward Supply of services
supplies (to the extent short of 80% of the inward notified under
supplies from registered supplier). section 9(4)

Further, where cement is received from an unregistered

person, the promoter shall pay tax on supply of such cement on reverse
charge basis, under section 9(4) of the CGST Act, at the applicable rate
which is 28% (CGST 14% + SGST 14%) at present.
Moreover, GST on capital goods shall be paid by the promoter on reverse
charge basis, under section 9(4) of the CGST Act at the applicable rates
[Notification No. 07/2019 CT (R) dated 29.03.2019/ Notification No. 07/2019
IT (R) dated 29.03.2019].

5. COMPOSITION LEVY [SECTION 10 OF THE CGST ACT]

STATUTORY PROVISIONS
Section 10 Composition levy
Sub-section Particulars
(1) Notwithstanding anything to the contrary contained in this Act
but subject to the provisions of sub-sections (3) and (4) of
section 9, a registered person, whose aggregate turnover in the
preceding financial year did not exceed fifty lakh rupees, may
opt to pay, in lieu of the tax payable by him under sub-section
(1) of section 9, an amount of tax calculated at such rate as
may be prescribed, but not exceeding,––

18
Discussion in above paras highlighted in green is solely for the purpose of knowledge of
the students and is not meant for examination purposes.

© The Institute of Chartered Accountants of India

 3.32 INDIRECT TAXES

a one percent. 19 of the turnover in State or turnover in

Union territory in case of a manufacturer
b two and a half per cent. of the turnover in State or
turnover in Union territory in case of persons engaged
in making supplies referred to in clause (b) of
paragraph 6 of Schedule II, and
c half per cent. of the turnover in State or turnover in
Union territory in case of other suppliers
subject to such conditions and restrictions as may be
prescribed.
Provided that the Government may, by notification, increase
the said limit of fifty lakh rupees to such higher amount, not
exceeding one crore and fifty lakh rupees 20, as may be
recommended by the Council.
Provided further that a person who opts to pay tax under clause
(a) or clause (b) or clause (c) may supply services (other than
those referred to in clause (b) of paragraph 6 of Schedule II), of
value not exceeding ten percent. of turnover in a State or Union
territory in the preceding financial year or five lakh rupees,
whichever is higher.
Explanation - For the purposes of second proviso, the
value of exempt supply of services provided by way of
extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount
shall not be taken into account for determining the value
of turnover in a State or Union territory.
(2) The registered person shall be eligible to opt under sub-section
(1), if–

19
Rate of tax prescribed in case of a manufacturer is half percent of the turnover in
State/UT. The same has been discussed in detail in subsequent paras.
20
The turnover limit for composition levy has been increased from ` 50 lakh to ` 1.5
crore vide Notification No. 14/2019 CT dated 07.03.2019.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.33

(a) save as provided in sub-section (1), he is not engaged

in the supply of services
(b) he is not engaged in making any supply of goods which
are not leviable to tax under this Act
(c) he is not engaged in making any inter-State outward
supplies of goods
(d) he is not engaged in making any supply of goods through
an electronic commerce operator who is required to collect
tax at source under section 52;
(e) he is not a manufacturer of such goods as may be notified by
the Government on the recommendations of the Council;
and
(f) he is neither a casual taxable person nor a non-
resident taxable person.
Provided that where more than one registered persons are
having the same Permanent Account Number (issued under the
Income-tax Act, 1961), the registered person shall not be
eligible to opt for the scheme under sub-section (1) unless all
such registered persons opt to pay tax under that sub-section.
(2A) Notwithstanding anything to the contrary contained in this
Act, but subject to the provisions of sub-sections (3) and (4)
of section 9, a registered person, not eligible to opt to pay
tax under sub-section (1) and sub-section (2), whose
aggregate turnover in the preceding financial year did not
exceed fifty lakh rupees, may opt to pay, in lieu of the tax
payable by him under sub-section (1) of section 9, an
amount of tax calculated at such rate as may be prescribed,
but not exceeding three per cent. of the turnover in State or
turnover in Union territory, if he is not––
(a) engaged in making any supply of goods or services
which are not leviable to tax under this Act;
(b) engaged in making any inter-State outward supplies
of goods or services;

© The Institute of Chartered Accountants of India

 3.34 INDIRECT TAXES

(c) engaged in making any supply of goods or services

through an electronic commerce operator who is
required to collect tax at source under section 52;
(d) a manufacturer of such goods or supplier of such
services as may be notified by the Government on the
recommendations of the Council; and
(e) a casual taxable person or a non-resident taxable
person.
Provided that where more than one registered person are
having the same Permanent Account Number issued under
the Income-tax Act, 1961, the registered person shall not
be eligible to opt for the scheme under this sub-section
unless all such registered persons opt to pay tax under this
sub-section.
(3) The option availed of by a registered person under sub-section
(1) or sub-section (2A), as the case may be, shall lapse with
effect from the day on which his aggregate turnover during a
financial year exceeds the limit specified under sub-section (1)
or sub-section (2A), as the case may be.
(4) A taxable person to whom the provisions of sub-section (1) or,
as the case may be, sub-section (2A) apply shall not collect
any tax from the recipient on supplies made by him nor shall
he be entitled to any credit of input tax.
(5) If the proper officer has reasons to believe that a taxable person
has paid tax under sub-section (1) or sub-section (2A), as the
case may be despite not being eligible, such person shall, in
addition to any tax that may be payable by him under any
other provisions of this Act, be liable to a penalty and the
provisions of section 73 or section 74 shall, mutatis mutandis,
apply for determination of tax and penalty.
Explanation 1 –– For the purposes of computing aggregate
turnover of a person for determining his eligibility to pay
tax under this section, the expression “aggregate
turnover” shall include the value of supplies made by such

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.35

person from the 1st day of April of a financial year upto

the date when he becomes liable for registration under
this Act, but shall not include the value of exempt supply
of services provided by way of extending deposits, loans or
advances in so far as the consideration is represented by
way of interest or discount.
Explanation 2 –– For the purposes of determining the tax
payable by a person under this section, the expression
“turnover in State or turnover in Union territory” shall not
include the value of following supplies, namely:––
(i) supplies from the first day of April of a financial
year upto the date when such person becomes liable
for registration under this Act; and
(ii) exempt supply of services provided by way of
extending deposits, loans or advances in so far as the
consideration is represented by way of interest or
discount.

ANALYSIS
(1) Overview of the Scheme
The composition levy is an alternative method of levy
of tax designed for small taxpayers whose turnover is
Voluntary and
up to a prescribed limit. The objective of composition
optional scheme
scheme is to bring simplicity and to reduce the
compliance cost for the small taxpayers.
Initially, the scheme was
designed to benefit the
small traders,
manufacturers and
restaurant service providers. So, the scheme
was fundamentally for the suppliers of
goods and only for restaurant service
providers. However, subsequently, suppliers availing composition scheme were
permitted to supply other services also, though only upto a small specified

© The Institute of Chartered Accountants of India

 3.36 INDIRECT TAXES

value. This scheme is contained in sub-sections (1) and (2) of section 10 of

the CGST Act (hereinafter referred to as composition scheme for goods).
Under this scheme, suppliers of goods have the option to pay tax at the
concessional rate of 1% (CGST + SGST/UTGST) of the turnover and restaurant
service providers have the option to pay tax @ 5% (CGST + SGST/UTGST) of the
turnover. Small taxpayers with an aggregate turnover in the preceding
financial year up to ` 1.5 crore are eligible to pay tax at these rates in the
current financial year upto an aggregate turnover of ` 1.5 crore. However,
a person engaged exclusively in supply of services other than restaurant
service is not eligible for this composition scheme stipulated under sub-
sections (1) and (2).
In order to provide benefit of composition
scheme to persons engaged in supply of
services other than restaurant service whose
aggregate turnover in the preceding financial
year is up to ` 50 lakh, a scheme to pay tax @
6% (CGST + SGST/UTGST) of the turnover was introduced with
effect from 1st April, 2019 vide Notification No. 2/2019
CT (R) dated 07.03.2019. A mixed supplier who is
primarily engaged in supplying services other than
restaurant service along with marginal
supply of goods could also avail the
benefit of this scheme. With effect from 01.01.2020, the
provisions of this scheme have been incorporated in
sub-section (2A) of section 10 vide the Finance (No. 2)
Act, 2019. It is important to note that Notification No. 2/2019 CT (R)
dated 07.03.2019 has not yet been rescinded and is still operational.
Essentially, the composition scheme under sub-section (2A)
(hereinafter referred to as composition scheme for services) is for small
service providers like salon stylist, tailors, etc. This scheme provides
an option to such suppliers to pay tax @ 6% of the turnover in the
current financial year upto an aggregate
turnover of ` 50 lakh. Easy compliance as
Suppliers opting for composition levy need not no elaborate
worry about the classification of their goods or accounts and records
services or both, the rate of GST applicable on their to be maintained
goods and/or services, etc. They are not required to raise any tax invoice, but

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.37

simply need to issue a Bill of Supply 21 wherein no tax will be charged from the
recipient.
An eligible person opting to pay tax under the
Simple annual
composition scheme shall, instead of paying tax on
return
every invoice at the specified rate, pay tax at the
Quarterly
prescribed percentage of his turnover every quarter.
payment of tax
At the end of a quarter, he would pay the tax,
without availing the benefit of input tax credit. Return is to be filed
annually by a composition supplier. Registration under GST law is
compulsory for opting for the composition scheme.
The provisions relating to composition levy are contained in section 10 of
CGST Act, 2017 and Chapter-II [Composition Levy] of Central Goods and
Services Tax (CGST) Rules, 2017. The said rules have been incorporated in
the discussion in the following paras at the relevant places.
As seen above, section 10 stipulates two types of composition schemes –

Composition scheme Hereinafter referred to as

provided under sections 10(1) Composition scheme for
scheme under
Composition

section 10

& 10(2) goods

Composition scheme Hereinafter referred to as
provided under section Composition scheme for
10(2A) services

Provisions relating to these schemes have been discussed in detail in

subsequent paras:
(2) Turnover limit for opting for composition levy [Section 10(1),
10(2A) & 10(3)]
Turnover limit in case of composition levy for goods
Section 10(1) of the CGST Act provides the turnover
limit of ` 50 lakh in the preceding financial year for
becoming eligible for composition levy for goods. Turnover limit is
However, proviso to section 10(1) empowers the ` 1.5 crore
Government to increase the said limit of ` 50 lakh

21
Discussed in detail in Chapter-8: Tax Invoice, Credit and Debit Notes; E-way Bill

© The Institute of Chartered Accountants of India

 3.38 INDIRECT TAXES

upto ` 1.5 crore, on the recommendation of the GST Council. In view of

said power of the Government to increase the turnover limit for
composition levy as granted by first proviso to section 10(1), the turnover
limit for composition levy for goods has been increased from ` 50 lakh
to ` 1.5 crore vide Notification No. 14/2019 CT dated 07.03.2019.

However, the said notification further stipulates that the turnover limit
for composition levy for goods shall be ` 75 lakh in respect of 8 of the
Special Category States namely:

Special Category States

Arunachal Pradesh Mizoram

Uttarakhand Nagaland

Manipur Sikkim

Meghalaya Tripura

In case of Special Category States of Assam, Himachal Pradesh and

Jammu and Kashmir, the turnover limit will be ` 1.5 crore only.

Thus, if the aggregate turnover of a supplier in a State/UT other than

Special Category States (except Assam, Himachal Pradesh and Jammu
and Kashmir) is upto ` 1.5 crore in the preceding financial year, said
supplier is eligible for composition scheme for goods. Further, it is
important to note that the aggregate turnover is computed on all India
basis for a person having same Permanent Account Number (PAN) – Refer
the definition of aggregate turnover discussed in subsequent paras.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.39

Arunachal Pradesh

Uttarakhand

Manipur

Meghalaya
` 75 lakh
Mizoram
composition levy for
Turnover Limit for

Nagaland
goods

Sikkim

Tripura

` 1.5 crore All other States/UTs

Further, the option of a registered person to avail composition scheme

for goods shall lapse with effect from the day on which his aggregate
turnover during a financial year exceeds the threshold limit of ` 1.5
crore [` 75 lakh in 8 specified special category States] [Section 10(3)].

(2) A shoes’ dealer ‘Prithviraj’ has offices in Maharashtra and

Goa. He makes intra-State supply of goods from both these
offices.

In order to determine whether ‘Prithviraj’ is eligible to avail benefit of the

composition scheme for goods, turnover of both the offices would be
taken into account and if the same does not exceed ` 1.5 crore,
‘Prithviraj’ can opt to avail the composition levy scheme (subject to
fulfilment of other prescribed conditions) for goods for both the offices.

Turnover limit in case of composition levy for services

Section 10(2A) provides the turnover limit of ` 50 lakh in the preceding

financial year for becoming eligible for composition levy for services.

© The Institute of Chartered Accountants of India

 3.40 INDIRECT TAXES

(3) A hair stylist ‘Billoo Barber’ has his salon in Delhi and Haryana,
making intra-State supplies.

In order to determine whether ‘Billoo’ is eligible to avail benefit of the

composition scheme for services, turnover of both the salons would be
taken into account and if the same does not exceed ` 50 lakh, ‘Billoo’ can
opt to avail the composition levy scheme (subject to fulfilment of other
prescribed conditions) for both the salons.

Further, the option of a registered person to

avail composition scheme for services shall
lapse with effect from the day on which his Turnover limit is

aggregate turnover during a financial year ` 50 lakh

exceeds the threshold limit of ` 50 lakh [Section

10(3)].

To summarise, a registered person opting for

composition scheme for goods should have an
Summary aggregate turnover upto ` 1.5 crore [` 75 lakh in 8
specified Special Category States] in the preceding
FY and he can avail the benefit of said scheme in
the current FY till the time his aggregate turnover in
the current FY does not exceed ` 1.5 crore/` 75 lakh.

Similarly, a registered person opting for composition scheme for

services should have an aggregate turnover upto ` 50 lakh in the
preceding FY and he can avail the benefit of said scheme in the
current FY till the time his aggregate turnover in the current FY does
not exceed ` 50 lakh.

From the above discussion, it is apparent that the term aggregate turnover
is of utmost importance. So, let us understand this term in detail.

(3) Aggregate turnover under composition levy [Section 2(6) read with
explanation 1 to section 10]

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.41

The definition of aggregate turnover as contained in section 2(6) of the

CGST Act is analysed as follows:

The aggregate turnover is the sum of value of all outward supplies falling in
the following four categories:

 Taxable supplies
 Exempt supplies

 Exports of goods or services or both

 Inter-state supplies

It excludes:

 The value of inward supplies on which tax is payable by a person on

reverse charge basis

 Taxes including cess paid under GST law.

It is computed on all India basis for a person having same Permanent

Account Number (PAN).

Further, explanation 1 to section 10 clarifies that that for the purposes

of computing aggregate turnover of a registered person for
determining his eligibility to pay tax under this section, aggregate
turnover:

 includes value of supplies from the 1st April of a FY up to the

date of his becoming liable for registration and

 excludes value of exempt supply of services provided by way of

extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount.

On combined reading of the aforesaid provisions, the method of

computing the aggregate turnover for the purpose of determining the
eligibility of a registered person for the composition scheme [for both
goods and services] can be depicted in a diagram as follows:

© The Institute of Chartered Accountants of India

 3.42 INDIRECT TAXES

While computing the threshold limit of ` 1.5 crore/ ` 75 lakh / ` 50 lakh,

inclusions in and exclusions from ‘aggregate turnover’ are as follows:

Includes Excludes
Value of all outward --CGST/ SGST/ UTGST/ IGST/ Cess
supplies
--Taxable supplies --Value of inward supplies on which tax
--Exempt supplies is payable under reverse charge.
--Exports* --Value of exempt supply of services
--Inter-State supplies* provided by way of extending deposits,
of persons having the same PAN
loans or advances in so far as the
be computed on all India basis.
consideration is represented by way of
These also include interest or discount

Value of supplies made by registered person

from 1st April of a FY up to the date when he
becomes liable for registration under this Act

*Note: The value of exports and inter-State supplies might be relevant only while
determining the aggregate turnover of the preceding FY. These values are not
relevant for determining the aggregate turnover of the current FY in which the
composition supplier has opted for composition levy as he is not permitted to
make inter-State supplies and exports in the said FY.

(4) Rates of tax under the composition levy scheme [Section 10(1) and
section 10(2A) read with rule 7]

Rule 7 of the CGST Rules, 2017 prescribes the rates at which tax is payable
by a registered person opting for composition levy – composition levy for
goods and composition levy for services.
Rates of tax in case of composition levy for goods
A registered person opting for composition levy for goods shall pay tax
calculated at the prescribed rates [mentioned in table below] during the
current FY, in lieu of the tax payable by him under regular scheme:

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.43

S. No. Category of registered persons Rate of tax

1 Manufacturers, other than ½ % 22 of the turnover in

manufacturers of notified goods, i.e. the State/Union territory
ice cream, pan masala, tobacco and
aerated waters.

2 Suppliers making supplies referred to 2½ % 23 of the turnover

in clause (b) of paragraph 6 of in the State/Union
Schedule II [referred to as territory
“Restaurant service” in discussion
under this chapter]

3 Any other supplier eligible for ½ % 24 of turnover of

composition levy under section 10 taxable supplies of goods
of CGST Act and Chapter-II & services in the
[Composition Levy] of CGST Rules. State/Union territory

Note - Students may note that while ‘aggregate turnover’ of preceding FY is

relevant for the purpose of determining eligibility to avail composition
scheme, the tax has to be paid in accordance with the applicable rates on
the ‘turnover’ (or ‘turnover of taxable supplies’, as the case may be) in a
particular tax period.
ILLUSTRATION 1
Taxpayer ‘Tolaram’ is a manufacturer who has opted for composition levy
for goods, having one unit – A1 in UP and another unit – A2 in MP. Total
turnover of two units in last FY was ` 115 lakh ( ` 85 lakh + ` 30 lakh).
Turnover of units A1 and A2 in the first quarter of current financial year is `
5 lakh and ` 10 lakh respectively. Compute the amount payable under
composition levy under section 10(1) & 10(2) of the CGST Act, 2017 by
‘Tolaram’.

22
Effective rate 1% (CGST+ SGST/UTGST)
23
Effective rate 5% (CGST+ SGST/UTGST)
24
Effective rate 1% (CGST+ SGST/UTGST)

© The Institute of Chartered Accountants of India

 3.44 INDIRECT TAXES

ANSWER

Unit Location Turnover in Turnover in 1st Total tax

previous FY quarter of this FY (@1%)

A1 U.P. ` 85 lakh ` 5 lakh ` 5,000

A2 M.P. ` 30 lakh ` 10 lakh ` 10,000

Total ` 115 lakh ` 15 lakh ` 15,000

ILLUSTRATION 2
Taxpayer ‘Bholaram’ is a trader, who has opted for composition levy for
goods, of both taxable and exempted goods. It has one retail showroom – A1
in Punjab and another retail showroom – A2 in Rajasthan, both selling
taxable as well as exempted goods. Total turnover (including taxable and
exempted goods) of the two showrooms in last FY was ` 115 lakh (` 85 lakh +
` 30 lakh). Turnover of showrooms A1 and A2 in the first quarter of current
financial year is ` 35 lakh [A1 - ` 15 lakh (` 5 lakh from sale of taxable goods
and ` 10 lakh from sale of exempted goods) and A2 - ` 20 lakh (` 10 lakh
from sale of taxable goods and ` 10 lakh from sale of exempted goods)].
Compute the amount payable under composition levy under section 10(1) &
10(2) of the CGST Act, 2017 by ‘Bholaram’.
ANSWER

Retail Location Turnover in Taxable turnover* Total tax

showroom previous FY in 1st quarter of (@1%)
this FY

A1 Punjab ` 85 lakh ` 5 lakh ` 5,000

A2 Rajasthan ` 30 lakh ` 10 lakh ` 10,000

Total ` 115 lakh ` 15 lakh ` 15,000

Note: A supplier, other than manufacturer and restaurant service provider, eligible for
composition levy under section 10(1) & 10(2) has to pay tax @ 1% (CGST+ SGST) of
the turnover of only taxable supplies of goods and services in the State.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.45

Rates of tax in case of composition levy for services

A registered person opting for composition levy for services shall pay
tax @ 3% [Effective rate 6% (CGST+ SGST/UTGST)] of the turnover of
supplies of goods and services in the State or Union territory.
ILLUSTRATION 3
Taxpayer ‘Padmavati’ is a salon stylist, who has opted for composition levy for
services, having one branch – B1 in Vasant Kunj, Delhi and another branch –
B2 in Gurgaon, Haryana. Total turnover of two branches in last FY was ` 45
lakh (` 25 lakh + ` 20 lakh). Turnover of branches B1 and B2 in the first
quarter of current financial year is ` 5 lakh and ` 10 lakh respectively.
Compute the amount payable under composition levy under section 10(2A) of
the CGST Act, 2017 by ‘Padmavati’.
ANSWER

Branch Location Turnover in Turnover in 1st Total tax

previous FY quarter of this FY (@6%)

B1 Delhi ` 25 lakh ` 5 lakh ` 30,000

B2 Haryana ` 20 lakh ` 10 lakh ` 60,000

Total ` 45 lakh ` 15 lakh ` 90,000

As seen above, since the tax under composition scheme has to computed as a
specified % of the turnover in State or turnover in Union territory, it is pertinent
to understand what is turnover in State or turnover in Union territory.
(5) Turnover in State or turnover in Union territory under composition
levy [Section 2(112) read with explanation 2 to section 10]

As per section 2(112) of the CGST Act, 2017,

turnover in State/ turnover in Union territory means
the aggregate value of all taxable supplies
(excluding the value of inward supplies on
which tax is payable by a person on reverse
charge basis) and exempt supplies made within a State or Union territory by
a taxable person, exports of goods or services or both and inter-State
supplies of goods or services or both made from the State or Union territory

© The Institute of Chartered Accountants of India

 3.46 INDIRECT TAXES

by the said taxable person but excludes central tax, State tax, Union territory
tax, integrated tax and cess.
Further, explanation 2 to section 10 clarifies that for the purposes of
determining the tax payable by a person under this section, the
expression turnover in State or turnover in Union territory shall not
include the value of following supplies, namely:
(i) supplies from the first day of April of a FY up to the date when
such person becomes liable for registration under this Act; and
(ii) exempt supply of services provided by way of extending deposits,
loans or advances in so far as the consideration is represented by
way of interest or discount.
On combined reading of the aforesaid provisions, the method of computing
the turnover in a State/UT for paying tax under the composition
scheme can be depicted in a diagram as follows:

While computing the Turnover in a State/UT to pay tax under

composition levy, inclusions and exclusions are as follows:

Excludes
Includes --CGST/ SGST/ UTGST/ IGST/ Cess
All taxable supplies and
--Value of inward supplies on which tax
exempt supplies made within the
is payable under reverse charge.
State/UT
(While computing turnover in a --Value of supplies from the first day of
State/UT of a supplier, other than April of a FY up to the date when such
manufacturer and restaurant service person becomes liable for registration
provider, eligible for composition under this Act
levy for goods [eg-trader], the
exempt supplies will not be taken --Value of exempt supply of services
into consideration) provided by way of extending deposits,
loans or advances in so far as the
consideration is represented by way of
interest or discount

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.47

(4) A photographer ‘Champak’ has commenced providing

photography services in Delhi from April this year. His turnover
for various quarters till December is as follows:

April-June ` 20 lakh

July-Sept ` 30 lakh

Oct-Dec ` 20 lakh

In the given case, since Champak has started the supply of services in the
current financial year, his aggregate turnover in the preceding FY is Nil.
Consequently, in the current FY, he is eligible for composition scheme for
services. He becomes eligible for the registration when his aggregate
turnover exceeds ` 20 lakh.

While registering under GST, he opts for composition scheme for services.

For determining his turnover of the State for payment of tax under
composition scheme for services, turnover of April-June quarter [` 20 lakh]
shall be excluded as the value of supplies from the first day of April of a
financial year up to the date when such person becomes liable for
registration under this Act are to be excluded for this purpose.

On next ` 30 lakh [turnover of July-Sept quarter], he shall pay tax @ 6% [3%

CGST and 3% SGST], i.e. CGST ` 90,000 and SGST ` 90,000.

By the end of July-Sept quarter, his aggregate turnover reaches ` 50 lakh*.

Consequently, his option to avail composition scheme for services shall

lapse by the end of July-Sept quarter and thereafter, he is required to
pay tax at the normal rate of 18%. Thus, the tax payable for Oct-Dec
quarter is ` 20 lakh × 18%, i.e. ` 3,60,000.

*while computing aggregate turnover for determining Champak’s eligibility to

pay tax under composition scheme, value of supplies from the first day of
April of a financial year up to the date when such person becomes liable for
registration under this Act (i.e. turnover of April-June quarter), are included.

© The Institute of Chartered Accountants of India

 3.48 INDIRECT TAXES

(6) Who are NOT eligible to opt for composition scheme? [Section 10(2)
and (2A)]

Registered person who is not eligible Registered person who is not eligible
for composition scheme for goods for composition scheme for services

Supplier engaged in making any Supplier engaged in making

supply of goods which are not any supply of goods or services
leviable to tax which are not leviable to tax

Supplier engaged in making any Supplier engaged in making

inter-State outward supplies of any inter-State outward
goods supplies of goods or services

Person supplying any goods Person supplying any goods or

through an electronic commerce services through an electronic
operator who is required to commerce operator who is
collect tax at source under required to collect tax at
section 52* source under section 52*

Manufacturer of ice cream, Manufacturer of notified

panmasala, tobacco and goods [ice cream, panmasala,
aerated waters tobacco and aerated waters]
or supplier of notified services

Supplier who is either a casual Supplier who is either a

taxable person or a non- casual taxable person or a
resident taxable person non-resident taxable person.

Supplier of services, save as

provided in section 10(1) [Refer
discussion below diagram]

*Section 52 relating to tax collected at source has been discussed in detail at the Final
level.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.49

There is no restriction on
composition supplier to receive
inter-State inward supplies of
goods or services.

A person engaged in marginal supply of services other than restaurant

service also eligible for composition levy for goods [Second proviso to
section 10(1) read with section 10(2)(a)]

Fundamentally, the composition scheme for goods can be availed in

respect of goods and only one service namely, restaurant service.
However, there are cases where a manufacturer/ trader is also engaged
in supply of services other than restaurant service though the
percentage of such supply of services is very small as compared to the
supplies of goods. There may also be cases where a restaurant service
provider is also engaged in supplying a small percentage of other
services.

With a view to enable such taxpayers to avail of the benefit of

composition scheme for goods, second proviso to section 10(1) permits
marginal supply of services [other than restaurant services] for a
specified value along with the supply of goods and/or restaurant service,
as the case may be. This specified value is value not exceeding:
(a) 10% of the turnover in a State/Union territory in the preceding
financial year

or

(b) ` 5 lakh,

whichever is higher.
Thus, it can be inferred that where the turnover of a registered person
opting for composition scheme for goods is upto ` 50 lakh in the
preceding financial year, he can supply services [other than restaurant
services] upto a maximum value of ` 5 lakh in the current financial year.

© The Institute of Chartered Accountants of India

 3.50 INDIRECT TAXES

Further, where the turnover of a registered person opting for

composition scheme is more than ` 50 lakh and upto ` 1.5 crore in the
preceding financial year, he can supply services [other than restaurant
services] in the current financial year upto a maximum value of 10% of
the turnover in a State/Union territory in the preceding financial year.
(5) Ramsewak is engaged in supply of goods. His turnover in
preceding FY is ` 60 lakh. Since his aggregate turnover in the
preceding FY does not exceed ` 1.5 crore, he is eligible for
composition scheme for goods in current FY. Further, in current FY, he can
supply services [other than restaurant services] upto a value of not
exceeding:

(a) 10% of ` 60 lakh, i.e. ` 6 lakh

or

(b) ` 5 lakh,

whichever is higher.

Thus, he can supply services upto a value of ` 6 lakh in current FY. If the
value of services supplied exceeds ` 6 lakh, he becomes ineligible for the
composition scheme for goods and has to opt out of the same.
Interest income to be excluded for determining the value of turnover
in a State or Union territory under second proviso to section 10(1)
[Explanation to second proviso to section 10(1)]
Generally, businesses tend to save and invest money in the form of
deposits, loans or advances. However, this way they get engaged in
supply of service by way of extending deposits, loans or advances 25 – a
service other than restaurant service. And where the income from such
services cause the value of services 26 supplied to exceed the value
referred in second proviso to section 10(1) 27 [10% of the turnover in the

25
It is, however, pertinent to note that services by way of extending deposits, loans or
advances in so far as the consideration is represented by way of interest or discount are
exempt from GST – Discussed in detail in Chapter 4 – Exemptions from GST.
26
other than restaurant services
27
as discussed in preceding paras

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.51

preceding FY in a State/Union territory or ` 5 lakh, whichever is

higher], said business would have become ineligible for the composition
scheme for goods and one has to opt out of the composition scheme.
This can cause a lot of hardship to small businesses.
In view of the above, an explanation is inserted after second proviso to
section 10(1) to clarify that for the purposes of second proviso to section
10(1), the value of supply of exempt services by way of extending
deposits, loans or advances in so far as the consideration is represented
by way of interest or discount, shall not be taken into account for
determining the value of turnover in a State or Union territory.
Under second proviso to section 10(1), a registered person opting for
composition scheme may supply services [other than restaurant services] of
value not exceeding 10% of the turnover in the preceding financial year in a
State/Union territory or ` 5 lakh, whichever is higher. Thus, while computing
value of services [other than restaurant services] as referred in this proviso,
interest on loans/deposit/advances will not be taken into account.
The provisions relating to composition levy discussed hereafter are
applicable to both composition levy for goods as well as composition levy
for services.
(7) Conditions and restrictions for composition levy [Rule 5]
Person opting for composition levy has to comply with the following
conditions:
 he was not engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY. The following goods
have been hereby notified vide Notification No. 14/2019 CT dated
07.03.2019 as amended:

Tariff item, subheading,

Description
heading or Chapter*

2105 00 00 Ice cream and other edible

ice, whether or not
containing cocoa

© The Institute of Chartered Accountants of India

 3.52 INDIRECT TAXES

2106 90 20 Pan masala

Pan Masala

24 All goods, i.e. Tobacco and

manufactured tobacco
substitutes

2202 1010 Aerated Waters

* as specified in the First Schedule to the Customs Tariff Act, 1975

 he shall pay tax under section 9(3)/9(4) 28 (reverse charge) on
inward supply of goods or services or both.
 he is neither a casual taxable person nor a non-resident taxable
person
 he shall mention the words “composition taxable person, not
eligible to collect tax on supplies” at the top of the bill of supply
issued by him; and
 he shall mention the words “composition taxable person” on every
notice or signboard displayed at a prominent place at his principal
place of business and at every additional place or places of business.
Further, where the goods held in stock by him are liable to be taxed under
reverse charge under section 9(4) 29, the tax thereon has been paid under
reverse charge under section 9(4).

28
wherever applicable
29
This condition applies in case where a builder/promoter opting for composition scheme
has the stock of the goods on which he is required to pay GST on reverse charge basis under
section 9(4) in one or more of the following cases:
(i) Builder/promoter must purchase at least 80% of inputs and input services used in
supplying the service, from registered persons. In case of shortfall, he’s required to
pay tax under reverse charge on all such inward supplies (to the extent short of 80%
of the inward supplies from registered supplier).
(ii) Where cement is received from an unregistered person, promoter/builder has to pay
tax on supply of such cement under reverse charge and
(iii) GST on capital goods is payable by the promoter on reverse charge basis.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.53

(8) Intimation of opting for composition levy [Rules 3 & 4]

(i) Intimation by person applying for registration: Any person who
is not registered and applies for registration may give an option to
pay tax under composition levy in Part B of the registration
form, viz., Form GST REG-01. The same shall be considered as an
intimation to pay tax under composition levy. Such intimation shall
be considered only after the grant of registration to the applicant.
The option to pay tax under composition levy shall be effective
from the date from which registration is effective.
(ii) Intimation by a registered person: A registered person who opts to
pay tax under composition levy scheme shall electronically file an
intimation in prescribed form on the GST Common Portal
[[Link]]. The intimation shall be filed prior to the
commencement of the FY for which said option is exercised.
He shall also furnish the statement in prescribed form in
accordance with the provisions of rule 44(4) of CGST Rules, 2017
[Discussed in detail in Chapter 6 – Input Tax Credit] within 60 days
from the commencement of the relevant FY.
Any intimation in respect of any place of business in a State/UT shall
be deemed to be an intimation in respect of all other places of
business registered on the same PAN.
The option to pay tax under composition levy shall be effective
from the beginning of the FY.
A person applying for registration can opt for composition at the time
of applying for registration [this time being any time of
the financial year] and composition levy shall be
Summary
effective from the date from which registration is
effective. A registered person can opt for composition
scheme from the beginning of any FY and composition
levy shall be effective from the beginning of said FY.

© The Institute of Chartered Accountants of India

 3.54 INDIRECT TAXES

composition levy
can opt for shall be effective
composition levy from

•at any time •the date from

during the year which
while applying registration is
for registration effective
Person applying
for registration

composition levy
can opt for shall be effective
composition levy from

•from the •the beginning of

beginning of said FY
any FY

Registered
person

(9) Validity of composition levy [Section 10(3) read with rule 6]

I. Withdrawal from the composition scheme by a taxpayer who

ceases to satisfy any of the prescribed conditions
 The option exercised by a registered person to pay amount under
composition levy shall remain valid so long as he satisfies all the
conditions mentioned in the relevant section and rules. For
instance, the option to pay tax under composition scheme lapses
from the day on which aggregate turnover of a registered person

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.55

exceeds the specified limit (` 1.5 crore/ ` 75 lakh/ ` 50 lakh) during

the FY.
 Such person is required to pay tax under regular scheme under
section 9(1) from the day he ceases to satisfy any of the
conditions prescribed for composition levy. He shall issue tax
invoice for every taxable supply made thereafter. Further, he is
required to file an intimation for withdrawal from the scheme in
prescribed form within 7 days of the occurrence of such event.
 The effective date from which withdrawal from the
composition scheme shall take effect shall be the date
indicated by him in his intimation, but such date may not be
prior to the commencement of the financial year in which such
intimation is being filed 30.
II. Withdrawal from the composition scheme by a taxpayer who
intends to withdraw from the said scheme
 The registered person who intends to withdraw from the
composition scheme shall, before the date of such withdrawal,
file an application in prescribed form.
 The effective date from which withdrawal from the
composition scheme shall take effect shall be the date
indicated by him in his application, but such date may not be
prior to the commencement of the financial year in which such
application for withdrawal is being filed 31.
III. Denial of option to pay tax under the composition scheme by tax
authorities
 Where the proper officer has reasons to believe that the
registered person was not eligible to pay tax under composition
scheme or has contravened the provisions of the CGST Act or
provisions of this Chapter, he may issue a show cause notice
(SCN) to such person. Upon receipt of reply to SCN, he shall
pass an order either accepting the reply, or denying the option

30
Circular No. 77/51/2018 GST dated 31.12.2018
31
Circular No. 77/51/2018 GST dated 31.12.2018

© The Institute of Chartered Accountants of India

 3.56 INDIRECT TAXES

to pay tax under composition scheme from the date of the

option or from the date of the event concerning such
contravention, as the case may be.
 In case of denial of option to pay tax under composition levy
by the tax authorities, the effective date of such denial shall be
from a date, including any retrospective date, as may be
determined by tax authorities. However, such effective date shall
not be prior to the date of contravention of the provisions of the
CGST Act/ CGST Rules 32.
In each of the above cases, such person may furnish a statement in
prescribed form containing details of the stock of inputs and inputs
contained in semi-finished or finished goods held in stock by him on the
date on which the option is withdrawn/denied, within a period of 30 days
from the date from which the option is withdrawn/ or from the date of the
order denying composition scheme.
(6) A person availing composition scheme during a financial year
crosses the turnover of ` 1.5 crore on 9th of December. The option
availed shall lapse from the day on which his aggregate turnover
during the financial year exceeds ` 1.5 crore, i.e. on 9th December, in this
case.

(10) Composition scheme to be adopted uniformly by all the registered

persons having the same PAN [Proviso to section 10(2) and proviso
to section 10(2A)]

All registered persons having the same Permanent Account Number (PAN)
have to opt for composition scheme. If one such registered person opts for
normal scheme, others become ineligible for composition scheme.
(7) A dealer ‘Kishorilal’ has two offices in Delhi and is eligible
for composition levy for goods. If ‘Kishorilal’ opts for the
composition scheme for goods, both the offices would pay
taxes under composition scheme and abide by all the
conditions as may be prescribed for the said composition scheme.

32
Circular No. 77/51/2018 GST dated 31.12.2018

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.57

(11) Composition scheme supplier cannot collect tax [Section 10(4)]

Taxable person opting for the composition scheme shall not collect tax from
the recipient on supplies made by him. It implies that a composition scheme
supplier cannot issue a tax invoice.

(12) Composition scheme supplier cannot enter into credit chain [Section
10(4)]

Taxable person opting for the composition scheme is not entitled to any
credit of input tax.

(13) Imposition of penalty in case of irregular availment of the

composition scheme [Section 10(5)]

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

6. LET US RECAPITULATE
1. Extent & Commencement of CGST Act/ SGST Act/ UTGST Act/ IGST Act

Applicability CGST SGST UTGST IGST

Intra-State supply Inter-State

supply

States of India

Union Territories with

Legislature

Union Territories
without Legislature

© The Institute of Chartered Accountants of India

 3.58 INDIRECT TAXES

2. Levy and collection of CGST/IGST

Particulars CGST IGST

Levied on Intra-State supplies of Inter-State supplies of

goods or services or goods or services or
both both

Collected and paid by Taxable person

Supply outside Alcoholic liquor for human consumption

purview of GST

Value for levy Transaction value under section 15 of the CGST Act

Rates Rates as notified by IGST rate= CGST rate +

Government. SGST rate
Maximum rate of CGST Maximum rate of IGST
can be 20%. can be 40%.

Supplies on which tax  petroleum crude

would be levied w.e.f.  high speed diesel
a notified date  motor spirit (commonly known as petrol)
 natural gas and
 aviation turbine fuel

Tax payable under  Supply of goods or services or both, notified

reverse charge by the Government.
 Supply of specified categories of goods or
services or both by an unregistered supplier
to specified class of registered persons.

Tax payable by the The Government may notify specific categories of

electronic commerce services the tax on supplies of which shall be paid
operator by electronic commerce operator (ECO) as if such
services are supplied through it.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.59

3. Composition levy [Section 10]

Composition levy Advantages
•An option for specified •Low rates of tax
categories of small •Hassel free simple procedures for such taxpayers
taxpayers to pay GST at a
•Simple calculation of tax based on turnover
very low rate on the
basis of turnover. •A very simple annual return

Composition levy provided

•Referred in this chapter as composition levy for
under section 10(1) and
goods
10(2)

Composition levy provided •Referred in this chapter as composition levy

under section 10(2A) for services

Procedure for opting for the scheme

Category of persons How to exercise Effective date of

option composition levy

New registration under Intimation in the From the effective

GST registration form date of registration

Registered person opting Intimation in Beginning of the

for composition levy prescribed form financial year

Turnover limit for composition levy

Turnover limit in preceding FY to opt for composition levy for goods

For Special Category States except • ` 75 lakh

Assam, Himachal Pradesh and J&K

• ` 1.5 crore
For remaining States

Turnover limit in preceding FY to opt for composition levy for services

Turnover for composition • ` 50 lakh in preceding financial year
levy for services

© The Institute of Chartered Accountants of India

 3.60 INDIRECT TAXES

Rates of tax

Composition Category of Rate

scheme registered persons

Manufacturer 1% (½% CGST + ½% SGST/UTGST)

of turnover

For goods Restaurant service 5% (2½% CGST + 2½%

SGST/UTGST) of turnover

Others 1% (½% CGST + ½% SGST/UTGST)

of turnover of taxable supplies

For services 6% (3% CGST + 3% SGST/UTGST)

Conditions and restrictions for composition levy

Person opting for composition:

is neither a casual taxable person nor a non-resident taxable person

shall pay tax under section 9(3)/9(4) on inward supply

is not engaged in the manufacture of notified goods, namely, icecream, panmasala,

tobacco and aerated waters

shall mention the words “composition taxable person, not eligible to collect tax
on supplies” at the top of the bill of supply issued by him

shall mention the words “composition taxable person” at a prominent place at his
place of business

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.61

Who are NOT eligible to opt for composition scheme?

Registered person who is not Registered person who is not

eligible for composition scheme eligible for composition scheme for
for goods services

Supplier engaged in making any Supplier engaged in making any

supply of goods which are not supply of goods or services which
leviable to tax are not leviable to tax

Supplier engaged in making any Supplier engaged in making any

inter-State outward supplies of inter-State outward supplies of
goods goods or services

Person supplying any goods Person supplying any goods or

through an electronic commerce services through an electronic
operator who is required to collect commerce operator who is required
tax at source under section 52* to collect tax at source under section
52*

Manufacturer of ice cream, Manufacturer of notified goods [ice

panmasala, tobacco and aerated cream, panmasala, tobacco and
waters aerated waters] or supplier of
notified services

Supplier who is either a casual Supplier who is either a casual

taxable person or a non-resident taxable person or a non-resident
taxable person taxable person.

Supplier of services, save as

provided in section 10(1)**

**A registered person opting for composition scheme for goods is allowed to supply services
[other than restaurant services] alongwith supply of goods or supply of restaurant services of
value not exceeding 10% of the turnover in the preceding financial year in a State/Union
territory or ` 5 lakh, whichever is higher. Here, while computing turnover in a State/UT,
interest on loans/deposit/advances will not be taken into account.

© The Institute of Chartered Accountants of India

 3.62 INDIRECT TAXES

Other points

Bill of supply shall be issued instead of tax invoice.

Tax shall not be not collected from recipient of supply

Input tax credit shall not be availed

Composition Scheme if availed shall include all registered persons having same
PAN
Penalty shall be imposed in case of irregular availment of the composition scheme

7. TEST YOUR KNOWLEDGE

1. State the person liable to pay GST in the following independent cases
provided recipient is located in the taxable territory:
(a) Services provided by an arbitral tribunal to any business entity.
(b) Sponsorship services provided by a company to an individual.
(c) Renting of immovable property service provided by the Central
Government to a registered business entity.
2. Vivek Goyal, director of A2Z Pvt. Ltd., has received sitting fee amounting to
` 1 lakh from A2Z Pvt. Ltd for attending the Board meetings. Who is the
person liable to pay tax in this case?
3. Raghu Associates provided sponsorship services to WE-WIN Cricket Academy,
an LLP. Determine the person liable to pay tax in this case.
4. 'Safe Trans', a Goods Transport Agency, transported goods of Kapil & Co., a
partnership firm, which is not registered under GST. Determine the person
liable to pay tax in this case.
5. Legal Fees is received by Sushrut, an advocate, from M/s. Tatva Trading
Company having turnover of ` 50 lakh in preceding F. Y. Who is the person
liable to pay tax in this case?
6. State the person liable to pay GST in the following independent cases
provided recipient is located in the taxable territory:
(a) Services supplied by an insurance agent to an Insurance Company.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.63

(b) Services supplied by a recovery agent to a car dealer.

(c) Security services (services provided by way of supply of security
personnel) provided to a registered person.
7. Sultan & Sons, a partnership firm, in Nagpur, Maharashtra is a wholesaler of
a taxable product ‘P’ and product ‘Q’ exempt by way of a notification, in the
State of Maharashtra. Its aggregate turnover in the preceding financial year
is ` 130 lakh. The firm wishes to opt for composition scheme under sub-
sections (1) & (2) of section 10 of the CGST Act. However, its accountant is of
the view that a person engaged in making supply of exempt goods is not
eligible for the said scheme. Discuss.
Note: Assume that Sultan & Sons is not engaged in manufacture of goods as
notified under section 10(2)(e).
8. A person availing composition scheme, under sub-sections (1) & (2) of section
10 of the CGST Act, in Haryana during a financial year crosses the turnover of
` 1.5 crore in the month of December. Will he be allowed to pay tax under
composition scheme for the remainder of the year, i.e. till 31st March? Please
advise.
9. Determine whether the suppliers in the following cases are eligible for
composition levy, under section 10(1) & 10(2) of the CGST Act, 2017, provided
their turnover in preceding year does not exceed ` 1.5 crore:
(i) Mohan Enterprises is engaged in trading of pan masala in Rajasthan
and is registered in the same State.
(ii) Sugam Manufacturers has registered offices in Punjab and Haryana
and supplies goods in neighbouring States.
10. Subramanian Enterprises has two registered places of business in Delhi. Its
aggregate turnover for the preceding year for both the places of business was
` 120 lakh. It wishes to pay tax under composition levy, under section 10(1)
& 10(2) of the CGST Act, 2017, for one of the places of business in the current
year while under normal levy for other. You are required to advice
Subramanian Enterprises whether he can do so?
11. Mr. Ajay has a registered repair centre where electronic goods are
repaired/serviced. His repair centre is located in State of Rajasthan and he is
not engaged in making any inter-State supply of services. His aggregate
turnover in the preceding financial year (FY) is ` 45 lakh.

© The Institute of Chartered Accountants of India

 3.64 INDIRECT TAXES

With reference to the provisions of the CGST Act, 2017, examine whether Mr.
Ajay can opt for the composition scheme under section 10(1) &10(2) of the
CGST Act, 2017 in the current financial year? Or whether he is eligible to avail
benefit of composition scheme under section 10(2A)? Considering the option
of payment of tax available to Mr. Ajay, compute the amount of tax payable
by him assuming that his aggregate turnover in the current financial year is
` 35 lakh.
Will your answer be different if Mr. Ajay procures few items required for
providing repair services from neighbouring State of Madhya Pradesh?
12. M/s United Electronics, a registered dealer, is supplying all types of electronic
appliances in the State of Karnataka. Their aggregate turnover in the
preceding financial year by way of supply of appliances was ` 120 Lakh.
The firm also expects to provide repair and maintenance service of such
appliances from the current financial year.
With reference to the provisions of the CGST Act, 2017, examine:
(i) Whether the firm can opt for the composition scheme, under section
10(1) and 10(2) of the CGST Act, 2017, for the current financial year, as
the turnover may include supply of both goods and services?
(ii) If yes, up to what amount, the services can be supplied?

8. ANSWERS/HINTS
1. (a) Since GST on services provided or agreed to be provided by an
arbitral tribunal to any business entity located in the taxable territory
is payable under reverse charge, in the given case, GST is payable by
the recipient - business entity.
(b) GST on sponsorship services provided by any person to any body
corporate or partnership firm located in the taxable territory is
payable under reverse charge. Since in the given case, services
have been provided to an individual, reverse charge provisions will
not be attracted. GST is payable under forward charge by the
supplier – company.
(c) GST on services supplied by Central Government, State
Government, Union territory or local authority by way of renting of
immovable property to a person registered under CGST Act, 2017
is payable under reverse charge. Therefore, in the given case, GST

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.65

is payable under reverse charge by the recipient – registered

business entity.
2. GST on supply of services by director of a company to the said company
located in the taxable territory is payable on reverse charge basis.
Therefore, in the given case, person liable to pay GST is the recipient of
services, i.e., A2Z Pvt. Ltd.
3. In case of services provided by any person by way of sponsorship to any
body corporate or partnership firm, GST is liable to be paid under reverse
charge by such body corporate or partnership firm located in the taxable
territory. Further, for the reverse charge purposes, Limited Liability
Partnership formed and registered under the provisions of the Limited
Liability Partnership Act, 2008 is also be considered as a partnership firm.
Therefore, in the given case, WE-WIN Cricket Academy is liable to pay GST
under reverse charge.
4. In case of services provided by Goods Transport Agency (GTA) in respect of
transportation of goods by road to, inter alia, any partnership firm whether
registered or not under any law; GST is liable to be paid by such partnership
firm. Therefore, in the given case, Kapil & Co. is liable to pay GST under
reverse charge.
5. GST on legal services supplied by an advocate [Mr. Sushrut] to any business
entity [M/s. Tatva Trading Company] located in the taxable territory is
payable on reverse charge basis.
Therefore, in the given case, person liable to pay GST is the recipient of
services, i.e., M/s. Tatva Trading Company.
6. (a) GST on services supplied by an insurance agent to any person
carrying on insurance business located in the taxable territory is
payable under reverse charge. Therefore, in the given case, GST is
payable under reverse charge by the recipient – Insurance
Company.
(b) GST on services supplied by a recovery agent to a banking
company or a financial institution or a non- banking financial
company located in the taxable territory is payable under reverse
charge. However, since, in the given case, services are being
supplied by a recovery agent to a car dealer, GST is payable under
forward charge by the service provider - recovery agent.

© The Institute of Chartered Accountants of India

 3.66 INDIRECT TAXES

(c) GST on security services (services provided by way of supply of

security personnel) provided to a registered person, located in the
taxable territory is payable under reverse charge. Therefore, in the
given case, GST is payable under reverse charge by the recipient –
registered person receiving the services.
7. The view taken by the accountant of Sultan & Sons is not valid in law. A
registered person with an aggregate turnover in a preceding financial year
up to ` 1.5 crore is eligible for composition levy, under section 10(1) &
10(2), in Delhi. Further, such person must not be engaged in making any
supply of goods which are not leviable to tax under this Act and must not
be engaged in making any inter-State outward supplies of goods, for being
eligible to pay tax under said scheme.
In the given case, the aggregate turnover of Sultan & Sons does not exceed
` 1.5 crore. Further, it is engaged in making only intra-State supply of
goods and Product P supplied by it is taxable and Product Q supplied by it
is leviable to tax though exempted by way of notification. Therefore, it is
eligible for composition levy under section 10(1) & 10(2) in the current year.
8. No. The option to pay tax under composition scheme lapses from the day
on which the aggregate turnover of the person availing composition
scheme for goods during the financial year exceeds the specified limit (` 1.5
crore). Once he crosses the threshold, he is required to file an intimation for
withdrawal from the scheme in prescribed form within 7 days of the
occurrence of such event.
Every person who has furnished such an intimation, may electronically
furnish at the common portal, a statement in prescribed form containing
details of the stock of inputs and inputs contained in semi-finished or
finished goods held in stock by him on the date on which the option is
withdrawn, within a period of 30 days from the date from which the option
is withdrawn.
9. (i) A supplier engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY is not eligible for
composition scheme under section 10(1) and 10(2). Ice cream and
other edible ice, whether or not containing cocoa, Pan masala, Tobacco
and manufactured tobacco substitutes and aerated waters are notified
under this category. However, in the given case, since Mohan
Enterprises is engaged in trading of pan masala and not manufacture

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.67

and his turnover does not exceed ` 1.5 crore, he is eligible for
composition scheme subject to fulfilment of specified conditions.
(ii) Since supplier of inter-State outward supplies of goods is not
eligible for composition levy, Sugam Manufacturers is not eligible
for composition levy.
10. A registered person with an aggregate turnover in a preceding financial year
up to ` 1.5 crore is eligible for composition levy, under section 10(1) &
10(2), in Delhi. Since the aggregate turnover of Subramanian Enterprises
does not exceed ` 1.5 crore, it is eligible for composition levy in the current
year. However, all registered persons having the same Permanent Account
Number (PAN) have to opt for composition scheme. If one such registered
person opts for normal scheme, others become ineligible for composition
scheme. Thus, Subramanian Enterprises either have to opt for composition
levy for both the places of business or under normal levy for both the places
of business.
11. Section 10(1) provides that a registered person, whose aggregate turnover
in the preceding financial year did not exceed ` 1.5 crore (` 75 lakh in
Special Category States except Assam, Himachal Pradesh and Jammu and
Kashmir), may opt to pay, in lieu of the tax payable by him, an amount
calculated at the specified rates. However, as per proviso to section 10(1),
person who opts to pay tax under composition scheme may supply services
other than restaurant services, of value not exceeding 10% of the turnover
in a State or Union territory in the preceding financial year or ` 5 lakh,
whichever is higher.
In the given case, since Mr. Ajay is an exclusive supplier of services other
than restaurant services [viz. repair services], he is not eligible for
composition scheme under section 10(1) & 10(2).
However, section 10(2A) provides an option to a registered person
(subject to certain conditions) whose aggregate turnover in the
preceding financial year is upto ` 50 lakh and who is not eligible to pay
tax under composition scheme under section 10(1) & 10(2), to pay tax @
3% [Effective rate 6% (CGST+ SGST/UTGST)] of the turnover of supplies
of goods and services in the State or Union territory.
Thus, in view of the above-mentioned provisions, Mr. Ajay is eligible to
avail the composition scheme under section 10(2A) as his aggregate

© The Institute of Chartered Accountants of India

 3.68 INDIRECT TAXES

turnover in the preceding FY does not exceed ` 50 lakh and he is not

eligible to opt for the composition scheme under section 10(1) & 10(2).
Thus, the amount of tax payable by him as per the composition scheme
under section 10(2A) is ` 2,10,000 [6% of ` 35 lakh].
A registered person cannot opt for composition scheme under section
10(2A), if, inter alia, he is engaged in making any inter-State outward
supplies. However, there is no restriction on inter-State procurement of
goods. Hence, answer will remain the same even if Mr. Ajay procures few
items from neighboring State of Madhya Pradesh.
12. (i) The registered persons, whose aggregate turnover in the preceding
financial year did not exceed ` 1.5 crore, may opt to pay tax under
composition levy, under section 10(1) and 10(2).
The scheme can be availed by an intra-State supplier of goods and
supplier of restaurant service.
However, the composition scheme permits supply of marginal
services (other than restaurant services) for a specified value along
with the supply of goods and restaurant service, as the case may
be.
Thus, M/s United Electronics can opt for composition scheme for
the current financial year as its aggregate turnover is less than ` 1.5
crore in the preceding financial year and it is not engaged in inter-
State outward supplies.
(ii) The registered person opting for composition scheme, under
section 10(1) and 10(2), can also supply services (other than
restaurant services) for a value up to 10% of the turnover in the
preceding year or ` 5 lakh, whichever is higher, in the current
financial year.
Thus, M/s United Electronics can supply repair and maintenance
services up to a value of ` 12 lakh [10% of ` 20 lakh or ` 5 lakh,
whichever is higher] in the current financial year.

© The Institute of Chartered Accountants of India

 CHARGE OF GST 3.69

AMENDMENTS MADE VIDE THE FINANCE ACT, 2020

The Finance Act, 2020 has become effective from 27.03.2020. However, most of
the amendments made in the CGST Act and IGST Act vide the Finance Act, 2020
would become effective only from a date to be notified by the Central
Government in the Official Gazette. Such a notification has not been issued till
the time this Study Material is being released for printing. Therefore, the
applicability or otherwise of such amendments for May 2021 and/or November
2021 examinations shall be announced by the ICAI only after such notification is
issued by the Central Government.
In the table given below, the existing provisions 33 relating to section 10 are
compared with the provisions as amended by the Finance Act, 2020.
Once the announcement for applicability of such amendments for examination(s)
is made by the ICAI, students should read the provisions given hereunder in place
of the related provisions discussed in the Chapter.

Existing provisions Provisions as amended by Remarks

the Finance Act, 2020

Sub-section (2) Sub-section (2) Section 10(2) is

“The registered person “The registered person shall being amended to
shall be eligible to opt be eligible to opt under sub- harmonise the
under sub-section (1), section (1), if– conditions for
if– (a)……………. eligibility for opting
(a)……………. to pay tax under
(b) he is not engaged in
composition scheme
(b) he is not engaged making any supply of
under sub-sections
in making any goods or services which
(1) and (2) and
supply of goods are not leviable to tax
under sub-section
which are not under this Act
(2A) of the CGST Act.
leviable to tax (c) he is not engaged in
under this Act making any inter-State
(c) he is not engaged outward supplies of
in making any goods or services
inter-State outward (d) he is not engaged in
supplies of goods making any supply of

33
Provisions existing as on the date when the Study Material was released for printing

© The Institute of Chartered Accountants of India

 3.70 INDIRECT TAXES

(d) he is not engaged goods or services

in making any through an electronic
supply of goods commerce operator who
through an is required to collect tax
electronic at source under section
commerce 52; and
operator who is (e)…….
required to collect (f)………”
tax at source under
section 52; and
(e)…….
(f)………”

© The Institute of Chartered Accountants of India