MIT First Grade College

Manandavadi Road, Mysore-08

Affiliated to University of Mysore

VISION OF THE INSTITUTE

Empower the individuals and society at large through educational excellence; sensitize them
for a life dedicated to the service of fellow human beings and mother land.

MISSION OF THE INSTITUTE

To impact holistic education that enables the students to become socially responsive and use-
ful, with roots firm on traditional and cultural values; and to hone their skills to accept chal-
lenges and respond to opportunities in a global scenario.

Lecture Notes on Business Taxation paper -1 Indirect Tax Law and practice (SC 09)

Prepared by

Puneeth

Assistant Professor

P G Department of Commerce

MIT FGC, Mysuru.

Course Outcome Of Business Taxation (Corporate Tax Law And Planning)

Code Subject Name L T P C

MC04CTP Corporate Tax Law And Planning 03 01 - 04
Pre-Requisite Direct Tax Law
Co-Requisite Corporate Taxation

CO.No. Expected Course Outcomes Cognitive

Level
CO-1 Understanding of different types of company and their tax in-
U L-2
cidence.
CO-2 Explain the computation of taxable income under different An L-4
heads of income and Analyze the Minimum Alternative Tax

1
CO-3 Analyze the basic principles and various methods of tax
An L-4
planning to reduce the Tax burden of the company
CO-4 Understand the role of tax consultant relating to TDS. U L-2
Understanding the concept of Advance payment of Tax, Re-
CO-5 mittance of corporate income tax, and preparation of various U L-2
forms.

Syllabus

1. Course Description:

This paper is to educate the taxation students about Indian Tax System, its background, and
its operation in the global competitive market. The importance and administration of the indi-
rect taxes in the Indian market oriented economy and its role in achieving the objectives of
modern welfare government. To understand the relevance of GST in the present Indian Tax
Scenario.

Course Objectives:

After completion of this course the students would be able:

1) To understand the importance of indirect taxes (GST) in the Indian and global economy
and its contribution for the economic development.

2) To comprehend the principles of taxations, objectives of taxes and its impact, shifting and
incidence process of indirect taxes in market orientated economy.

3) To understand the implications of indirect taxes on the taxable capacity consumers, dealers
and of the society at large and its changes.

4) To make them to be a tax consultant in preparing the tax planning, tax management, Pay-
ment of tax and filling of tax returns.

5) To understand the impact of GST on Domestic, National and International Trade and edu-
cating the students as a tax audit, consultant and mangers.

3. Pedagogy:

1) Lecture:

2) Tutorial and bridge class*(Non tax students)

3) Live leading cases pending and deciding in the high court and supreme courts.

2
4) Practical works: Tax planning, Tax management, filing of various tax returns and working
as consultants and tax adviser for small companies nearby dealers and companies relating to
GST and Customs

4. Course Contents:

Module 1: Constitutional Provision for Indian tax system, structure of Indian tax system.
Public finance, public expenditure and public revenue. Principle and objectives of taxations
in the modern welfare governments. Indian tax structure, different types of taxes- taxes under
indirect tax family in India, methods of taxations, tax reforms and recent tax reforms commit-
tees and its recommendations and fiscal discipline.

Module 2: GST-Genesis, History, Constitutional Background of GST, GST Bills, GST- Cen-
tral and State Financial relations, Finance commissions, Salient features of GST, Tax Re-
forms and GST in India, Tax compliance, GST administrative structure both central and state
level, Advantages of GST- Economy, Governments, dealers and consumers, E-Commerce
and GST GST-Issues, challenges and problems.- Legal case study.

Module-3: Taxes under GST- levy and incidence of GST, Value of Tax event, Rates and
Schedules, CGST, SGST, IGST, Criteria for GST, GST on Exports, Imports and SEZ sup-
plies input credit, Payment of Taxes, Returns Filling, Assessment and Audit of Accounts, un-
der GST, GST refund, Appeals and Revision, Prosecution and Appellate Tribunals. -Case
studies.

Module: 4: Customs Duty: Customs Act, 1962 and Rules, regulations Circulars and Notifica-
tions; Customs Tariff Acts, and the related Rules. Principles governing levy of customs duty,
types of duties at global scenario. Basic principles of classification of goods and valuation of
goods, special provisions regarding baggage, goods imported or exported by post, and stores.
Duty drawback schemes, GATT and WTO objectives principles in customs duty.- Case stud-
ies.

References:

1) Indirect Taxes- Law and Practice: V.S.Datey

2) Karnataka GST Manuals

3) GST Ready Reckoner

4) Bare Acts of Customs, Customs Tariff Acts, GST

5) Public Finance- Mahaveer Thagy

6) Public Finance Prof.H.Doltan

7) GST Bill/Act 2016

3
8) CST Law and Practice-SS Gupta

9) Basic of GST-Nitya Tax association Taxman

10) GST Manual- Taxman publication

11) Indian GST for Beginners –Jayaram Hiregange and Deepak Rao

12) CA Practical Manuals

13) www.gstindia.com

Table of Contents

Sl. No. Topic Page No.

1 History of taxation in India: 5-21
2 GST (GOODS AND SERVICE 21-35
TAX)
3 Taxes under GST 36-72
4 CUSTOMS ACT 1962 73-100

4
Notes

GROUP A: BUSINESS TAXATION

Paper-1
SC07: INDIRECT TAX LAW AND PRACTICE
Goods and Services Tax and Customs Duty

MODULE:1
History of taxation in India:

Tax is a mandatory liability for every citizen of the country. Taxation in India is rooted from
Manu Smrithi and Arthashasthra. Present Indian tax system is based on this ancient tax sys-
tem which was based on the theory of maximum social welfare.

Meaning of tax: it is a compulsory contribution imposed by the government on its citizens to

meet its expenses incurred for the common good, without any corresponding benefits to the
payer.

Why we do pay taxes?

❖ To provide basic facilities for every citizens of the country

❖ To finance multiple Government

❖ Protection of the life

❖ To build infrastructure

❖ To maintain health and security of India and Indian citizens.etc

Constitutional provision for Indian tax system:

Constitution is the foundation and source of power to legislate all laws in India. Taking about
the taxation laws and the interpretation of taxation laws, every lawyer or a tax professional
practicing taxation laws must understand the basic provision of constitution relating to taxa-
tion including the powers of parliament and state legislature to legislate regarding levy and
collection of tax, the restriction imposed by our constitution on such powers, entries concern-
ing taxation in central list i.e. List-1 and state list i.e List-2 of seventh schedule to constitution
of India.
5
Therefore it is important to understand the power and scheme of taxation under constitution
before understanding the taxation laws.

E.g. State VAT Acts have been legislated by state legislature under entry of 54 of List -2 of
the 7th schedule must levy tax only on the sale or purchase of goods other than newspapers
within the state jurisdiction.

Some of the relevant provision of our constitution relating to taxation;

Article 246 of the Indian Constitution, distributes legislative powers including taxation, be-
tween the Parliament of India and the State Legislature. Schedule VII enumerates these sub-
ject matters with the use of three lists:

❖ List-1 (Union list)-Article 246(1) :entailing the areas on which only the parliament is
competent to make laws,

❖ List-2 (State list)-Article 246(3) :entailing the areas on which only the state legisla-
ture can make laws, and

❖ List-3 (Concurrent list) :listing the areas on which both the Parliament and the State
Legislature can make laws upon concurrently.

In case of union territories, Union Government can make laws in respect of all the entries in
all the three lists.

Union/central list(list-1) (heads of taxation) (Entry no 82 to 97)

▪ Entry no.82 -Tax on income other than agriculture(income tax act 1961)

▪ 83 - duties of customs including export duties (customs act 1962)

▪ 84 -duties of excise on goods produced in India (except alcoholic liquor for human
consumption and opium) central excise act 1944.

▪ 85 -Corporate tax

▪ 86 -Taxes on capital value of assets, exclusive of agriculture land of individuals and

companies, taxes on capital of companies.

▪ 87 -Estate duty in respect of property other than agriculture land

▪ 88 -Duties in respect of succession to property other than agriculture land

▪ 89 -Terminal taxes on goods or passengers, carried by railways, sea or air, taxes on

railway and fright.

6
 ▪ 90 -Taxes other than stamps duties on transactions in stock exchange an future mar-
kets.

▪ 91-rate of stamp duty in respect of bills of exchange, cheques,promissory notes, bills

of landing, letter of credit, policies of insurance, transfer of shares, debentures and re-
ceipts.

▪ 92 -Taxes on the sale or purchase of newspapers and on advertisements published

there in.

▪ 92(A) -Taxes on sale or purchase of goods other than news papers, where such sale or
purchase takes place in the course of inter state trade or commerce.

▪ 92(B) - Taxes on the consignment of goods in the course of inter state trade or com-
merce

▪ 92(C) - Tax on Services

▪ 97- Any other matters not include in list-2,list-3, and any tax not mentioned in list-3.

State list (list-2)(heads of taxation):

▪ Entry no.46- tax on agriculture income

▪ 51- excise duty on alcoholic liquor, opium.

▪ 47- Duties in respect of succession to agricultural income.

▪ 49- taxes on land and building

▪ 50- taxes on mineral right

▪ 52- taxes on entry off goods into a local area for consumption, use or sale therein.

▪ 53-taxes on the consumption or sale of electricity

▪ 54- taxes on the sale or purchase of goods other than news papers

▪ 55- taxes on advertisement other than advertisement published in news papers and ad-
vertisements broadcast by radio or television.

▪ 56-taxes on goods and passenger carried by roads or on in land waterways.

▪ 57- taxes on vehicles suitable for use on roads

▪ 58- taxes on animals and boats.

▪ 59- tolls

7
 ▪ 60- taxes on profession, traders, callings and employment.

▪ 61- capitalisation taxes

▪ 62- taxes on luxuries, including taxes on entertainment amusement, betting and gam-
bling

Concurrent list/list-3:

It contains the areas in respect of which both the parliament and the state legislature can make
laws concurrently. It is important to note that this list does not specify any law relating to tax-
ation. In another words there is no head of taxation under the concurrent list and hence union
and state have no concurrent power of taxation.

Relationship between central and states.

India is a union of states. The constitution of India has divided the legislative, executive and
financial power between the central and states, which gives the constitution a federal charac-
ter whereas judiciary is integral in a hierarchical structure.

The central-state relations are divided into three parts, which are mentioned bellow.

1. Legislative relationship(Article 245-255)

2. Administrative relationship(Article 256-263)

3. Financial relationship(264-293)

Allocation of taxing powers:

The constitution has provided the union government and the state with the independent
sources of revenue. It allocates the power to central and the states in the following way.

1. The parliament has exclusive power to levy taxes on the subjects mentioned in the un-
ion list.

2. The state legislature has exclusive power to levy taxes on the subjects mentioned the
state list.

3. Both the parliament and the state legislature are empowered to levy taxes on the sub-
jects mentioned in the concurrent list.

4. The parliament has exclusive power to levy taxes on the matters related to the residu-
ary subjects.

Structure of Indian tax system:

8
Direct tax: The tax burden, which cannot be shifted to any other person. The impact and the
incidence of the tax i.e. Ultimate burden of a direct tax is on the same person.

Indirect tax: An Indirect tax is imposed on one person but paid partly or wholly by another.
Means the burden of tax is easily shifted to another.

Tax structure in India;

TYPES OF TAXES

DIRECT TAXINDIRECT TAX

➢ Income tax
➢ Corporate tax
➢ Wealth tax
➢ Estate tax
➢ Expenditure tax
➢ Professional tax
➢ Entertainment tax
➢ Gift tax
Difference between direct tax and indirect tax

Direct tax Indirect tax

1. They do not have any impact on costs 1. Increase in rates of indirect taxes
and prices of goods leads to increase in cost and prices.

2. Income tax, corporate tax, wealth tax 2. Central excise duty, customs duty,
are example for direct taxes sales tax ,service tax are example for
indirect tax..
3. These taxes are based on principles of
equity 3. They do not discriminate between
rich and poor. Thus levy is against the
4. It is levied on income or wealth of an principle of equity.
accessee.Thus they do not affect those
with low income or wealth. 4. The burden of indirect tax is falls on the
rich and poor alike. They are taxes on con-
There is no shifting of burden. The impact sumption.
and incidence of direct taxes falls on the
same person. 5. There is a clear shifting of burden in re-
spect of indirect taxes.

Methods of taxation:

9
1. Proportional taxes: Tax system in which the rate of tax remain constant, though the tax
base changes, are called proportional tax. Here the tax base be income, money value of prop-
erty , wealth or goods etc..,

E.g.:

Tax base Tax rate Amount of tax

10000 10% 1000
20000 10% 2000
30000 10% 3000

2. Progressive taxes: Tax system in which the rate of tax increase are called progres-
sive taxes. Thus in a progressive tax the amount of tax payable will increase at a high-
er rate then the increase in the tax base or income.

E.g.:

Tax base Tax rate Amount of tax

10000 10% 1000
20000 15% 3000
30000 25% 7500

3. Regressive taxes: when the rate of tax decreases as the tax base increases,such taxes
are called regressive taxes. Means tax rate decrease as the income increases.

E.g.:

Tax base Tax rate Amount of tax

10000 10% 1000
20000 7% 1400
30000 5% 1500
4. Digressive taxes: A tax may be progressive up to some limit, after that it may be
charged at a flat rate.

E.g.:

Tax base Tax rate Amount of

tax
200000 Nil 00
350000 10% 35000
750000 20% 150000
1100000 30% 330000
130000 30% 390000

10
Public Finance:

Public Finance means finance of the government. The word public refers to general people
and the finance means resources. So public finance means resources of the masses, in which
they collected and utilized. Thus Public Finance is the branch of Economics that studies the
taxing and spending activities of government.

Definition: “Public finance is concerned with the income and expenditure of public authori-
ties, and with the adjustment of the one to the other”.

Scope of Public Finance:

Public Finance not only includes the income and expenditure of the government but also the
sources of income and the way of expenditure of various government corporations, public
companies and semi government ventures.

1. Public Revenue

2. Public Expenditure

3. Public Debt

4. Financial administration

5. Economic stabilisation

6. Federal Finance

Functions of public finance:

1. Allocations function

2. Distribution function

3. Stabilisation function

Public Revenue:

The income of the government through all sources is called public income or public revenue.

We can classified public revenue into two types.

1. Tax Revenue

2. Non-Tax Revenue

Tax Revenue:

11
A fund raised through the various taxes is refers to as tax revenue.

Types of taxes/methods of taxes

1. Direct and Indirect t axes

2. Proportional,progressive, regressive and digressive.

Non-tax Revenues:

Public income received through the administration, commercial enterprises, gifts, and grants
are sources of non-tax revenues of the government.

➢ Fees and penalties

➢ Prices

➢ Gifts and donation

➢ Grants

➢ Interest

Public expenditure:

Public expenditure refers to government expenditure i.e., government spending. It is incurred

by central, state, and local government of a country.

Classification of expenditure:

1. Functional classification

2. Revenue and Capital Expenditure

3. Administrative expenditure

4. Security expenditure

5. Development expenditure

6. Social expenditure

7. Public debt charges

Conclusion about Public Finance;

Therefore, public finance has not only to raise resources for developing and to achieve opti-
mum allocation of resources, but also to promote fair distribution of income and expansion in
employment opportunities.

12
Principles of Taxation:

A good tax system must fulfil certain principles if it is to raise adequate rev-
enue and fulfil certain social objectives.

➢ Principles of equity

➢ Principles of certainty

➢ Principles of convenience

➢ Principles of economy

➢ Principles of productivity

➢ Principle simplicity

➢ Principle of diversity

Canons/Principles of Taxation

A good tax system should adhere to certain principles which become its characteristics. A
good tax system is therefore based on some principles. Adam Smith has formulated four im-
portant principles of taxation. A few more have been suggested by various other economists.
These principles which a good tax system should follow are called canons of taxation.

Adam Smith’s four canons of taxation

➢ Canon of Equality

➢ Canon of Certainty

➢ Canon of Convenience

➢ Canon of Economy

Canons / principles

➢ Canon of Equality

This states that persons should be taxed according to their ability to pay taxes. That is why
this principle is also known as the canon of ability. Equality does not mean equal amount of
tax, but equality in tax burden. Canon of equality implies a progressive tax system.

➢ Canon of Certainty

According to this canon, the tax which each individual is required to pay should be certain
and not arbitrary. The time of payment, the manner of payment and the amount to be paid

13
should be clear to every tax payer. The application of this principle is beneficial both to the
government as well as to the tax payer.

➢ Canon of Convenience

According to this canon, the mode and timings of tax payment should be convenient to the
tax payer. It means that the taxes should be imposed in such a manner and at the time which
is most convenient for the tax payer.

For example, government of India collects the income tax at the time when they receive their
salaries. So this principle is also known as ‘the pay as you earn method’.

➢ Canon of Economy

Every tax has a cost of collection. The canon of economy implies that the cost of tax collec-
tion should be minimum.

Objectives of taxation:

▪ To get income

▪ To regulate and control

▪ Prevent concentration of wealth in a few hands

▪ Boost up the economy

▪ Allocation of resources

▪ Control over prices

Indirect tax in India

▪ Central excise duty

▪ Customs duty

▪ Central sales tax

▪ Service tax

▪ State level value added tax(VAT)

Central excise duty:

This is a tax levied by the central government on the goods produced or manufacturing in In-
dia.it is an indirect tax because the burden of this tax falls on the consumer and not on the
producer, who pays it in the first instance. Producer pass on this tax to the consumer by in-
creasing the prices of the product.
14
The central excise act 1944:

The central excise act 1994 is the basic Act providing for charging of duty, time and manner
of payment of duty, procedure for appointment and powers of officers, provision for of arrest,
penalty etc.,.

There are 4 conditions for levy of central excise duty

▪ The duty is on goods

▪ The goods must be excisable

▪ The goods must be manufactured or produced

▪ Such manufacture or production must be in India.

Service tax:

Service tax is one of the indirect taxes like sales tax, customs and excise duty. Its impact is on
‘service provider’ and incidence is on ‘user of service’. To earn revenue, service tax was in-
troduced in India in the year 1994-95.Iinitially only three services are taxable such as tele-
phone service, non-life insurance and stock broker were taxed at 5%.

In 1994 The Finance Minister Manmohan Singh in his speech introduced the concept of ser-
vice tax (Finance Act 1994).

Presently around 117 services are taxable services.

E.g. Banking services, hotel service, adverting agency, ATM operation, Financial services,
Airport, Telecommunication, Tour operations, Real estate, mining, market research agency.

VAT(Value Added Tax):

VAT was introduced in 01-04-2005.It is a multistage tax with credit for taxes paid on busi-
ness purchase. It is levied on value addition at each stage of transaction in the production and
distribution chain, with the provision to allow ‘input tax credit’ (ITC)on tax at an earlier
stage. VAT was introduced in 01-04-2005.

Dual structure of VAT.

1. CENVAT (central level) (MODVAT)

2. K-VAT/SVAT (state level)

Tax on sale of goods while intra-state sale of goods are covered by the VAT law of that state,
inter-state of goods is covered by the central sales tax.

Sales tax:

15
It is levied on business transactions. Registered trading concerns that are required to pay sales
tax, that tax burden shifted to the customers. Sales tax was in two forms.

1. State sales tax

2. Central sales tax

For charging of CST the goods are classified under two heads (The Central Sales Tax Act
1956).

a) Declared goods

b) Undeclared goods

Customs duty:

Customs duty refers to the duty levied on the import of the goods as well as on the export of
the goods. Duty imposed on the goods imported into the country is called import duty and the
duty levied on the goods exported out of country is called export duty.

Basis of determining the duty:

❖ Ad-valorem duty:

Duty is determined on the basis of value of goods.

❖ Specific duty :

Duty is determined on the basis of measurement of goods.

Difference between excise duty and customs duty:

Excise duty Customs duty

▪ It is a tax on manufacture of levy and rates of duty.

goods.

▪ Excisable goods have been classi-

Excise duty on some products are levied
fied by CETA 1985,for the purpose
by central
of government but collected and
appropriated by the state govern-
ment.

▪ Excise duty is levied by state gov-

It is charged in respect of goods imposed
ernment in respect of alcoholic liq-
into export /export from India
uor for human consumption, opium
etc..,

16
 ▪ Goods have been classified by cus-
toms Tariff Act 1975 for the pur-
pose of levy and rated of duty.
▪ Customs duties are the sole power
of the central government
▪ State governments are not empow-
ered to levy customs duty.

Difference between tax and duty

TAX DUTY
▪ Duty is a fee payable to the
▪ Tax is a financial obligation
government on the manufac-
which is to be paid to the
ture and import and export
government compulsory.
of goods.
▪ Tax is not a type of duty
▪ The duty is a type of the tax.
▪ Tax is charged on individu-
▪ Duty is charged on goods.
als, wealth, services and
▪ The major types of duties
sales.
are excise and customs duty.
▪ There are two major type of
▪ But only the central gov-
taxes i.e., Direct tax and indi-
ernment has got the authori-
rect tax.
ty to levy duty.
▪ The central government and
state government can im-
pose taxes.

Tax reforms committees:

Introduction:

Reforms aimed at improving efficiency, production and competitiveness of Indian industries

and importing dynamism to the overall growth process.

The basic objective of Fiscal reforms particularly after 1991 has been to reduce fiscal deficit
to sustainable levels by expenditure management and resources mobilisation through rational-
isation of taxes and duties, widening of tax base, modernising of the administration, focussing
attention on contingent liabilities and improving centre-state fiscal relationship.

17
In 1991, the government set-up the tax reforms committee under the chairmanship of Raja J
Chelliah to examine , then tax structure of the country and suggest appropriate changes there-
in. In its report submitted to the government in January 1993, it has made several recom-
mendations for reforming India’s tax structure.

The committee has suggested far- reaching changes in the system with in a two fold objec-
tives.

1. To remove the present defects , and

2. To make it more productive ( i.e., to make it more efficient from the revenue raising
point of view)

The committee suggested that the tax system of the country and laws related to taxes should
be made as simple as possible.

There are two ways of simplifying the tax system

1. Introducing a limited number of rated and

2. Allowing few exemption or deductions.

The Chelliah Committee recommendation:

1. Lowering rate and narrowing spread.

2. Avoiding double taxation

3. Reducing corporate tax rate difference between domestic and foreign companies.

4. Rationalising capital gains tax

5. Rationalisation of wealth tax

6. Tariff reduction:

*A reduction in the general level of tariffs

*A reduction in the dispersion of the tariff rates and

*A rationalisation of the system with abolition of the numerous end-use exemptions and con-
cessions.

7. Rationalisation of Excise duty.

Follow up of measures:

▪ Regarding personal income tax

18
 ▪ Regarding Service tax

▪ Regarding corporate tax

▪ Regarding tax holiday for investment in infrastructure facilities.

the tax reforms that began with the Chelliah committee recommendations are still going on.
Later on government appointed the Vijay Kelkar Committee.

Vijay kelkar committee

The latest influence to direct tax reforms in India came with the recommendations of the task
force on Direct and Indirect taxes under the chairmanship of Vijay Kelkar in 2002. The main
recommendations of the this task force to the direct taxes related to increasing the income tax
exemption limit, rationalization of exemptions, abolition of long term capital gain tax, aboli-
tion of wealth tax etc.

Major recommendations of Vijay Kelkar committee:

▪ PAN should be extended

▪ Regarding TIN

▪ Abolish the requirement of Tax Clearance certificate

▪ Empower CBDT

▪ Regarding online transactions

Follow up of measures:

▪ Regarding income tax

▪ Regarding corporate tax

▪ Regarding TIN

▪ Regarding PAN

▪ Regarding information technology

Major indirect tax reforms:

▪ First indirect tax reforms occurred in India when the Modified Value Added
Tax(MODVAT) was introduced for selected commodities in 1986 to replace the cen-
tral excise duty (CENVAT)

19
 ▪ Rate of customs duty

▪ Service Tax

▪ VAT introduced in 2005 in 24 states

▪ India’s biggest indirect tax reform is GST

Fiscal Discipline:

Fiscal Discipline means the capacity of the government to maintain or operate smooth finan-
cial operations and long term fiscal health.

The measurement of Fiscal Discipline:

▪ Timely budget adoption

Budget must be structured

20
MODULE -2
GST (GOODS AND SERVICE TAX)
Introduction:

GST is also known as VAT in few countries. The introduction of GST would be a very sig-
nificant step in the field of indirect tax reforms. It is one indirect tax for whole nation, which
will make India one unified common market, by amalgamating a large number of central and
state taxes into a single tax. It would mitigate cascading or double taxation. The biggest ad-
vantage would be in terms of a reduction in the overall tax burden on goods which was 25%
to 30%. Introduction of GST would also make Indian products competitive in the domestic
and international markets.

Meaning and definition of gst

Goods and Services tax is a comprehensive indirect tax on manufacture, sale and consump-
tion of goods and services throughout India.

Definition: "Any tax on supply of goods and services or both except taxes on supply of the
alcoholic liquor for human consumption.”

Objectives of gst

❑ One country one Tax

❑ Consumption based tax instead of manufacturing

❑ Uniform GST registration, payment and input tax credit

❑ To eliminate the cascading effect of indirect taxes on single transaction

❑ Subsume all indirect taxes at centre and state level

❑ Reduce tax evasion and corruption

❑ Increase tax to GDP Ratio and revenue surplus

Features of gst

➢ Supply is the taxable event

➢ Destination based taxation

➢ Dual taxing structure

➢ Integrated GST (IGST)

21
 ➢ BCD + IGST on imports of goods

➢ IGST on imports of services

➢ Export shall be treated as zero rated supply

➢ HSN Code is using for classifying the goods.

➢ Alcoholic liquor excluded from GST

➢ Petroleum products are also excluded from GST for a time being

➢ Entertainment tax

➢ GST is a value added tax

➢ GST does not differentiated between goods and services

➢ No cascading of taxes

Taxes subsumed UNDER GST

TAXES SUBSUMMED UNDER CGST:

 Central excise duty

 Additional excise duty

 Service tax

 Countervailing duty

 Special additional duty

 Excise duty levies under medical and toilet preparation products

 Surcharges and cess relating to supply of goods and services

Taxes subsumed under SGST

 VAT/ Sales tax

 Purchase tax

 Octrai

 Entry tax

 Taxes on lottery, betting and gambling

 Surcharges and cesses relating to supply of goods and services

22
Taxes which were levied on interstate trade were taxed under central sales tax, Now it is sub-
sumed under IGST.

TAXES NOT SUBSUMED UNDER GST

 Basic customs duty

 Excise duty/VAT on petroleum products for initial years.

 Excise duty on tobacco products

 Electricity duty by states

 Entertainment tax levied by local bodied

 State excise on alcoholic beverages

 Tolls, passengers and goods tax on carriage by road/railways.

 Property tax, stamp duty and taxes on immovable properties.

Genesis or origin of GST

The idea of moving towards the GST was first discussed by the Union Finance Minister in his
budget in 2007-08. Initially, it was proposed that GST would be introduced from 1st
April,2010. The Empowered Committee of state finance ministers (EC) which has formulated
that the design of state VAT was requested to come up with a roadmap and structure for the
GST. Joint Working Groups (JWG) of officials having representative of the states as well as
centre were set up to examine various aspects of the GST and drawn up reports specifically
on exemptions and thresholds, taxation of services and taxation of interstate supplies. Based
on discussion within and between states, central government and EC released its First Dis-
cussion Paper on GST in November,2009.

Timeline or history of GST

 2000- Appoints an Empower Committee

 2004- Vijay kelkar advices to finance ministry.

 Feb 28, 2006- GST appears in the budget speech for the first time.

 Feb 28 2007- Chidambaram said in his budget speech that the Empower Committee
of finance ministers will prepare a road map for GST.

 April 30,2008- The Empower Committee submits a report titled ‘A model and
Roadmap of GST in India’ to the government.

23
  Nov 10,2009- Empower Committee submits a discussion paper in the public domain
on GST welcoming debate.

 Feb, 2010- Government launches project for computerisation of commercial taxes.

Finance minister Pranab Mukarjee defers GST to April 1st , 2011.

 March 29, 2011- Bill referred to standing committee on finance.

 March 22, 2011- Constitutional Amendment bill (115th ) to GST introduced in the Lo-
kasabha.

 Nov, 2012- Finance ministers and State ministers decide to resolve all issues by De-
cember 31st, 2012.

 Feb 2013 – Declaring government resolve to introduce GST, the finance minister
makes provisions for compensation to states in the budget.

 Aug 2013- The standing committee submits a report to parliament suggesting im-
provements. But the bill lapsed as the 15th Lokasabha was dissolved.

 Dec 18, 2014- Cabinet approved for the constitutional amendment bill (122nd ) to
GST.

 Dec 19, 2014- The Amendment bill (122nd ) in the Lokasabha.

 May 6,2015- The Amendment bill (122nd ) passed by the Lokasabha.

 May 12, 2015- The Amendment presented in the Rajayasabha.

 May 14, 2015- The bill forwarded to joint committee Rajyasabha and Lokasabha

 Aug 2015- Government fails to win the support of opposition to pass the bill in the
Rajyasabha where it lacks sufficient numbers.

 Aug 3, 2016- Rajysabha passes the constitutional amendment bill by 2\3 majority

 July 1st , 2017- GST has been applicable across the India.

Constitutional background of gst

Introduction of GST would required amendment in the constitutional so as to concurrently

empower the centre and state to levy and collect the GST.

Constitutional (122nd )Amendment bill, 2014

The finance minister Mr Arun Jaitley presented the 122nd constitutional Amendment bill
,2014 on the introduction of GST before the Lokasabha on Dec 19, 2014. The Lokasabha

24
passed the bill 1st May 2015 and referred the same to a select committee of Rajyasabha for
examination.

Significant proposals of the Bill are:

1. GST Council

2. Integrated GST (IGST)

3. Compensation to States.

4. Coverage of goods and services

5. Rate of GST

6. 1% additional levy

7. Definition of services

Bills for implementation of GST regime

1. The Central Goods and Service Tax Bill 2017 (The GST Bill )

2. The Integrated Goods and Service Tax Bill 2017(The IGST Bill )

3. The Union Territory Good and Service Tax Bill 2017 (The UTGST Bill)

4. The Goods and Service Tax (Compensation to the States) Bill 2017 (The Compensa-
tion Bill)

GST COUNCIL:

25
GST Council will recommended on (functions and powers):

❖ The taxes, cesses and surcharges levied by Union, state and Local Bodies to be sub-
sumed under GST.

❖ The goods and services that may be subjected to exempted from the GST

❖ The date from which the specified petroleum products would be subject to GST

❖ Model GST laws, principles of levy, apportionment of IGST and the principles that
govern the place of supply.

❖ The threshold limit of turnover below which the goods and services may be exempted
from GST.

❖ The rates including floor rates with hands of GST.

❖ Any special rate or rates for a specified period to raise additional resources during any
natural calamity or disaster.

❖ Special provision to with respect to the North-East states.

26
 ❖ Any other matter relating to the goods and services tax as the council may decide.

Financial relationship between the centre and state

The essence of federalism is not just to the distribution of functions but also the distribution
of resources necessary for the adequate and effective performance of these functions. No sys-
tem of federation can be successful unless both the union and states have at their disposal ad-
equate financial resources to enable them to discharge their respective responsibilities under
the constitution.

In the Indian constitution, the union – state financial relations are given in Chapter one of
Part XII running from Art. 264 to 293.

a. Finance commission
The constitution of India provided for the appointment of a Finance commission un-
der Art. 280. The term of the commission was to be 5 years. It was to consist a
chairman & 4 other members to be appointed by the president. The commission was
expected to make recommendations regarding :
1. The distribution between the union & the states of the net proceeds of taxes which are
to be divided between them and the allocation between the states of the respective
shares of such proceeds,
2. The principles which should govern the grants in-aid of the revenues of the state out
of the Consolidated Fund of India, and
3. Any other matter referred to the commission by the President in the interest of
sound finance.
b. Allocation of Resources:
The basic principle that guide the allocation of resources between the centre and the
states are efficiency, adequacy & suitability.
➢ The states are absolutely entitled to the proceeds of taxes on the state list
➢ The union takes the proceeds of taxes in the union list and of any tax not mentioned in
any list.
➢ There are no taxes on the concurrent list.
➢ While the proceeds on the taxes within the state list are entirely retained by the states,
the proceeds of some of the taxes in the union list are to be assigned wholly or partly
to the states.
➢ The residuary taxing authority rests with the union.
➢ The constitution recognizes the following categories of taxes which are available,
wholly or in part to the states.

Taxes and Duties Levied exclusively by the Centre:

27
 The taxes enumerated in the union list and any other tax not enumerated in the state
list i.e. the residuary tax could be levied only by the union government.
For example: Income Tax, Corporation tax, Duties of Customs including export , du-
ties of Excise, estate duties etc
Taxes and Duties levied exclusively by States: There are taxes which only the
states could levy, collect and utilize.
For example: VAT, taxes on land and buildings, taxes on mineral rights, excise duty
on alcoholic liquor for human consumption and opium etc.
C. Distribution of Revenue between the Centre and the States
While the taxes levied by the states were exclusively utilized by them, the taxes levied
by the union were to be shared in various ways.
The founding fathers of the constitution were aware of the fact that the financial re-
sources raised by the states may not be sufficient to meet their economic develop-
ment. So they made provision for sharing the revenue of the union by the states in fol-
lowing 3 ways
1.Duties levied by the union but collected and appropriated by the states: (Art.
268)
For example: stamp duties and duties of excise on medicinal and toilet preparations
which were mentioned in the union list.
2. Taxes levied and collected by union but assigned to the states(Art. 269):
For example: estate duty in respect of property other than agricultural land, taxes on
goods or passengers carried by railway, sea or air, taxes on railway fares and freights
etc. The net proceeds from these taxes were assigned to the states.
3. Taxes levied and collected by the union but distributed between the union and
the states (Art. 270):
Art. 270 provided for the compulsory sharing of the net proceeds of tax on income
other than agricultural income. In this case the taxes were levied and collected by the
union but the net proceeds were distributed between the union and the states.
D. Grants-in-aid
The constitution provides for 3 kinds of grants-in-aid to the states from the union re-
sources :–
1. Grant-in-aid will be given to the states of Assam, Bihar, Orissa and W. Bengal in lieu
of export duty on the jute products(Art. 273). The sums of such grants are prescribed
by the president in consultation with the Finance commission.
2. The constitution also provides for special grants given to the states which undertake
schemes of development for the purpose of promoting the welfare of the STs or rais-
ing the level of administration of the scheduled area(Art. 275).
3. Under Art. 282, both the union and the states make grant for any public purpose e.g.
the central government can make grants to hospitals or to schools.

E. Borrowing Powers of Union and States

28
 The framers of the Indian constitution realized that the union and state governments
could not get sufficient funds through taxation. So the framers made proper provisions
to enable them to borrow on the security of the consolidated funds, subject to the limi-
tations laid down by the Acts of the Parliament.

F. Exemption of union Property from State taxation:

Art. 285 exempted the property of the union from all taxes imposed by a state or by
any authority within a state unless a parliament by law provided otherwise. In the
similar way, under Art. 289, property and income of a state from union taxation. But
this did not prevent the union from imposing any tax in respect of a trade or business
of any kind carried on behalf of the government of a state.

G. Financial Emergency:
During the period of a Financial emergency under Art. 360, the centre may destroy
the fiscal autonomy of the states altogether. During this period, the president shall
have the power to give directions to the states o observe such canons of financial pro-
prietary as may be specified in his communication. He may also instruct the state
governments that the salaries & allowances of all public servants be reduced. He may
also direct any state to reserve all money bills or financial bills for his consideration.
These measures lead to the financial dictatorship of the centre.

Conclusion:
An examination of union-state relationship in financial matters very clearly indicates
the strong position of the centre. The resources of the state governments are limited
to such an extent that they need to depend on the charitable assistance of the centre.
The planning commission has taken away much of the autonomy of the states in re-
spect of finance
TAX REFORMS AND GST IN INDIA
Prime minister Narendra Modi launched India’s biggest tax reforms in its 70 year his-
tory. The new goods and services tax was formally give in at a late night session of
parliament.
First proposed in 2006, the GST subsumes more than a dozen state and central levies
into one tax, unifying 29 states and 1.37 billion people into a single market for the
first time.
Committee headed by the chief economic advisor Dr Subramanian on possible tax
rates under GST submitted its report to the Finance Minister.

TAX Compliance:

Tax compliance means making tax payments and producing & submitting information
to the tax authorities on time and in the required formats.
1. Service sector
29
 2. Manufacturing sector
3. Trading sector
4. Input tax credit

Presently, no facility for filing offline returns has been proposed. Small taxpayers
having inadequate infrastructure may find compliance to be different and expensive.
However facilities like GST preparers may mitigate this problem.
The entire compliance process shall be online only. Hence, accurate integration with
the ERPs and accounting packages would make life easy for business. It shall be more
of a capital budgeting decisions for companies to choose the correct IT infrastructure.
Proper planning may enable control over compliance activities from a single location.

Advantages of GST
Irrespective of how good or bad the GST design and implementation would turn out,
GST in its proposed shape would offer a number of benefits to all the stakeholder.
The benefits of GST can be broadly classified and discussed under the following
heads.

1.Benefits to Economy

1. Removal of bundled indirect taxes.

2. Less tax compliances and a simplified tax policy.
3. Removal of cascading effect of taxes.
4. Reduction of manufacturing costs.
5. Increased demand and consumption of goods
6. Increases production
7. Control of black money circulation
8. GST removes the custom duty applicable on exports. The nation’s competitive-
ness in foreign markets will increases.
9. Generate more employment by increasing economy activity.

2.Benefits to business/industry/dealers

❑ Decrease overall cost of goods

❑ Input tax credit
❑ Easy and simple tax compliance
❑ Reduce in operational cost
❑ Transparency

3.Benefits to customers

30
 ❖ Unified tax rate
❖ Less burden of tax liability
❖ Elimination of cascading tax effects
❖ GST is decreasing tax on certain products and services/cheaper products and services
❖ Improved service level
❖ If increase in the revenue of government we can expect lower rate on direct tax and
development.
❖ Access to foreign goods and services

4. Benefits to government

✓ Simple and easy to administration

✓ Better control on leakage
✓ Higher revenue efficiency, decrease the cost of tax collection
✓ Expansion of tax base

Conclusion:

GST is benefits to all the sections of the society and will offer oppor-
tunity for growth and development of business in India. GST is not only supporting the
growth of domestic businesses, but it is also bringing in investment from overseas for crea-
tion and development of new business.

What is GSTN?

GSTNetwork is registered as a not-for-profit company under the companies Act.

GSTN had awarded Infosys Ltd the contract to develop the hardware and software
for GST.

31
STRUCTURE OF GST IN INDIA:

Central Goods and Service Tax (CGST): CGST the Central Goods and Service Tax is a part
of Goods and Service tax. CGST falls under Central Goods and Service Tax [CGST] Act
2017. Under CGST taxes are levied and collected by Centre. It is charged in lieu of various
present indirect taxes which are levied by central government. It is charged on movement of
goods and services of standard commodities and services which can be amended by time to
time by a separate body. Taxes so collected will form the part of revenue of the central gov-

32
ernment. However, input tax credit on CGST is utilised to set off the liability against CGST
and IGST (In the order of preference).

State Goods and Service Tax (SGST): SGST the State Goods and Service Tax is a part of
Goods and Service tax. SGST falls under State (respective) Goods and Service Tax [SGST]
Act 2017. Under SGST taxes are collected by States or Union Territories (with state legisla-
tive). It is charged in lieu of various present indirect taxes which are levied by state govern-
ment. Taxes so collected will form the part of revenue of the state government. However, in-
put tax credit on SGST is utilised to set off the liability against SGST and IGST (In the order
of preference).

Integrated Goods and Service Tax (IGST): IGST the Integrated Goods and Service Tax is
a part of Goods and Service tax. IGST falls under Integrated Goods and Service Tax [IGST]
Act 2017. IGST is charged on transfer of goods and services from one state to another state
(Inter-state trade). Import of goods and services will also be deemed to be covered under In-
ter-state transaction, so IGST will be levied on that. Taxes so collected will apportioned be-
tween the central government and state government as per GST regulation. However, input
tax credit on IGST is utilised to set off the liability against IGST, CGST and SGST (In the
order of preference).

Union Territory Goods and Service Tax (UTGST): UTGST the Union Territory Goods
and Service Tax is a part of Goods and Service tax. UTGST falls under Union Territory (re-
spective) Goods and Service Tax [UTGST] Act 2017. It is the tax levied in lieu of SGST in
the union territories without state legislature. Taxes so collected will form the part of revenue
of the union territory government.

Union Territories without State legislature:

1. Andaman and Nicobar island

2. Lakshadweep

3. Dadra and Nagar Haveli

4. Daman and Diu

5. Chandigarh

6. Delhi

7. Pondicherry

The following laws shall be enacted for levy and collection of GST by central and state
in India

33
 Name GOVERNING GOVERNED NUMBER ADMINISTRATE
of the ACT BY ACTS IN GOVERNS
tax is INDIA
levied

CGST CGST ACT Central govern- ONE Levy of central’s

ment portion of GST in
case of intra state
supply

SGST SGST ACT Respective state One for Levy of state’s por-
Eg:Dehli GST, government each tion of GST in case
Karnataka GST state(stare of intra state sup-
includes ply
UT with
legislature)

IGST IGST ACT CENTRAL ONE Levy of GST in

GOVERNMENT case of interstate
supply

PROBLEMS IN IMPLEMENTING GST:

❑ Updating systems to be GST-ready

❑ Fear of high tax rates

❑ IT infrastructure

❑ Infrastructure For The Collection Process

❑ Framework For Tax Disputes

❑ Cross-verification of documents must be strengthened

❑ Impact on SMEs

❑ Issue of casual taxable person

34
E-COMMERCE AND GST:

E-Commerce is buying and selling of goods and services or the transmitting of funds
or data, over an electronic network, primarily the internet. GST has a noticeable impact on
each and every sector including e-commerce sector.

E-Commerce means supply of goods and services including digital products over digital or
electronic network (section 2(44)of CGST Act).

There can be two types of E-Commerce seller :

➢ E-Commerce operator/market place: It is an entity which owns, operates or manages

digital or electronic facility or platform for E-commerce

E.g.: Flipkart, Amazon…, etc.

➢ Suppler on E-Commerce platform: It is an entity which supplies goods or services on /

through an E-Commerce.

E-Commerce companies were not liable to pay VAT or CST as they were not selling goods.
Recently the services provided through portal were brought under service tax net.

Now E-Commerce companies selling goods on portal are being made liable to collect 1%
GST at Sources.

The actual supplier can take credit of this tax paid by E-Commerce operatores.

Under TCS E-Commerce market places will have to deduct a portion of the amount payable
to seller on their platform and remit it to the government.

 Amount collected by E-Commerce operator to be paid to government [sec 52 (1)]

 E-Commerce operators to submit statement to government every month

 Annual statement by e-commerce operators [52(5) of CGST Act]

 Matching of statement of E-Commerce operators and credit taken by supplier sec

52(8)

35
Module-3:
Taxes under GST
IMPORTANT DEFENITIONS:

➢ Aggregate Turnover- Sec 2(6) of Central Goods and Services Tax (CGST) Act,
2017 : aggregate turnover” means the aggregate value of all taxable supplies (exclud-
ing 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 Number, to be computed on
all India basis but excludes central tax, State tax, Union territory tax, integrated tax
and Cess.

➢ Casual taxable person Section 2(20): “casual taxable person” means a person who
occasionally undertakes transactions involving supply of goods or services or both in
the course or furtherance of business, whether as principal, agent or in any other ca-
pacity, in a State or a Union territory where he has no fixed place of business.

➢ Business – Sec 2(17):

(a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other
similar activity, whether it is for a pecuniary benefit;

(b) Supply or acquisition of goods including capital goods and services in connection with
commencement or closure of business;

➢ Principal supply Section 2(90) “principal supply” means the supply of goods or ser-
vices which constitutes the predominant element of a composite supply and to which
any other supply forming part of that composite supply is ancillary.

➢ Manufacture: Section 2(72) :“manufacture” means processing of raw material or in-

puts in any manner that results in emergence of a new product having a distinct name,
character and use and the term “manufacturer” shall be construed accordingly.

➢ Goods-Sec 2(52): means every kind of movable property other than money and secu-
rities but includes 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.

➢ Exempt supply Section 2(47): “exempt supply” means supply of any goods or ser-
vices 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.

36
➢ Outward supply-Sec 2(83): in relation to a taxable person, outward supply means
supply of goods or services or both, whether by sale, transfer, barter, exchange, li-
cense, rental, lease or disposal or any other mode, made or agreed to be made by such
person in the course or furtherance of business.

➢ Supplier Section 2(105): “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.

➢ Person-Sec 2(84)- person includes—

➢ (a) an individual; (b) a Hindu Undivided Family; (c)a company; (d) a firm;

➢ (e) a Limited Liability Partnership;

➢ (f) an association of persons or a body of individuals, whether incorporated or not, in

India or outside India;

➢ (g) any corporation established by or under any Central Act, State Act or Provincial
Act or a Government company as defined in clause (45) of section 2 of the Compa-
nies Act,2013;

➢ (h) anybody corporate incorporated by or under the laws of a country outside India;

➢ (i) a co-operative society registered under any law relating to co-operative societies;
(j) a local authority; (k) Central Government or a State Government;

➢ (l) society as defined under the Societies Registration Act, 1860; (m) trust; and

➢ Job work –Sec 2 (68): It means any treatment or process undertaken by a person on
goods belonging to another registered person and the expression “job worker” shall be
construed accordingly;

➢ Input: Any goods, other than capital goods used for making of supply in the course of
business.

➢ Input services: Any services used for making supply in the course of business.

➢ Input tax: Section 2(62) of Central Goods and Services Tax (CGST) Act, 2017 “in-
put tax” in relation to a registered person, means the central tax, State tax, integrated
tax or Union territory tax charged on any supply of goods or services or both made to
him and includes

➢ Input tax credit: Section 2(63) of Central Goods and Services Tax (CGST) Act,
2017 “input tax credit” means the credit of input tax;

37
 ➢ Reverse charge-Sec 2(98)- 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.

➢ Consideration: includes payment made or to be made for the supply

➢ Agent Section 2(5) “agent” means a person, including a factor, broker, com-
mission agent, or any other mercantile agent, by whatever name called, who
carries on the business of supply or receipt of goods or services or both on be-
half of another;

➢ Non-resident taxable person Section 2(77): “non-resident taxable person” means

any person who occasionally undertakes transactions involving supply of goods or
services or both, whether as principal or agent or in any other capacity, but who has
no fixed place of business or residence in India;

Scope of supply:

Statutory provision

Persons liable for registration [Section 22 of Central goods and Service (CGST) Act
2017]

. Every supplier shall be liable to be registered under this Act in the State or Union
territory, other than special category States, from where he makes a taxable supply of
goods or services or both, if his aggregate turnover in a financial year exceeds twenty
lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both
from any of the special category States, he shall be liable to be registered if his aggre-
gate turnover in a financial year exceeds ten lakh rupees.

Procedure for registration [Section 25 of Central goods and Service (CGST) Act
2017] Statutory Provision

Every person who is liable to be registered under section 22 or section 24 shall apply
for registration in every such State or Union territory in which he is so liable within
thirty days from the date on which he becomes liable to registration, in such manner
and subject to such conditions as may be prescribed:

Provided that a casual taxable person or a non-resident taxable person shall apply for
registration at least five days prior to the commencement of business.

Scope of supply [Section 7 of Central goods and Service (CGST) Act 2017]

38
 sale
exchan
ge license

transfe
barter SUPPLY r

dispos
rental al

lease

TREATED AS SUPPLY FOR THE PURPOSE OF CHARGING GST MADE OR

AGREED TO MADE WITHOUT A CONSIDRATION

(SCHEDULE I OF CGST ACT 2017):

o Permanent transfer or disposal of business assets where input tax credit has been
availed on such assets.

o Supply of goods or services or both between related persons or between distinct per-
sons as specified in section 25, when made in the course or furtherance of business.

39
 o Provided that gifts not exceeding fifty thousand rupees in value in a financial year by
an employer to an employee shall not be treated as supply of goods or services or
both.

o Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.

o by a principal to his agent where the agent undertakes to supply such goods on behalf
of the principal.

ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SER-

VICES

SCHEDULE II

o any transfer of the title in goods is a supply of goods

o any transfer of right in goods or of undivided share in goods without the transfer of ti-
tle thereof, is a supply of services;

o any lease, tenancy, easement, license to occupy land is a supply of services

o any lease or letting out of the building including a commercial, industrial or residen-
tial complex for business or commerce, either wholly or partly, is a supply of services

o Renting of immovable property

o construction of a complex, building, civil structure

o Temporary transfer or permitting the use or enjoyment of any intellectual property

right;

o Development, design, programming, customization, adaptation, up gradation, en-

hancement, implementation of information technology software;

o Transfer of the right to use any goods for any purpose for cash, deferred payment or
other valuable consideration

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A

SUPPLY OF GOODS NOR A SUPPLY OF SERVICES (SCHEDULE III )

(NO GST WILL BE APPLICABLE ON THE BELOW TRANSATION )

o Services by an employee to the employer in the course of or in relation to his em-

ployment.

o Services by any court or Tribunal established under any law for the time being in
force.
40
 o the functions performed by the Members of Parliament, Members of State Legisla-
ture, Members of Panchayats, Members of Municipalities and Members of other local
authorities

o the duties performed by any person who holds any post in pursuance of the provisions
of the Constitution in that capacity

o The duties performed by any person as a Chairperson or a Member or a Director in a

body established by the Central Government or a State Government or local authority
and who is not deemed as an employee before the commencement of this clause.

o Sale of land and building

o Service by a foreign diplomatic mission located in India

➢ Mixed supply Section 2(74) means two or more individual supplies of goods or ser-
vices, If it involves supply of more than one goods and / or services which are not
naturally bundled togetheror.

E.g.: Supply of popcorn with Pepsi,

➢ Composite supply –Sec 2(30): If it involves more than one goods and / or services
which are naturally bundled together: These are referred to as composite supply of
goods and / or services

E.g. Mobile order through online, supply included charger,insurance, headset etc.

TAX LIABILITY ON COMPOSIT SUPPLY AND MIXED SUPPLY:

❑ Composite Supply: Principle supply shall be treated as a supply

❑ Mixed Supply: A mixed supply comprising two or more supplies shall be treated as
supply of that particular supply which attracts the highest rate of tax.

GST RATES:

41
TIME OF Supply:

The liability to pay SGST or CGST will arise at the time of supply as determined for goods
and service.

Time of supply of goods:

Under forward charge:

The time of supply of goods shall earlier of the following dates:

a) The date of issuance of invoice by the supplier (or the last date on which he is re-
quired to issue the invoice) or

b) The date on which the supplier receive the payment with respect to the supply

Under reverse charge :

(Where GST has to be paid by the buyer)

The earlier of the following dates

a) The date of the receipts of goods or

b) The date of payment or

c) Thirty days from the date of issue of invoice by the supplier.

If it is not possible to determine under clause a, b, c the date of entry in the books of accounts
of the recipient of supply.

42
Supply by voucher

In case of supply of voucher, the time of supply shall be

a) The date of issue of voucher or

b) The date of redemption of voucher

SUPPLY OF SREVICES:

Under forward charge:

The time of supply of receives shall be the earlier of the following dates

a) The date of issuance of invoice or

b) The date of receipt of payment

Under reverse charge :

The time of supply shall be the earlier of the following dates

a) The date of receipt of payment or

b) 60 days immediately from the date of invoice

PLACE of Supply

One of the most important aspects of GST is determination of place of suppl. The place of
supply of goods is the place where the goods are consumed or delivered.

The GST place of supply rules have followed the bellow principles:

1) In the case of goods, place of supply would generally be the place of delivery or phys-
ical location of goods

2) In the case of services the place f supply would generally be the place of location of
the recipient of services or place of performance of services or place of location of the
immovable property in relation to which services is provided or place of use or en-
joyment of services.

in certain cases the place of supply of services could also be the place of location of the ser-
vice provider.

LEVY OF GST:

Section 9 is the charging provision of the CGST Act

43
Article 265 of the Constitution of India mandates that no tax shall be levied or collected ex-
cept by the authority of law. The Charging Section is a must in any taxing statute for levy and
collection of tax. Before imposing any tax, it must be shown that the transaction falls within
the ambit of the taxable event and that the person on whom the tax is so imposed also gets
covered within the scope and ambit of the charging Section by clear words used in the Sec-
tion. No one can be taxed by implication.

Every supply will be liable to tax. The nature of tax would depend upon the nature of supply,
viz., inter-State supplies will be liable to IGST and intra-State supplies will be liable to CGST
and SGST (UTGST).

Under the GST law, the levy of tax is as follows:

(a) In the hands of the supplier - on the supply of goods and / or services (referred to as tax
under forward charge mechanism);

In the normal course, the tax would be payable by the supplier of goods and / or services.

(b) In the hands of the recipient – on receipt of goods and / or services (referred to as tax un-
der reverse charge mechanism)

When the goods/ services are supplied by a supplier, who is un-registered person to a receiv-
er, who is registered person, the liability to pay tax on such supplies will be on recipient un-
der reverse charge basis.

TAX SHALL BE PAYABLE BY A ‘TAXABLE PERSON: The tax shall be payable by a

‘taxable person’ i.e. person/ separate establishments of persons registered or liable to be reg-
istered under sections 22 and 24 of GST Act 2017.

Tax payable: Every intra-State supply will attract CGST as well as SGST, as follows:

(a) Imposition of CGST by the Government of India,

(b) Imposition of SGST by the respective State or (UTGST by Central Government through
Administrator in case of specified Union Territories and other territories as defined)

Input tax credit (ITC):

Input tax in relation to registered person, means the central tax, state tax or integrated tax or
union territory tax charged on any supply of goods or services or both made to him.

Input tax credit means 2 (63) the credit of input tax. For a tax to be qualify as ‘input tax cred-
it’ it must be first ‘input tax’.

Eligibility criteria for claiming input tax credit:

o Tax invoice

44
 o Return (GSTR 3)should be field

o Tax is paid by the suppler

Goods and services should be receive

ITC ON THE BASIS OF USE OF INPUTS

For business ITC

purpose available
Use of input
tax credit
For other ITC not
purpose available

INPUT TAX CREDIT IS NOT AVAILABLE

❖ ITC on motor vehicles: ITC allowed only if one is in the business of :-

45
Transportation of goods/ passenger

trading of motor vehicles

motor driving skills/ training

❖ Restaurant services food and beverages, outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery-ITC allowed only if the receiver is in the same
business

❖ Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

❖ Membership of club, health and fitness centre, travel benefits to employees

❖ GST on IMPORTS

US IN-
A DIA

Seller Buyer

Import of goods into

India would be
chargeable to
BCD+IGST and import
of services into India
would be chargeable to
IGST

GST ON EXPORT

46
 INDIA
USA

Buyer seller

Export would be zero

rated under GST, but
the seller would be
eligible for input tax
credit/refund of the
input GST

GST ON SEZ SUPPLY

Supplies to SEZ is zero rated under GST. GST at 0% is applicable on supply of goods and
services to SEZ. The GST paid on inputs, input services and capital goods would be paid
back to taxpayer by the way of refunds.

Conditions for opting to pay tax under composition scheme:

1. Restricted from making supply of goods which are not liable to GST

2. Restricted from effecting interstate outward supply

47
 3. Restricted from making supplies through an E-commerce operator

4. Restriction on manufacture of notified goods

5. Shall not collect tax

6. Not entitled to input tax credit

7. Not applicable to persons who are casual taxable person and who are non-resident
taxable person.

GST RETURNS:

The purpose of return is mode for transfer of information to tax administration. And finalisa-
tion of the tax liabilities of the tax payer.

Every registered person will have to file returns. A register person will have file return either
monthly (Normal supplier) or quarterly basis (supplier opting for composition scheme).

❑ GSTR-1 : Details of outward supplies of taxable goods and services(10th of every

month)

❑ GSTR-2 : Details of inward supply of taxable goods and services(15th of every

month)

❑ GSTR-3 : Monthly return on the basis of finalisation of details of outward supply and
inward supply along with the payment of tax( 20th of every month)

❑ GSTR-4 : Quarterly return for compounding taxable person.

❑ GSTR-5 : Monthly return for non-resident foreign taxable person

❑ GSTR-6 : monthly return for Input Service Distributor (ISD)

❑ GSTR-7 : Return for authorities deducting tax at sources (TDS)

❑ GSTR-8 : Return for E- commerce operator and TCS

❑ GSTR-9 : Annual return ( 31st December of the financial year)

❑ GSTR-10 : Final return ( on closure of business)

Assessment under GST

Assessment means ‘determining tax liability’. ‘Assess’ in a taxing language means the com-
putation of the income of assesse, the determination of tax payable by him, and the procedure
for collecting or recovering the tax.

48
The word ‘assessment’ means the whole procedure for ascertaining and imposing liability
upon the tax payer.

Different kinds of GST assessment

❖ Self assessment : the determination of tax liability is to be undertaken by the taxpayer

himself and stated in the return to be filed by him. The return is required to primarily
contain GSTR1 and GSTR2, input tax credit, tax payable and tax paid.

❖ Summary assessment : The assessing officer determines the liability of the assesse on
the returns field by the taxpayers and other evidence in the possession of the assessing
officer without calling for either the taxpayer or his records.

❖ Provisional assessment : provisional GST assessment can be judge by a taxable per-

son by making a request or application to the assessing officer in case he is not able to
determine the

a) value of the supplies

b) tax rate applicable to such supplies

❖ Final assessment : such assessment are made after examination of all the relevant rec-
ords or returns or documents or material and are made hearing him or hearing his au-
thorised representative.

❖ Scrutiny assessment : The proper officer can scrutinise the return and related fur-
nished particulars to verify the correctness of the return and inform about any discrep-
ancies noticed and seek explanations.

Audit under GST

Audit means the examination of records, returns and other documents maintained or fur-
nished by the registered person under this act.

And it means the verify the correctness of turnover declared, taxes paid, refund claimed and
input tax credit availed to the assesse.(Sec 2(13) of CGST Act.)

There are three types prescribed in the GST Act.

1. Audit by Charted Accountant or a Cost Accountant : Every registered person whose

turnover exceeds the prescribed limit, shall get his accounts audited by a charted ac-
countant or a cost accountant (sec 35(5) of the CGST/SGST Act)

2. . Audit by department : The commissioner or any officer of CGST or SGST or UT-

GST authorised by him by a general or specific order may conduct audit of any regis-
ter person. ( sec 65 of CGST/SGST Act)

49
 3. 3. Special audit : If at any stage of scrutiny, enquiry, investigation or any other pro-
ceedings, if department is of the opinion that value has not be correctly declared or
credit availed is not with in the normal limit, department may order special audit by
CA or Cost Accountant nominated by department. (Sec 66 of CGST/SGST Act)

4. Audit can be conducted at the place of business of the taxable person or at the office
of the tax authorities. Audit to be completed within 3 months, extendable by a further
period of 6 months.

GST refund

Refund has been discussed in sec 54 of the CGST/SGST Act.

Refund includes:

❑ Any balance amount in the electronic cash ledger so claimed in the returns,

❑ Any unutilised input tax credit in respect of

a) Zero rated supplies made without payment of tax or

b) where the credit has accumulated on account of rate of tax on inputs being higher than the
rate of tax on output supplies.

In another words, claiming refund of any tax, interest, penalty, fees or any other amount paid
to him.

Forms/Application and procedure of refund

➢ Refund application should be field electronically in FORM GST RFD-1 with speci-
fied documents and details.

➢ An acknowledgement in FORM GST RFD-2 shall be made available to the appli-

cant through the common portal electronically.

➢ Where any deficiencies are noticed, the proper officer shall communicate deficiencies
to the applicant in FORM GST RFD-3 through electronically.

➢ Grant for provisional refund in FORM GST RFD-4

➢ The proper officer shall issue a payment advice in FORM GST RFD-5

➢ Order sanctioning refund FORM GST RFD-6

➢ Provided that in cases where the amount of refund is completely adjusted against any
outstanding demand under the Act in FORM GST RFD-7

50
 ➢ If the whole or any part of the amount claimed is not payable to the applicant, he shall
issue a notice in FORM GST RFD-8 to the applicant and requiring him to furnish a
reply in FROM GST RFD-9 within a fifteen days of the receipt of such notice and
after considering the reply.

( No refund shall be paid to an applicant if the amount is less than Rs 1000).

Appeals and revision under GST

Any person aggrieved by any order or decision passed under the GST Act(s) has the right to
appeal under section 107. it must be order or decision passed by an “adjucatuing authority”,
may appeal to such appellate authority as may be prescribed within 3 moths from the date on
which such decision or order is communicated to him.

Adjucating Authority: means Any authority, appointed to pass any order or decision under
this Act, but not include central Board of Excise and Customs Appellate Tribunal etc. of
CGST Act.

Appellate Authority: means an authority appointed or authorised to hear appeals as referred

to in section 107.

▪ An appeal to the Appellate authority shall be filed in FORM GST APL-1 and a provi-
sional acknowledgement shall be issued to the appellant immediately.

▪ A final acknowledgment, indicating appeal number shall be issued thereafter in

FORM GST APL-2 by the Appellate Authority.

▪ Application to the Appellate Authority in FORM GST APL- 3. A hardcopy of the ap-
plication in this form shall be submitted.

▪ Appeal to Appellate Tribunal in FORM GST APL-6.

▪ Application to the Appellate Tribunal in FORM GST APL-7.

▪ Issue a summary of the demand of the order in FORM GST APL-4 clearly indication
the amount of demand confirmed.

Revision by revisional authority

“Revisional Authority” means an authority appointed or authorised for revision of decision or

order as referred to in section 108.

Power of Revision: The Revisional authority Commissioner) on his own information re-
ceived by him or on request from the commissioners of SGST/CGST, call for and examine
the records of any proceedings., and if he considered that any decision or order passed under

51
CGST/SGST/UTGST/IGST Act by any officer subordinate to him is false or improper or il-
legal, he may of necessary, stay the operation of such decision or order for such period.

Mandatory pre-deposit 10% of tax demand before filing appeal before appellate au-
thority:-

Appeal cannot be field unless the appellant has deposited a sum in full of tax, interest fess
and penalty arising out of order, as admitted by him and 10% of remaining amount of tax in
dispute arising from the said order.

APPELLATE TRIBUNAL

Appeal against order of Appellate Authority or Revisional Authority lies before Appellate
Tribunal.

Constitution of the Appellate Tribunal:

The Central Government shall on the recommendation of the GST Council constitute an Ap-
pellate Tribunal known as “Goods and Service Tax Appellate Tribunal” for hearing appeals
against the order passed by Appellate Authority or Adjucating Authority.

The power of the Appellate Tribunal shall be exercisable by the:

1. National Benches or Regional Benches.

2. State Benches or Area Benches.

National benches or regional benches

The National benches of the Appellate Tribunal is situated at New Delhi, which is presided
over by the president and shall consist of technical member from central and one from state.
It is hear appeals where one of the issues relating to place of supply means inter-state supply.
These will be under supervisor of president.

State bench or area bench

The government shall, by notification specify for each state or union territory, a bench of the
Appellate Tribunal for exercising the power of the Appellate Tribunal within the concerned
state or union territory. It will hear appeals where issues relating to place is not involved
means intra-state. These will be under supervision of state president.

Appeal to high court

Any person aggrieved by any order passed by the State Bench or Area Bench of the Appellate
Tribunal may file an appeal to the high court.

52
APPEAL TO THE SUPREME COURT:

Any person aggrieved by the order of National Bench or Regional Bench or by the
High Court may file an appeal to Supreme court.

53
54
55
INPUT TAX CREDIT:

Introduction
The input tax credit eligibility is based on whether the same is used for taxable supplies or
zero rated supplies. Where the goods or service is used for both taxable and exempted sup-
plies, only proportionate credit is eligible for registered person, Further, a list of ineligible
input tax credit is also Provided.

56
RELEVANT DEFINITIONS:

(a) Taxable person: Means a person who is registered or liable to be registered under section
22 or section 24.

(b) Input tax credit: means the credit of “input tax” in terms of section 2(63).

(c) Input tax: "Input tax" in terms of section 2(62) in relation to a registered person, means
the central tax, State tax, integrated tax or Union territory tax charged on any supply of
goods or services or both made to him and includes
— integrated goods and service tax charged on import of goods
— tax payable on reverse charge basis under IGST Act/SGST Act/CGST
Act/UTGST Act.

— but excludes tax paid under composition levy.

Section 9(3) and 9(4) of CGST Act levies tax on goods or services or both on reverse charge.
Therefore, ‘input tax credit’ is the tax paid by a registered person under the Act whether on
forward charge or reverse charge for the use of such goods or services or both in the course or
furtherance of his business.

(d). Electronic credit ledger: The input tax credit as self-assessed in return of registered per-
son shall be credited to electronic credit ledger in accordance with section 41, to be main-
tained in the manner as may be prescribed. [Section 2(46) read with Section 49(2)].

(e)“Capital goods” means. -

goods, the value of which is capitalised in the books of account of the person claiming the
input tax credit and which are used or intended to be used in the course or furtherance of
business [Section 2(19)].

Input: “Input” in terms of section 2(59) means — any goods,

— other than capital goods,
— used or intended to be used by a supplier
— in the course or furtherance of business

(g) Input service: “Input service” in terms of section 2(60) means —

any service
— used or intended to be used by a supplier
— in the course or furtherance of business.

“zero-rated supply” means any of the following supplies of goods or services or both, name-
ly:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special
Economic Zone unit.16(1)
57
Section 16
(a) Registered person to take credit: Every registered person subject to Section 49 (payment
of tax related), shall be entitled to take credit of input tax charged on any supply of goods
or services or both to him which are used or intended to be used in the course or further-
ance of his business.
The input tax credit is credited to the electronic credit ledger. Rule 36 of the Central
Goods and Service Tax Rules, 2017 provides that input tax credit can be taken on the ba-
sis of any of the following documents:
(i) Invoice issued under section 31
(ii) Debit note issued under section 34
(iii) Bill of entry
(iv) Invoice prepared in respect of supplies made under reverse charge basis
(v) Invoice/ Credit Note issued by Input service Distributor.

Conditions for availment of credit by registered person:

Input tax credit is available only if –
(i) The said goods or services or both are used or intended to be used in the course or in
the furtherance of his business;
(ii) He is in possession of tax invoice/ debit note / tax-paying document issued by a sup-
plier registered under this Act (listed above);
(iii) He has received the said goods or services or both subject to job-work facilities and
restrictions relating to input tax credit in Section 19;
(iv) The supplier has uploaded the relevant invoice on the GSTN;
(v) Subject to section 41 (claim of ITC and provisional acceptance thereof),the supplier
has paid the said amount of tax (as charged in the invoice) to appropriate Government in
cash or by way of utilization of input tax credit, as admissible;
(vi) He – claimant of input tax credit – has furnished return under section 39 in FORM-
GSTR 2;

(a) Goods received in instalments: If goods are received in instalments against a single
invoice, credit can be taken upon receipt of last instalment of goods.

(b) Failure to pay to supplier of goods or service or both, the value of supply and tax
thereon: If recipient of goods or service or both has not paid the supplier within 180 days
from date of invoice, the amount of input tax credit availed of proportionate to such
amount not paid to supplier along with the interest will be added to output liability of the
recipient. Such non-payment of the value of invoice must be admitted in the return filed
in FORM-GSTR 2 (Rule 37 of CGST Rules, 2017) for the month immediately following
the period of 180 days from the date of issue of invoice. The said input tax credit can be
re-availed on payment of value of supply and tax payable thereon.

(c) Please note that this condition does not apply for supplies which are payable under
reverse charge basis. This exception has been expressly created in second proviso to sec-
tion 16(2) of the Act.
58
(d) Capital goods on which depreciation is claimed: Where the registered person has
claimed depreciation on the tax component of the cost of capital goods and plant and ma-
chinery under the provisions of the Income Tax Act, 1961, the input tax credit shall not
be allowed on the said tax component.
(e) Time limit to avail the input tax credit: A registered person is not entitled to take
input tax credit on invoice/ debit notes after due date of furnishing of the return under
section 39 for the month of September of the subsequent financial year or furnishing of
the relevant annual return, whichever is earlier.

Therefore, input tax credit shall be available to a registered person only if invoice/challan
is in his possession for the goods or services or both are received and the payment of
such tax has been made by the supplier and a return u/s 39 has been filed. Receipt of
goods shall include delivery to any other person as directed by the registered person.

Note: Goods are deemed to be received by a registered person when the supplier delivers
the goods to the recipient/ any other person, on the direction provided by the registered
person to the supplier. Credit would be available in case goods are directly sent to the job
worker subject to provisions under section 19.

In summary among others the following facts are crucial for availment of Input tax cred-
it:
(a) The goods and/ or services must be used “by him” in the course or furtherance “of
his” business.
(b) Possession of Output Invoice/Supplementary Invoice/ Debit or Credit note/ ISD in-
voice/ Bill of Entry and other related documents is a must.
(c) The said document must contain all the prescribed particulars specified in Rule 46 of
Central Goods and Service Tax Rules, 2017 relating to Invoice. It may be noted that In-
voice or such other document can contain additional details other than those prescribed
but NO LESS.
(d) Supplier of goods and/ or services must upload the details of such documents in the
common portal i.e. GSTN.
(e) Vesting condition for claiming input tax credit is the return u/s 39 and not the supply
per se.
(f) Input tax credit in case of supplies in instalment would be receipt of last instalment of
goods.
(g) The law casts an obligation on the recipient of goods and/or services who avails the
credit to effect payment to the supplier within a period of 180 days from the date of in-
voice. If such payment is not effected by the recipient to the supplier, Rule 37 obligates
removal of input tax credit so availed leading to consequential levy of tax, interest and
penalty.
(h) Claim of depreciation on tax component disqualifies a recipient of Capital goods from
availment of input tax credit.
(i) ITC cannot be availed after the due date of filing the return for September month of
the next Financial year or on furnishing the Annual Return whichever is earlier.
(j) No registered person is permitted to avail any input tax credit pursuant to an order of
demand on account of fraud, willful misstatement, or suppression of fact.

Section 17: Apportionment of credit

59
(1) Where the goods or services or both are used by the registered person partly for the pur-
pose of any business and partly for other purposes, the amount of credit shall be restricted
to so much of the input tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting
taxable supplies including zero-rated supplies under this Act or under the Integrated
Goods and Services Tax Act, and partly for effecting exempt supplies under the said Acts,
the amount of credit shall be restricted to so much of the input tax as is attributable to the
said taxable supplies including zero-rated supplies.

(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and
shall include supplies on which the recipient is liable to pay tax on reverse charge basis,
transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Sched-
ule II, sale of building.

(4) A banking company or a financial institution including a non-banking financial company,

engaged in supplying services by way of accepting deposits, extending loans or advances
shall have the option to either comply with the provisions of sub-section (2), or avail of,
every month, an amount equal to fifty per cent of the eligible input tax credit on inputs,
capital goods and input services in that month and the rest shall lapse

(5) Provided that the option once exercised shall not be withdrawn during the remaining part
of the financial year. Provided further that the restriction of fifty per cent. shall not apply
to the tax paid on supplies made by one registered person to another registered person
having the same Permanent Account Number

STEPS TO BE FOLLOWED FOR CLAIMING INPUT TAX CREDIT ON IINPUT

TAX ON INPUT GOODS AND INPUT SERVICES:

Steps in calculation of eligible input tax credit

1. Compute the total input tax on inputs and input services-T
2. Comptue the input tax on inputs and input services use for non business purposes-T1
3. Compute the input tax on inputs and input services used for exempt supplies-T2
4. Compute the ineligible input tax on ineligible inputs and services -T3
5. Compute C1 ie ITC credited to electronic ledger- C1=T-(T1+T2+T3)
6. Compute T4 ie ITC used exclusively for taxable supplies and Zero rate supplies.
7. Compute C2 ie common credit: C2=C1-T4
8. Compute ITC attributable to exempt supplies ie D1=(E/F)XC2
9. Compute credit attributable to non-business purposes
10. Compute net eligible Common credit ie C3=C2-(D1+D2)
11. Total credit eligible- ie G=T4+C3

60
 STEPS TO BE FOLLOWED FOR COMPUTATION OF ITC ON INPUT TAX
CREDIT ON CAPITAL GOODS:

In case of Capital Goods is used commonly for providing taxable supply, exempt supply
or used for personal purpose, the GST credit shall be calculate as per details given below:
Step : 1 : Take the entire Amount of Credit to Electronic Credit Ledger.
Step : 2 : The total life of assets is to be taken at 5 years ( 60 Months). Calculate the credit
attributable for each tax period i.e. month based on estimated life of assets.
Credit for Tax Period: Total Tax Credit / 60 months
Step : 3 : Calculate amount of credit towards Exempt supply:
Credit toward exempt supply =(Value of Exempt supply / Total Turnover) X Credit for tax
period as per step 2
Step : 4: The amount calculated under step 3 shall be added to output tax liability for that
month.
Step : 5 : The same activity is to be done separately for CGST SGST IGST
UGST
Note: if depreciation claimed on the GST paid while purchasing the capital asset, you cannot
claim input tax credit.

Example: Mr. Avinash bought a capital asset for use in exempt supplies only. He paid Rs
1,00,000/- along with GST of Rs 18,000 as input tax on 01/10/2017. On 15/11/2018 he wish-
es to use the capital asset commonly for both taxable and exempt supplies. The aggregate
turnover is Rs. 160 lakhs and exempted turnover is 40 lakhs. What is the eligible input tax
credit available to him?

Now the eligible common input tax credit will be calculated as follows:

= Input Tax – 5% of Input tax for every quarter or part thereof

The no. of quarters from 01/10/2017 to 15/11/2018= 5
= 18,000 – (5% of 18000) * 5 quarters
= 18,000 – 4,500
= 13,500
-Now, this is the common credit available to Mr. Avinash. He will credit Rs 13,500 to
Electronic Credit ledger.
-Now he will calculate the ITC attributable to exempted supplies as per the formula;
-Common credit for 1 month= 13,500÷60=225

61
 =56.25
This amount 56.25 will be reversed in GSTR-2 under Table 11 ITC Reversal.
Eligible ITC credit available is 225-56.25=168.75

Ineligible input tax credit (blocked credit):

Input tax credit shall not be available in respect of the following:

(i) Motor vehicle and other conveyance except when they are used for making the following
taxable supplies , namely(a) Further supply of such vehicles or conveyances or (b) Transpor-
tation of passenger or (c) Imparting training on driving, flying, navigating such vehicles or
conveyances;

(ii) Motor vehicle and other conveyance except used for transportation of goods

(iii) Supply of goods and/or services such as – (a) food and beverages, outdoor catering,
beauty treatment, health services, cosmetic and plastic surgery except where such supply of
goods or services of each category is used for making an outward taxable supply of the par-
ticular category of goods or services or both or as an element of a taxable composite or mixed
supply
(b) membership of a club, health and fitness centre
(c) rent-a-cab, life insurance, health insurance except where it is notified by the Government
as obligatory for an employer to provide to its employees under any law for the time being in
force; or such inward supply of goods or services or both of a particular category is used by a
registered person for making an outward taxable supply of the same category of goods or ser-
vices or both or as part of a taxable composite or mixed supply; and
(d) travel benefits to employees on vacation i.e. leave or home travel concession.

(iv) Works contract services when supplied for construction of immovable property, other
than plant and machinery, except where it is for further supply of works contract service;

(v) Goods or services received by a taxable person for construction of an immovable property
on his own account, other than plant and machinery, even though it is used in course or fur-
therance of business;

(vi) Goods or services or both on which the tax paid under composition scheme
(vii) goods or services or both received by a non-resident taxable person except on goods im-
ported by him
(viii) Goods or services or both used for personal consumption
(ix) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
(x) Tax paid in terms of sections 74, 129 and 130

62
Procedure for availing ITC:
a. Provisional credit:
The electronic credit leder maintains separate the tax credits separately for CGST,
SGST/UGST and IGST. Such details are available from the GSTR 2 filed by the 15 th
of the month following the month in which supplies are received.
b. Matching of Credit:
Matching of ITC would be done only after the due date of furnishing GSTR 3. ITC
provisionally taken by the recipient on the basis of GSTR 2 shall be matched by the
system with the details of outward supplies furnished in GSTR 3; with the IGST paid
on import of goods by him and for verification of duplication of claims of ITC.
c. Utilization of ITC:
in terms of sec 49(5):
- ITC of IGST can be used to pay IGST, CGST and SGST/UGST
- ITC of CGST can be used to pay CGST and SGST
- ITC of SGST/UGST can be used to pay SGST/UGST and IGST
- ITC of CGST can not be used to pay SGST/UGST

Section 18: Availability of credit in special circumstances;

(1) Subject to such conditions and restrictions as may be prescribed

(a) A person who has applied for registration under the Act within thirty days from the date
on which he becomes liable to registration and has been granted such registration shall, be
entitled to take credit of input tax in respect of inputs held in stock and inputs contained in
semi-finished or finished goods held in stock on the day immediately preceding the date from
which he becomes liable to pay tax under the provisions of this Act.

Example: (i) A person becomes liable to pay tax on 1st August 2017 and has obtained regis-
tration on 15th August 2017. Such person is eligible for input tax credit on inputs held in
stock as on 31st July 2017.

(b) A person, who takes registration under sub-section (3) of section 25 shall, be entitled to
take credit of input tax in respect of inputs held in stock and inputs contained in semifinished
or finished goods held in stock on the day immediately preceding the date of grant of registra-
tion.

(ii) Mr. A applies for voluntary registration on 5th June 2017 and obtained registration on
22th June 2017. Mr. A is eligible for input tax credit on inputs in stock as on 21st June 2017.

(c) Where any registered person ceases to pay tax under section 10, he shall be entitled to
take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or
finished goods held in stock and on capital goods on the day immediately preceding the date
from which he becomes liable to pay tax under section 9 PROVIDED that the credit on capi-
tal goods shall be reduced by such percentage points as may be prescribed

(b) Where an exempt supply of goods or services or both by a registered person becomes a
taxable supply, such person shall be entitled to take credit of input tax in respect of inputs
held in stock and inputs contained in semi-finished or finished goods held in stock relata-

63
 ble to such exempt supply and on capital goods exclusively used for such exempt supply
on the day immediately preceding the date from which such supply becomes taxable:

PROVIDED that the credit on capital goods shall be reduced by such percentage points
as may be prescribed

(2) A registered person shall not be entitled to take input tax credit under sub-section (1),
in respect of any supply of goods or services or both to him after the expiry of one year
from the date of issue of tax invoice relating to such supply.

(3) Where there is a change in the constitution of a registered person on account of sale,
merger, demerger, amalgamation, lease or transfer of the business with the specific pro-
vision for transfer of liabilities, the said registered person shall be allowed to transfer the
input tax credit which remains unutilized in his electronic credit ledger to such sold,
merged, demerged, amalgamated, leased or transferred business in such manner as may
be prescribed.

(4) Where any registered person who has availed of input tax credit opts to pay tax under
section 10 or, where the goods or services or both supplied by him become wholly ex-
empt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic
cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and in-
puts contained in semi-finished or finished goods held in stock and on capital goods, re-
duced by such percentage points as may be prescribed, on the day \immediately preced-
ing the date of exercising such option or, as the case may be, the date of such exemption:
Provided that after payment of such amount, the balance of input tax credit, if any, lying
in his electronic credit ledger shall lapse.

(5) The amount of credit under sub-section (1) and the amount payable under sub-section
(4) shall be calculated in such manner as may be prescribed

(6) In case of supply of capital goods or plant and machinery, on which input tax credit has
been taken, the registered person shall pay an amount equal to the input tax credit taken
on the said capital goods or plant and machinery reduced by such percentage points as
may be prescribed or the tax on the transaction value of such capital goods or plant and
machinery determined under section 15, whichever is higher: Provided that where refrac-
tory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person
may pay tax on the transaction value of such goods determined under section 15.

Declaration in FORM GST ITC 1 must be filed within thirty (30) days from the date of
becoming eligible to input tax credit.
Rule 40 of Central Goods and Service Tax Rules, 2017 requires a declaration to be filed
containing details of stocks and capital goods along with a certificate from a Chartered
Accountant or Cost Accountant where the credit so claimed exceeds Rs.2 lakhs.
• The supplier will not be entitled to credit of goods and/ or services or both after expiry
of 1 year from date of tax invoice.
• The credit on capital goods shall be reduced by five (5) percentage per quarter or
part thereof from the date of invoice.

64
 • Such credits are subject to verification of details furnished by the supplier in GSTR - 1
or GSTR – 4 on the common portal.

Input tax credit and change in constitution of registered person:

The change in constitution of registered person due to sale merger, demerger, amalgamation,
lease or transfer of business with provision for transfer of liabilities envisages that:

(i) The registered person is allowed to transfer the input tax credit remaining unutilized in the
electronic credit ledger .to such sold, merged, demerged, amalgamated, leased or transferred
business.

(ii) Rule 41 prescribes such credit transfer be made on the Common Portal in FORM GST
ITC 2 and in case of demerger, credit to be transferred must be apportioned to the value of
assets transferred in the arrangement to each such unit.

(iii) Chartered Accountant or Cost Accountant to certify that the arrangement contains a spe-
cific provision for the transfer of liabilities.

(iv) Form GST ITC 2 filed by the transferor will have to be accepted by the transferee on the
Common Portal.

(v) Transferee to duly account for the stocks capital goods received in books of accounts. The
analysis of above provision in a pictorial form is summarised as follows:

(f) When registered person switches over from regular scheme to composition scheme:
• Pay an amount by debiting electronic cash ledger / credit ledger, equivalent to input tax
credit of –
— Inputs held in stock
— Inputs contained in semi-finished or finished goods held in stock and
— Capital goods
• On the day immediately preceding the date of such switch over.
• Balance of input tax credit lying in the electronic credit ledger, after payment of the above
said amount, shall lapse.
• Such amount is calculated in manner to be prescribed

Taking input tax credit in respect of inputs and capital goods sent for job work:

Entitlement of credit on inputs:

The principal can take credit of input tax on inputs sent to job-worker subject to fulfil-
ment of the following conditions:
• Rule 45 of Central Goods and Service Tax Rules, 2017 provides the following:
- To issue a challan for transfer of inputs to the job-worker including where they are sent
directly (to maintain paper trail of transaction)

65
 - The details of Challans for goods dispatched to job worker or received from job worker
or sent from one job worker to another during the quarter are to be included in Form GST
ITC-04 to be furnished on or before 25th day of the month succeeding that quarter.

- Challan is to contain all details as required in respect of an invoice prescribed in Rule 55

of Central Goods and Service Tax Rules, 2017. All challans issued in respect of inputs
sent to job-worker and those received back are to be reported in GSTR-1

- In case of non-receipt of the inputs within the time prescribed, the challan issued will be
deemed to be invoice for the implied supply of inputs

- The inputs, after completion of job-work, are received back by the principal within 1
year of their being sent out.

- In case of direct supply , the period of 1 year shall be reckoned from the date the job
worker receives such inputs.

-The credit of inputs can be taken even if inputs are sent directly to job-worker’s premises
without bringing it to principal’s place of business.
- If the inputs are not received back within 1 year, it shall be deemed that such inputs had
been supplied by principal to the job worker on the day when the said inputs were sent
out.

iii) Entitlement to credit on capital goods:

The principal can take credit of input tax on capital goods sent to job-worker subject to
the fulfilment of the following conditions:
• The capital goods, after completion of job-work, are received back by him within 3
years of their being sent out.
• The principal can take credit of capital goods even if such capital goods are sent directly
to job-worker’s place without bringing to principal’s place of business
. • If the capital goods are not received back within 3 years, it shall be deemed that such
capital goods had been supplied by principal to the job worker on the day when the said
capital goods were sent out.
• Procedures listed in respect of inputs under Rule 45 of the Central Goods and Service
Tax Rules,2017 will apply to capital goods also

Manner of Distribution of Credit by Input Service Distributor (ISD)

Input Service Distributor (ISD)

ISD is an office of the supplier of goods or services or both where a document (like invoice)
of services attributable to other locations are received (since they might be registered sepa-
rately). Since the services relate to other locations the corresponding credit should be trans-
ferred to such locations (having separate registrations) as services are supplied from there.
Care should be taken to ensure that an inter-branch supply of services should not be misinter-
preted as a distribution by ISD. Please recollect that ISD cannot be an office that does any

66
supply of its own but must be one that merely collects invoice for services and issues pre-
scribed document for its distribution

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or in-
tegrated tax and integrated tax as integrated tax or central, by way of issue of a document
containing, the amount of input tax credit being distributed in such manner as may be pre-
scribed

(2) The Input Service Distributor may distribute the credit subject to the following conditions,
namely:

(a) the credit can be distributed to recipients of credit against a document containing such de-
tails as may be prescribed;

(b) the amount of the credit distributed shall not exceed the amount of credit available for dis-
tribution;

(c) the credit of tax paid on input services attributable to recipient of credit shall be distribut-
ed only to that recipient;

(d) the credit of tax paid on input services attributable to more than one recipient of credit
shall be distributed amongst such recipient(s) and such distribution shall be pro rata on the
basis of the turnover in a State or turnover in a Union Territory of such recipient, during the
relevant period, to the aggregate of the turnover of all such recipients to whom such input
service is attributable and which are operational in the current year, during the said relevant
period.

(e) the credit of tax paid on input services attributable to all recipients of credit shall be dis-
tributed amongst such recipients and such distribution shall be pro rata on the basis of the
turnover in a State or turnover in a Union Territory of such recipient, during the relevant pe-
riod, to the aggregate of the turnover of all recipients and which are operational in the current
year, during the said relevant period

67
 Problems and solutions-

1. Details for the month of May 2018 as follows:

a. Total Input Tax available in the tax period – 1,00,000

b. Value of taxable items sold in her shop – 5,00,000

c. Value of vegetables sold (Agricultural activity) – 2,00,000

d. Input Tax on inputs (transporting charges) for taxable supplies – 10,000

e. Input Tax for inputs exclusively for agricultural activity (purchasing seeds, soil, labour
charges) – 20,000

f. Input Tax for inputs exclusively for personal purpose (eating out) – 5,000

g. Input Tax for inputs and services on which availing credit is not eligible (travelling by
Ola to wholesalers)- 10,000

h. ITC credit attributable to personal purposes is 5%of common credit.

From the above particulars calculate eligible input tax credit available

ANSWER:

PARTICULARS REFERENCE GST TAX

Total Input Tax available in the tax pe- T 1,00,000
riod
Input Tax for inputs exclusively for T1 5,000
personal purpose (eating out) – 5,000
(T1)
• Input Tax for inputs exclusively for T2 20,000
agricultural activity (purchasing seeds,
soil, labour charges)

Input Tax for inputs and services on T3 10,000

which availing credit is not eligible
(travelling by Ola to wholesalers)-
ITC credited to electronic ledger C1=T- 65,000
(T1+T2+T3)
Input Tax for inputs for taxable Sup- T4 10,000
plies
Common credit C2=(C1-T4) 55,000
Aggregatte value of exempt supplies E 2,00,000

68
 TOTAL TURNOVER F 5,00,000
Credit attributable to exempt supplies D1=(E/F)XC2 22,000
Credit attributable to personal purposes D2=5% of C2 2,750
NET ELIGIBLE COMMON CREDIT C3=C2- 30,250
(D1+D2)
TOTAL ELIGIBLE CREDIT G=(T4+C3) 40,250

2. From the following particulars compute total eligible credit under GST:

CGST SGST/UGST IGST

Total input tax on inputs for the tax 1,00,000 1,00,000 50,000
period May 2018
Input tax on inputs exclusively used 10,000 10,000 5,000
for non-business purposes
Input tax on inputs used exclusively 10,000 10,000 5,000
for effecting exempt supplies
Input tax on ineligible supplies 10,000 10,000 5,000
Input Tax credit used exclusively for 50,000 50,000 25,000
taxable supplies including zero rated
supplies
Aggregate value of exempt supplies for the tax period May 2018-Rs. 25,00,000
Total turnover for the tax period-1,00,00,000

The input tax credit attributable to non-business supplies is 5% of common Input Tax
Credit

Answer :

Reference CGST SGST/UGST IGST

Total input tax on in- T 100000 1,00,000 50,000
puts and input services
for the tax period May
2018
OUT OF TOTAL INPUT TAX
Input tax on inputs ex- T1 10,000 10,000 5,000
clusively used for non-
business purposes
Input tax on inputs T2 10,000 10,000 5,000
used exclusively for
effecting exempt sup-
plies
Input tax on ineligible T3 5,000 5,000 2,500
supples U/S 17(5)
69
TOTAL 25,000 25,000 12,500
ITC credited to elec- C1=T- 75,000 75,000 37,500
tronic ledger (T1+T2+T3)
Input Tax credit used T4 50,000 50,000 25,000
exclusively for taxable
supplies including zero
rated supplies
Aggregate value of ex- E 25,00,000 25,00,000 25,00,000
empt supplies for the
tax period May 2018
Total Turnover of the F 1,00,00,000 1,00,00,000 1,00,00,000
registered person for
the tax period May
2018 (Note 2) F
Credit attributable to D1=(E/F)XC2 6,250 6,250 3,125
exempt supplies
Credit attributable to D2=C2X5% 1,250 1,250 625
nonbusiness purposes
Net eligible common C3=C2- 17,500 17,500 8,750
credit (D1+D2)
TOTAL CREDIT EL- G=T4+C3 67,500 67,500 33,750
IGIBLE

3. Distribution of input tax credit by an ISD to its units is shown as under: M/s XYZ Ltd,
having its head Office at Delhi, is registered as ISD. It has three units in different State name-
ly ‘Delhi’, ‘Jaipur’ and ‘Gujarat’ which are operational in the current year. M/s XYZ Ltd fur-
nishes the following information for the month of July 2018 & asks you to distribute the cred-
it to various units. (i) CGST paid on services used only for Delhi Unit: ` 300000/- (ii) IGST,
CGST & SGST paid on services used for all units: ` 1200000/- (iii) Total Turnover of the
units for the Financial Year 2017-18 are as follows:

Unit Turnover
Delhi 5,00,000
Jaipur 3,00,000
Gujarath 2,00,000
Total 10,00,000

Answer: Distribution of Credit by ISD

particulars Total credit Delhi Jaipur Gujarath

available
CGST paid only 3,00,000 3,00,000 - -
for Delhi unit
IGST, SGST, 12,00,000 6,00,000 3,60,000 2,40,000

70
 UGST paid for
all units and
distributed
among them on
prorate basis of
turnover
Total 15,00,000 9,00,000 3,60,000 2,40,000

Note 1: Credit distributed pro rata basis based on the turnover of all the units are as un-
der: -
(a) Unit Delhi: (50000000/100000000)*1200000 = ` 600000
(b) Unit Jaipur: (30000000/100000000)*1200000 = ` 360000
(c) Unit Gujarat: (20000000/100000000)*1200000 = ` 240000

4. Mr. X, a supplier of goods, pays GST under regular scheme. He has made the follow-
ing outward taxable supplies in a tax period:

Particulars Rs.
Inter state supply of goods 3,00,000
Intra-state supply of goods 8,00,000

He has also furnished the following information in respect of purchases made by him
during the period:
Particulars Rs.
Inter state purchases of goods 50,000
Intra-state supply of goods 3,00,000

Mr X has the following ITCs with him at the beginning of the period:
Particulars Rs.
CGST 30,000
SGST 30,000
IGST 70,000

Additional information:
1.applicable CGST, SGST and IGST rates are 9%, 9% and 18% respectively

2. Both inward and outward supplies are exclusive of taxes, wherever applicable
3. All the conditions necessary for availing tax credit have been fulfilled
Compute the net GST payable by Mr.X.

Answer :

Computation of GST payable by Mr.X on outward supplies:

particulars Rs. GST Rs.
1.Intra-state supply
of goods

71
 A.CGST 9% 72,000
X8,00,000
B.SGST- 9% ON 72,000 1,44,000
8,00,000
2. Inter state supply 3,00,000 54,000
of goods
18% on
Total 1,98,000

Computation of total Input tax credit:

Particulars CGST 9% SGST 9% IGST 18%
Opening ITC 30,000 30,000 70,000
Add: ITC on intra- 27,000 27,000 Nil
state purchases of
goods 3,00,000
Add ITC on inter state 9,000
purchases of goods
TOTAL ITC 57,000 57,000 79,000

Computaion of GST payable from cash ledger:

particulars CGST 9% SGST 9% IGST 18%

GST payable 72,000 72,000 54,000
Less ITC 57,000 57.000 54.000
LESS 15,000 from 10,000 from IGST -
IGST
Net GST payable Nil 5,000 Nil

Note; IGST credit has been used to pay IGST, CGST and SGST in that order Customs
Duties

72
UNIT-4 CUSTOMS ACT 1962
Structure

Introduction
Definition
Types of Customs Duties
Basic Customs Duty
Additional Duty of Customs
Special Customs Duty
Protective Duties
Safeguard Duty
Countervailing Duty
Anti-Dumping Duty
Export Duty
National Calamities Contingent Duty of Customs
Levy of and Exemption from Customs Duties
Valuation of Goods for the Purpose of Assessment
Clearance of Imported Goods
Restrictions on Custody and Removal of Imported Goods
Entry of Goods on Importation
Clearance of Goods for Home Consumption
Clearance of Export Goods
Entry of Goods for Exportation

Drawback
Drawback on Imported Materials used in the Manufacture of Goods which are Exported
Prohibition and Regulation of Drawback in certain Cases
Exercises
Reference

73
Introduction

After independence, manufacturing industries grew and trade expanded. Customs Act,
1962 was passed to consolidate Sea Customs Act, Land Customs Act & provisions for air
customs.
Basic Acts :
There are two Acts, which form part of customs Law in India, namely, the Customs Act,
1962 and the Customs Tariff Act, 1975 :
1. The Customs Act, 1962
The Customs Act, 1962 is the basic Act for levy of customs duty in India. It contains
various provisions relating to imports and exports of goods and merchandize as well as
baggage of persons arriving in India.
Objects of the Act
The customs act is a consolidation of the provisions relating to sea, land and air cus-
toms. The main purpose of Customs Act, 1962 is the prevention of illegal imports and ex-
ports of goods. The objects of the Act, as defined in its Preamble are “to consolidate and
amend the law relating to customs”.
Application of the Act
The Act extends to the whole of India. It was extended to Sikkim vide Notification No.
185/79-Customs, dated 1st September, 1979, w.e.f. 1st October, 1979.
Customs Tariff Act—Indian Tariff Act, 1934 was found to be inadequate to meet the
needs of expansion of trade and industry. Tariff Revision Committee was formed, which
recommended adoption of Brussels Trade Nomenclature of Customs Co- operation Coun-
cil (CCCN), with modifications to suit Indian conditions. Accordingly Customs Tariff Act,
1975 was passed, which came into effect in 1976. The Act provided explanatory, clarifica-
tory and interpretative rules and notes, which enabled proper classification of goods. Lat-
er, Customs Cooperation Council developed a new system of nomenclature known as
‘Harmonised Commodity Description and Coding System’ (HSN) to take into account lat-
est charges in technology and pattern of international trade. On 28th February, 1986, Im-
port schedule to the Customs Tariff Act, 1975 was replaced with a new schedule, based on
HSN. This new schedule is expected to (a) reduce classification disputes (b) common code
for goods in international trade (c) facilitate computerisation of customs classification and
assessment work. [Central Excise Tariff was also replaced by a new tariff based on
HSN on 28th February, 1986].

74
Definition

“Manufacture” [Sec. 2(1)] includes any process

(i) Incidental or ancillary to the completion of a manufactured products; and
(ii) Which is specified in relation to any goods in the Section or Chapter notes of the
[first] schedule to the Central Excise Tariff Act 1958 as amounting to manufacture
[or;]
(iii) [Which is specified in relation to any goods in the central government by notifica-
tion in the Official Gazette as amounting to manufacture] and the word manufacture
shall be considered accordingly and shall include not only a person who employs
hired labour in the production or manufacture of excisable goods but also any per-
son who engages in their production or manufacture on his own account.

Types of Duties

The various types of Customs Duties are :

(a) Basic Customs Duty;
(b) Additional Customs Duty;
(c) Special Customs Duty;
(d) Protective Duties;
(e) Safeguard Duty;
(f) Countervailing Duty;
(g) Anti-Dumping Duty; and
(h) Export Duty.

Basic Customs Duty

Basic Customs Duty is levied under section 12 of the Customs Act. The rates at which
duties of customs shall be levied under the Customs Act, 1962 are specified in the First
and Second Schedules to the Customs Tariff Act, 1975. The first Schedule enlists the
goods liable to import duty and the Second Schedule enlists the goods liable to export du-
ties.

75
 There are two types of rates of Basic Customs Duty, namely :
(a) Standard Rates; and
(b) Preferential Rates.
Standard Rates of Duty :
Standard rates of duty are applicable at the rate specified in Column 4 of the Tariff
Schedule against each item/article specified in Column 3. In absence of any Notification for
application of preferential rates of duty based on the country of origin, the standard rates of
customs duty are invariably applied.
Preferential Rates of Duty :
The Government is empowered under section 25 of the Customs Act to prescribe by is-
suing Notification, preferential rate duty in respect of imports from certain preferential ar-
eas.
As per section 4(3) of the Customs Tariff Act, “Preferential area” means any country or
territory, which the Central Government may, by notification in the Official Gazette, de-
clare to be such area.

Additional Duty of Customs

Section 3 of the Customs Tariff Act empowers the Central Government to levy addi-
tional duty equal to excise duty. Accordingly, any article, which is imported into India
shall, in addition to standard rate of duty, be liable to an additional duty equal to the ex-
cise duty for the time being leviable on a like article, if produced or manufactured in India
and if such excise duty on a like article is leviable at any percentage of its value, the addi-
tional duty to which the imported article shall be so liable shall be calculated at that per-
centage of the value of the imported article.
However, in case of any alcoholic liquor for human consumption imported into India,
the Central Government may, by notification in the official gazette, specify the rate of ad-
ditional duty having regard to the excise duty for the time being leviable on a like alcohol-
ic liquor produced or manufactured in different states or if a like alcoholic liquor is not pro-
duced or manufactured in any state, then, having regard to excise duty which would be
leviable for the time being in different states on the class or description of alcoholic liquor
to which such imported alcoholic liquor belongs.

76
Special Customs Duty
Special Additional Duty is levied under section 3A of the Customs Tariff Act. Accord-
ingly, any article which is imported into India shall, in addition, be liable to a special addi-
tional duty, which shall be levied at a rate to be specified by the Central Government, by
notification in the Official Gazette, having regard to the maximum sales tax, local tax or
any other charges for the time being leviable on a like article on its sale or purchase in
India.
However, until such rate is specified by the Central government, the special additional duty
shall be levied and collected at the rate of eight per cent of the value of the article import-
ed into India. The duty chargeable under section 3A shall be in addition to any other duty
imposed under this Act or under any other law for the time being in force.

Protective Duties
Section 6 of the Customs Tariff Act empowers the Central Government to levy a pro-
tective duty based on a recommendation made by the Tariff Commission established under
the Tariff Commission Act 1951.
The Central Government may upon receiving such recommendation, if it is satisfied that
circumstances exist warranting to take immediate action to provide for the protection of
the interests of any industry established in India, it may impose on any goods imported in-
to India in respect of which the said recommendation is made, a duty of customs of such
amount, not exceeding the amount proposed in the said recommendation, as it thinks fit.
The duty so imposed on any goods is deemed to have been specified, in the First Schedule
as the duty leviable in respect of such goods.

Safeguard Duty
The Agreement on Safeguards has come into existence on 1st January, 1995, which au-
thorises importing countries to provide protection to their domestic producers against seri-
ous injury caused or threatened to be caused to them by increased imports. The safeguard
measures are intended to be applied only for a short duration with a view to allowing an
opportunity to the domestic producers to adjust to the new situation of competition of-
fered by the increased imports.
In India, the Agreement on Safeguards has been implemented recently by introducing a
new section 8B in the Customs Tariff Act, 1975 on 1st March, 1997. The Safeguard Duty
Rules have been notified on 29th July, 1997.

77
Countervailing Duty
Countervailing Duty can be imposed under section 9 of the Customs Tariff Act, 1975
to offset any adverse effect of subsidies granted on any goods exported to India.
Section 9 of Customs Tariff Act provides that where any country or territory pays, be-
stows, directly or indirectly, any subsidy upon the manufacture or production therein or the
exportation the reform of any article including any subsidy on transportation of such arti-
cle, then, upon the importation of any such article into India, whether the same is imported
directly from the country of manufacture, production or otherwise, and whether it is im-
ported in the same condition as when exported from the country of manufacture or pro-
duction or has been charged in condition by manufacture, production or otherwise, the
Central Government may, by notification in the Official Gazette, impose countervailing
duty not exceeding the amount of such subsidy.
The countervailing duty chargeable under section 9 shall be in addition to any other duty
imposed under this Act or any other law for the time being in force.

Conditions for levy of CVD :

The countervailing duty shall not be levied unless it is determined that—
(a) The subsidy relates to export performance;
(b) The subsidy relates to the use of domestic goods over imported goods in the ex-
port article; or
(c) The subsidy has been conferred on a limited number of persons engaged in manu-
facturing, producing or exporting the article, unless such a subsidy is for—
(i) Research activities conducted by or on behalf of persons engaged in
the manufacture, production or export;
(ii) Assistance to disadvantaged regions within the territory of the ex-
porting country; or
(iii) Assistance to promote adaptation of existing facilities to new envi-
ronmental requirements.

Anti-Dumping Duty
Dumping means export of an article from any country or territory of India at less than
its normal value i.e., when the prices at which the goods are exported to India are less than
the comparable price for the like product when destined for consumption

78
 in the domestic market of the exporting country. Antidumping duty is imposed for offset-
ting the adverse effects of increased imports, subsidized imports or dumped imports.
The Central Government can impose anti-dumping duty only if the imports of dumped
article into India cause and threaten material injury to any established industry in India and
materially retards the establishment of any industry in India. If the domestic industry has
evidence to show dumping and material injury caused to it by dumped imports, it may
make an application to the Director-General (Anti-dumping and Allied duties) in the Min-
istry of Commerce for an investigation in the matter.

Export Duty
Section 8 of Customs Tariff Act provides for emergency powers to the Central Gov-
ernment to increase or levy export duties. Accordingly, where, in respect of any article,
whether included in the Second Schedule or not, the Central Government is satisfied that
the export duty leviable thereon should be increased or that an export duty should be lev-
ied and that circumstances exist which render it necessary to take immediate action, the
Central Government may, by notification in the Official Gazette, direct and amendment of
the Second Schedule to be made, so as to provide for an increase in the export duty levia-
ble or as the case may be, for the levy of an export duty on the article.

National Calamities Contingent Duty of Customs

The Finance Act, 2003 provides for levy of national Calamity Contingent Duty of Cus-
toms on goods specified in Schedule VII to the finance Act, 2001 and imported into India
by surcharge at the rate specified in the said Sehedule VII as amended by Schedule XIII.

Levy of an Exemption from Customs Duties

Dutiable goods :
(1) Except as otherwise provided in this act, or any other law for the time being in
force, duties of customs shall be levied at such rates as may be specified under the
Customs Tariff Act, 1975 [5] or 1975 or any other law for the time being in force,
on goods imported into or exported from India.
(2) The provisions of sub-section (1) shall apply in respect of all the goods belonging
to Government as they apply in respect of goods not belonging to Government.

79
Duty on pilfered goods
If any imported goods are pilfered after unloading thereof and before the proper officer
has made an order for clearance for home consumption or deposit in a warehouse, the im-
porter shall not be liable to pay the duty leviable on such goods except where such goods
are restored to the importer after pilferage.

Valuation of Goods for the Purpose of Assessment

For the purpose of the Customs Act 1975 [51 of 1975] or any other law for the time be-
ing in force where under a duty of customs is chargeable on any goods by reference to
their value, the value of such goods shall be deemed to be the price at which such or like
goods are ordinarily sold, or offered for sale for delivery at the time of importation or ex-
portation as the case may be in the course of {international trade where—
(a) The seller and the buyer have no interest in the business of each other; or
(b) One of them has no interest in the business of the other, and the price is the sole
consideration for the sale or offer for sale}
Power not to recover duties not levied or short levied as a result of general practice :
(1) Notwithstanding anything contained in this Act, if the Central Government is satis-
fied—
(a) That a practice was or is generally prevalent regarding levy of duty (including non-
levy thereof) on any goods imported into or exported from India; and
(b) That such goods were or are liable—
(i) To duty in cases where according to the said practice the duty was
not or is being levied; or
(ii) To a higher amount of duty than what was or is being levied accord-
ing to the said practice.
Then, the Central Government may, by notification in the Official Gazette direct that
the whole of the duty payable on such goods by for the said practice shall not be required
to be paid in respect of the goods on which the duty was not or is not being levied or was
or is being short-levied in accordance with the said practice.

80
 Clearance of Imported Goods

Restrictions on custody and removal of imported goods

(1) Save as otherwise provided in any law for the time being in force all imported
goods unloaded within a customs area shall remain in the custody of such persons
as may be approved by the Commissioner of Customs until they are cleared for
home consumption or the warehoused or are transhipped in accordance with pro-
visions of chapter VIII.
(2) The person having custody of any imported goods in a customs area, whether un-
der the provisions of sub-section (1) or under any law for the time being in force
:–
(a) Shall keep a record of such goods and send a copy thereof to the
proper officer :
(b) Shall not permit such goods to be removed from the customs area; or
otherwise dealt with except under and in accordance with the per-
mission in writing of the proper officer.
(3) Notwithstanding anything contained in any law for the time being in force, if any
imported goods are pilfered after unloading thereof in a customs area while in the
custody of a person referred to in sub-section (1) that person shall be liable to pay
duty on such goods at the rate prevailing on the date of delivery of an import
manifest or as the case may be, an import report to the proper officer under sec-
tion 30 for the arrival of the conveyance in which the said goods where carried.
Entry of goods on importation
The importer of any goods other than goods intended for transit or transhipment, shall
make entry thereof by presenting to the proper officer a bill of entry for home consump-
tion or warehouse in the presented form :
Save as otherwise permitted by the proper officer a bill of entry shall include all the
goods mentioned in the bill of lading or other receipt given by the carrier to the consignor.
A bill of entry under sub-section may be presented at any time after the delivery of the
import manifest or import report as the case mey be :
The importer while presenting a bill of entry shall, at the foot thereof, make and sub-
scribe to a declaration as to the truth of the contents of such bill of entry and shall

81
in support of such declaration produce to the proper officer the invoice, if any relating to
the imported goods.
If the proper officer is satisfied that the interest of revenue is not prejudicially affected
and there was no fraudulent intention, he may permit substitution of a bill of entry for
home consumption for a bill of entry for warehousing or vice-versa.

Clearance of Goods for Home Consumption

Where the proper officer is satisfied that any goods entered for home consumption are
not prohibited goods and the importer has paid the import duty if any assessed thereon and
any charges payable under this Act in respect of the same the proper officer may make an
order permitting clearance of the goods for home consumption.
Where the importer fails to pay the import duty under this sub-section within five days
excluding holidays from the date on which the bill of entry is returned to him for payment
of duty he shall pay interest at such rate not below the rate being fixed by the Central
Government by notification in the official gazette on such duty till the date of payment of
the said duty.

Clearance of Export Goods

Entry of goods for exportation

(1) The export of any goods shall make entry thereof by presenting to the proper of-
ficer in the case of goods to be exported by land a bill of export in the prescribed
form.
(2) The export of any goods while presenting a shipping bill or bill of export shall at
the foot thereof make and subscribe to a declaration as to the truth of its contents.
Clearance of goods for exportation :
Where the proper officer is satisfied that any goods entered for export are not prohibit-
ed goods and the exporter has paid the duty, if any, assessed thereon and any charges pay-
able under this Act in respect of the same the proper officer may make an order permit-
ting clearance and loading of the goods for exporation.
Transit of certain goods without payment of duty :
Subject to the provisions of section 11 any goods imported in a conveyance and men-
tioned in the import manifest or the import report, as the case may be, as fo

82
transit in the conveyance to any place outside India or any customs station may be al-
lowed to be so transhipment shall be presented to the proper officer in the prescribed form :
Subject to the provisions of section 11 where any goods imported into a customs station
are mentioned in the import manifest or the import report, as the case may be, as for tran-
shipment without payment of duty.
Where any goods imported into a customs station are mentioned in the import manifest or
the import report, as the case may be, as for transhipment—
(a) To any major port as defined in the India Ports Act 1908 (15 of 1908) or customs
airport at Mumbai, Kolkata, Delhi or Channai or any other customs port or cus-
toms airport specified in this behalf by the Government.

Drawback

When any goods capable of being easily identified which have been imported into In-
dia and upon which any duty has been paid on importation—
(i) Are entered for export and the proper officer makes an order permitting clearance
and loading of the goods for exportation under section 51; or
(ii) Are to be exported as baggage and the owner of such baggage, for the purpose of
clearing it makes a declaration of its contents to the proper entry for export for the
purposes of this section and such officer makes an order permitting clearance of
the goods for exportation; or
(iii) Are entered for export by post under section 82 and the proper officer makes an
order permitting clearance of the goods for exportation, ninety-eight percent of such
duty shall, except as otherwise hereinafter provided, by repaid as drawback, if—
(a) The goods are identified to the satisfaction of the Assistant Commis-
sioner of Customs [or Deputy Commissioner of Customs] as the
goods which were imported; and
(b) The goods are entered for export within two years from the date of
payment of duty on the importation thereof :
Provided that in any particular case the aforesaid period of two years may, on sufficient
cause being shown, be extended by the Board by such further period as it may deem fit.

83
Notwithstanding anything contained in sub-section (1) the rate of drawback in the case of
goods which have been used after the importation thereof shall be such as the Central Gov-
ernment having regard to the duration of use, depreciation in value and other relevant cir-
cumstances may, by notification in the Official Gazette fix.
The Central Government may make rules for the purpose of carrying out of the provi-
sions of this section and in particular such rules may—
(a) Provide for the manner in which the identity of goods imported in different con-
signments which are ordinarily stored together in bulk may be established;
(b) Specify the goods which shall be deemed to be not capable of being easily identi-
fied and
(c) Provide for the manner and time within which a claim for payment of drawback is to
be filed.
For the purpose of this section :
(a) Goods shall be deemed to have been entered for export on the date with reference
to which the rate of duty is calculated under section 16,
(b) In the case of goods assessed to duty provisionally under section 18, the date of
payment of the provisional duty shall be deemed to be the late of payment to du-
ty.

Drawback on imported materials used in the manufacture of goods which are exported
Whereas it appears to the Central Government that in respect of goods of any class or
description [manufactured, processed or on which any operation has been carried out in
India], being goods which have been entered for export and in respect of which an order
permitting the clearance and loading thereof for exportation has been made under section
51 by the proper officer or being goods entered for export by post under section 82 and in
respect of which an order permitting clearance for export has been made by the proper of-
ficer a drawback should be allowed of duties of customs chargeable under this act on any
imported material or a class or description used in the manufactured or processing of such
goods or carrying out any operation on such goods the Central Government may by notifi-
cation in the Official Gazette direct that drawback shall be allowed in respect of such
goods in accordance with and subject to the rules made under sub-section The Central
Government may make rules for the purpose of carrying out of the provision of sub-
section (1) and in particular such rules may provide—
(a) For the payment of drawback equal to the amount of duty actually paid on the im-
ported material used in the manufacture or processing of the goods or carrying out
any operation on the goods or as is specified in the rules as the average amount of
duty paid on the material of that class or description used in the manufacture or
processing of export goods or carrying out any operation on export goods of the

84
 class or description either by manufacturers generally or by processing or carrying
on any operation generally or by any particular manufacturer or particular person
carrying on any process or other operation and interest, if any, payable thereon;
(i) For specifying the goods in respect of which no drawback shall be
allowed;
(ii) For specifying the goods procedure for recovery or adjustment of the
amount of any drawback which had been allowed under sub-section
(1) [or interest chargeable thereon];
(b) For the production of such certificate, documents and other evidence in support of
each claim of drawback as may be necessary;
(c) For requiring the manufacturer or the person carrying on any process or other op-
eration to give access or every part of his manufacturing to any officer of customs
specially authorized in this behalf by the Assistant Commissioner of Customs or
Deputy Commissioner of Customs to enable such authorized officer to inspect the
process of manufacture, process or any other operation carried out and to verity
by actual check or otherwise the statement made in support of the claim for
drawback;
(d) For the manner and the time within which the claim for payment of drawback may
be filed.

Prohibition and regulation of drawback in certain cases

1. Notwithstanding anything herein before contained no drawback shall be allowed—
(a) In respect of any goods the market price of which is less than the amount of
drawback due thereon;
(b) Where the drawback due in respect of any goods is less than fifty rupees

2. Without prejudice to the provisions of sub-section (1) if the Central Government is of

opinion that goods of any specified description in respect of which drawback may be
claimed under this Chapter are likely to be smuggled back into India. It may by notifi-
cation in the Official Gazette direct that drawback shall not be allowed in respect of
such goods or may be allowed subject to such restrictions and conditions as may be
specified in the notification.
VALUATION OF GOODS FOR LEVY OF CUSTOMS DUTY

The method of valuation of goods for both import and export for the purposes of levy of cus-
toms duty on the basis of transaction value has been set out under Section 14 of the Customs
Act, 1962 (effective from 10.10.2007). The transaction value is the price actually paid or
payable for the goods when sold for export to India for delivery at the time and place of im-
85
portation, or for export from India for delivery at the time and place of exportation, where the
buyer and seller of the goods are not related and the price is the sole consideration for sale,
subject to such other conditions as may be specified in the rules made in this behalf.

Accordingly, the old Customs Valuation (Determination of Imported Goods) Rules, 1988
have also been replaced by new Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007 and Customs Valuation (Determination of Value of Export Goods)
Rules, 2007.

In case of export goods, the transaction value shall be:

-the price actually paid or payable for the goods;

-when sold for export from India

-for delivery at the time and place of exportation

-where the buyer and seller are not related

-price is the sole consideration for the sale

In case of imported goods, the transaction value shall be

-the price actually paid or payable for the goods;

-when sold for export to India

-for delivery at the time and place of importation

-where the buyer and seller are not related

-price is the sole consideration for the sale

As per rule 2(g): "transaction value" means the value referred to in sub-section (1) of section
14 of the Customs Act, 1962.

As already discussed, transaction value as per section 14 of the Customs Act, 1962 is the
price actually paid or payable;

- when sold for export to India for delivery at the time and place of importation in case of im-
ports and

- when sold for export from India the price for delivery at the time and place of exportation,
86
where the buyer and seller are not related and price is the sole consideration for the sale sub-
ject to such other conditions as ―may be specified in the rules made in this behalf.

Conversion dates: For imported goods the conversion in value shall be done with refer-
ence to the exchange rate prevailing on the date of filing of bill of entry

For export goods the conversion in value shall be done using the exchange rate prevalent on
the dat e of filling of shipping bill or date of bill of export under section 50.

Conversion rates: The exchange rate is notified by three agencies- CBEC; RBI and foreign
exchange dealers association. For the purpose of conversion in value the rate notified by shall
be taken.

ADJUSTMENTS IN TRANSACTION VALUE (RULE 10)

I. Adjustments specified in Rule 10(1)

In determining the transaction value, there shall be added to the price actually paid or payable
for the imported goods, —

(a) the following to the extent they are incurred by the buyer but are not included in the price
actually paid or payable for the imported goods, namely:-

(i) commission and brokerage, except buying commissions; (ii) the cost of containers im-
ported along with the goods;

iii) the cost of packing whether for labour or materials;

(b) The value, apportioned as appropriate, of the following goods and services where sup-
plied directly or indirectly by the buyer free of charge or at reduced cost for use in connection
with the imported goods, but not included in the price actually paid or payable namely:-

(i) materials, components, parts and similar items incorporated in the imported goods;

(ii) tools, dies, moulds and similar items used in the production of the Imported goods;

(iii) materials consumed in the production of the imported goods;

(iv) engineering, development, art work, design work, and plans and sketches undertaken
elsewhere than in India and necessary for the production of the imported goods;

87
(c) royalties and licence fees related to the imported goods that the buyer is required to pay,
directly or indirectly, as a condition of the sale of the goods being valued, to the extent that
such royalties and fees are not included in the price actually paid or payable(refer the box ),.

(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the im-
ported goods that accrues, directly or indirectly, to the seller;

(e) all other payments actually made or to be made by the buyer to the seller, or by the buyer
to a third party to satisfy an obligation of the seller and such payments are not included in the
price actually paid or payable .

The value of the imported goods shall be the value of such goods, for delivery at the time and
place of importation and shall include –

(a) the cost of transport of the imported goods to the place of importation;

(b) loading, unloading and handling charges associated with the delivery of the imported
goods at the place of importation; and

(c) the cost of insurance actually incurred

The following points shall also be considered while determining the assessable value:

(i) Where the cost of transport is not ascertainable, such cost shall be 20% of the free on
board value of the goods. In the case of goods imported by air, even where the cost of trans-
portation is ascertainable, such cost shall not exceed 20% of free on board value of the goods.

(ii) where the cost of insurance is not ascertainable, such cost shall be 1.125% of free on
board (FOB) value of the goods;

(iii) loading, unloading and handling charges shall be 1% of the free on board (FOB) value of
the goods + the cost of transport + cost of insurance i.e. CIF Value.

PROHIBITION OF IMPORT OR EXPORT OF GOODS:

Under sub-section (d) of section 111 and sub-section (d) of Section 113, any goods which are
imported or attempted to be imported and exported or attempted to be exported, contrary to
any prohibition imposed by or under the Customs Act or any other law for the time being in
force shall be liable to confiscation. Section 112 of the Customs Act provides for penalty for

88
improper importation and Section 114 of the Customs Act provides for penalty for attempt to
export goods improperly. In respect of prohibited goods the Adjudicating Officer may impose
penalty upto five times the value of the goods. It is, therefore, absolutely necessary for the
trade to know what are the prohibitions or restrictions in force before they contemplate to im-
port or export any goods.

The terms “Prohibited Goods” have been defined in sub-section 33 of Section 2 of the Cus-
toms Act as meaning “any goods the import or export of which is subject to any prohibition
under the Customs Act or any other law for the time being in force but does not include any
goods which have been allowed to be imported or exported subject to fulfillment of certain
conditions;

Under section 11 of the Customs Act, the Central Government has the power to issue Notifi-
cation under which export or import of any goods can be declared as prohibited. The prohibi-
tion can either be absolute or conditional.

The specified purposes for which a notification under section 11 can be issued are;

- maintenance of the security of India,

-prevention and shortage of goods in the country,

-conservation of Foreign Exchange,

-safeguarding balance of payments etc.

The Central Govt. has issued many notifications to prohibit import of sensitive goods such as
coins, obscene books, printed waste paper containing pages of any holy books, armored
guard, fictitious stamps, explosives, narcotic drugs, rock salt, saccharine, etc.

Power of central govt to notify goods[section 11B]:

If Central government is satisfied that it is necessary to take special measures for the pur-
pose of

-checking the illegal import of

-checking circulation or disposal of goods or

facilitating the detection of such goods

it may by notification in the official gazette specify goods of such class or descricption. Such
notification shall be issued after considering the quantum of illegal import of such goods.

89
However, at present the government has not specified any goods as notified goods;

11C. Persons possessing notified goods to intimate the place of storage, etc. - (1) Every
person who owns, possesses or controls, on the notified date, any notified goods, shall, within
seven days from that date, deliver to the proper officer a statement (in such form, in such
manner and containing such particulars as may be specified by rules made in this behalf) in
relation to the notified goods owned, possessed or controlled by him and the place where
such goods are kept or stored.

11D. Precautions to be taken by persons acquiring notified goods.

- No person shall acquire (except by gift or succession, from any other individual in India),
after the notified date, any notified goods - (i) unless such goods are accompanied by, - (a)
the voucher referred or the memorandum or

(b) in the case of a person who has himself imported any goods, any evidence showing clear-
ance of such goods by the Customs Authorities; and (ii) unless he has taken, before acquiring
such goods from a person other than a dealer having a fixed place of business, such reasona-
ble steps as may be specified by rules made in this behalf, to en sure that the goods so ac-
quired by him are not goods which have been illegally imported.

11E:Persons possessing notified goods to maintain accounts. - (1) Every person who, on
or after the notified date, owns, possesses, controls or acquires any notified goods shall main-
tain (in such form and in such manner as may be specified by rules made in this behalf) a true
and complete account of such goods and shall, as often as he acquires or parts with any noti-
fied goods, make an entry in the said account and shall also state therein the particulars of the
person from whom such goods have been acquired or in whose favour such goods have been
parted with.

(2) Every person who has notified goods and who uses any such goods for the manufacture
of any other goods, shall maintain a true and complete account of the notified goods so used
by him and shall keep such account at the intimated place.

11F. Sale, etc. of notified goods to be evidenced by vouchers. - On and from the notified
date, no person shall sell or otherwise transfer any notified goods, unless every transaction in
relation to the sale or transfer of such goods is evidenced by a voucher in such form and con-
taining such particulars as may be specified by rules made in this behalf

11G. not to apply to goods in personal use. - (1) Nothing in sections 11C, 11E and 11F
shall apply to any notified goods which are - (a) in personal use of the person by whom they
are owned, possessed or controlled, or (b) kept in the residential premises of a person for his
90
personal use. (2) If any person, who is in possession of any notified goods referred to in sub -
section (1), sells, or otherwise transfers for a val uable consideration, any such goods, he shall
issue to the purchaser or transferee, a memorandum containing such particulars as may be
specified by rules and no such goods shall be taken from one place to another unless they are
accompanied by the said memorandum.

Problems on valuation of imported goods:

1. A material was imported by air at CIF price US $ 5000. Freight paid was 1500 US $
and insurance cost was 500 US $. The banker realized the payment from the importer
at the exchange rate of Rs.61 per dollar .central board of excise and customs notified
the exchange rate as Rs 60 per dollar. Find the value of the material for the purpose
of levying duty
Solution.
Computation of assessable value
Exchange rate Rs 60 per $
CIF value 5000 $
Less freight 1500$
Less insurance 500$
FOB value 3000 $ 180000
Calculation of Assessable
value for the purpose of
customs duty

91
 FOB value 3000 $ 180000
Add freight 20% on FOB 600 $ 36000
(or) Actual amount 5000$ ,
W.E.L
Add insurance actual 500 $ 30000
CIF for customs purpose/ 4100 $ 246000
Value for customs purpose/
Assessable value

Notes:
1.If goods are imported the transportation cost shall not exceed 20% of FOB(second
proviso to Rule 10(2) of Customs(Determination of value of imported goods)Rules
2007).
2. Even if there is no information regarding landing charges, still they are charged @
1% of CIF value[ clause (ii) of first proviso to Rule 10(2) of Customs(Determination
of value of imported goods)Rules 2007).

2. XYZ limited has imported a machine from London, it has given the following par-
ticulars:
a. Price of the machine 8000 UK Pounds
b. Freight paid (air) 2500 UK pounds
c. Design and development charges paid in UK Charges 500 UK pounds
d. Commission payable to local agent of exporter 2% of the price of the machine in
Indian Rupees
e. Date of bill of entry 24/10/2018 and CBEC notified exchange rate Rs.100 per
pound. Applicable Basic customs duty rate is 10%
f. Date of arrival of aircraft 20/10/2018 and exchange rate notified by CBEC is Rs. 98
per pound and applicable BCD rate is 20%
g. integrated tax leviable is 12%
h. insurance charges have been actual paid but details are not available
Compute customs duty and IGST payable by XYZ limited.

SOLUTION
Computation of assessable value
Exchange rate applicable Rs 100 per $
Amount in UK Amount in
Particulers pound Rs

92
Price of machine 8,000 800000

Design and development charges paid in 500 50000

UK-note-1
Add local agency commission 160 16000
2% of price 8000 pounds=160xRs.100
FOB value 8660 8,66,000
Add air freight 20% of FOB 1732 pound 1732 1,73,200
OR
Actual amount 2500 pound W.E.L
Add insurance-1.125% of FOB Note-4 97.42 9,742.50
CIF value 10489.42 10,48,942.50
Add landing charges 1% of CIF value- 104.89 10,489.43
Note-5
Assessable value 10594.32 10,59,432

Basic customs duty 10% of assessable val- 1,05,943

ue-Note -6
Education cess 3% on 105943 3,178
Total A 109121
Integrated tax 12% on 11,68,553 1,40,226
Total of duty and IGST payable 2,49,348
=(105943+3178)+140226=

Notes:

1. Design and development charges and commission paid to the local agent of exporter are
includible in the assessable value
2. The rate of exchange notified by CBEC on the date of Bill of entry is taken for the purpose
of
Computation of assessable value –sec 14 of customs Act
3. if goods are imported by air the freight cannot exceed 20% of FOB.
4. Where insurance charges are not ascertainable then 1.125% of FOB is taken as cost of In-
surance

5. Even if there is no information regarding landing charges, still landing charges are charged
at the rate of 1% of CIF value ( earlier). At present no handling charges applicable

6. Section 15 of the act provides that the applicable BCD rate is rate in force on the date of
bill of entry or the rate in force on date of arrival whichever is lower
93
3. From the particulars given below, find out the assessable value of the imported goods un-
der the customs Act 1962:

a. cost of the machine at the factory of the exporter 10,000$

b. transport charges from the factory of the exporter to the -port for the

shipment 500$

c. Handling charges paid for loading the machine in ship 50$

d. Buying commission paid by the importer 50$

e. Freight charges from exporting country to India 1000$

f. Exchange to be considered 1$=Rs.60

g. Actual insurance charges paid are not ascertainable

Price of machine 10,000$ 600000

Transport charges up to port 500 $ 30000
Handling charges at the port 50 $ 3000
FOB 10,550 633000
Freight charges up to India 1,000 60000
Insurance charges –Note 1- 119 7140
1.125% of FOB
CIF 11,669 700140
Add landing charges 1% of CIF value- 7001.4
Note-5
Assessable value 707141.4

4.Ranga Ltd., an Indian company located at Raipur. imported into India certain commodities
in August. 2017 from a country which attracts anti dumping duty by a Notification issued un-
der Section 9A of the Customs Tariff Act. 1975.

The relevant particulars relating to import are as follows:

(1)CIF value of the consignment — US $ 30,000

94
(2) Quantity imported — 500 kgs.

(3) Exchange rate applicable — US $ = Rs 66

(4) Basic Customs Duty (BCD) — 10%

(5) As per the Notification, the anti-dumping duty leviable will be 60%of the difference be-
tween the cost of the commodity calculated @ US $ 100 per kg. and the landed value of the
commodity as imported. Compute ADD.

Margin of Injury is calculated as given below:

1.Fair market value= 500 x 100 = 50,000 USD

2.Landed value is computed as follows:

Assessable value= 101% of CIF= 30,000 x 1.01 = 30,300 USD

Add BCD @ 10% = 3,030 USD

Education CESS @ 3% on 3,030 = 90.9 USD

Landed value = 33,420.90 USD

Difference between (1) and (2) above is 50,000 USD - 33,420.90 USD = 16,579.10 USD

Anti-dumping duty = 60% of 16,579.10 USD = 9947.46 USD

Anti-dumping duty INR = 66 x 9947.46 USD = 656,532 INR

Total customs duty Rs. = (3120.90 USD + 9947.46 USD) x 66 = 862512 INR

NOTE: Where compensation cess is payable it is added on the total value of (AV+
BCD+Education cess) but not on IGST

5.Given Assessable Value: Rs. 1,00,000

BCD @10%;

CVD @12%
95
IGST payable 28% and

GST Compensation cess payable is 15%

You are required to calculate the amount of total Customs duty (including anti-dumping duty)
payable by Ranga Ltd.

Solution

Particulars Value Duties ₹

Assessable value 100000
Add BCD 10% 10000 10000
Total 110000
Add CVD 12% on 110000 13200 13200
Total 123200 23200
Add cess 3% on 23200 696 696
Total 123896 23896
Add IGST 28% on 123896 34691 34691
Add compensation cess 18594 18594
15% on 123896
Total 1,77,171 77,171

CUSTOM DUTY
6.XYZ limited has imported a machine from England, it has given the following particu-
lars:
a.Price of the machine 8000 UK Pounds
b.Freight paid (air) 2500 UK pounds
c.Design and development charages paid in UK Charges 500 UK pounds
d.Commission payable to local agent of exporter 2% of the price of the machine in
Indian Rupees
e.Date of bill of entry 24/10/2017 and CBEC notified exchange rate Rs.100 per
pound. Applicable Basic customs duty rate is 10%
f.date of arrival of aircraft 20/10/2017 and exchange rate notified by CBEC is Rs. 98
per pound and applicable BCD rate is 20%
g. integrated tax leviable is 12%
h. insurance charges have been actual paid but details are not available

96
 Compute customs duty and IGST payable by XYZ limited.

Price of machine 8,000 UK Pounds

Design and development charges paid in 500
UK-note-1
Total 8,500
Total in Rs 8500 x100-note -2 8,50,000
Add local agency commission 16,000
2% of price 8000 pounds=160xRs.100
FOB value 8,66,000
Add air freight 20% of FOB 1,73,200
Add insurance-1.125% of FOB Note-4 9,742.50
CIF value / Assessable value 10,48, 943
Basic customs duty 10% of assessable val- 1,04,894
ue-Note -6
Social welfare surcharge (SWS)10% on 10,489
104894
Total 1,164,326
Integrated tax 12% on 1,164,326 1,39,719
Total of duty and IGST payable = ( 2,55,102
1,04,894+10,489)+ 1,39,719=255102

Notes:

2. Design and development charges and commission paid to the local agent of exporter are
includible
In the assessable value

2. The rate of exchange notified by CBEC on the date of Bill of entry is taken for the purpose
of
Computation of assessable value –sec 14 of customs Act
3. if goods are imported by air the freight cannot exceed 20% of FOB.
4. Where insurance charges are not ascertainable then 1.125% of FOB is taken as cost of In-
surance

5. Even if there is no information regarding social welfare surcharge we need to take 10%
standard rate as SWS.

97
6. Section 15 of the act provides that the applicable BCD rate is rate in force on the date of
bill of entry or the rate in force on date of arrival whichever is lower

7.From the particulars given below, find out the assessable value of the imported goods un-
der the customs Act 1962:
a.cost of the machine at the factory of the exporter 10,000$

b.transport charges from the factory of the exporter to the -port for the

shipment 500$

c.handling charges paid for loading the machine in ship 50$

d.buying commission paid by the importer 50$

e.freight charges from exporting country to India 1000$

f.exchange rate to be considered 1$=Rs.60

g.actual insurance charges paid are not ascertainable

Price of machine 10,000$

Transport charges up to port 500 $
Handling charges at the port 50 $
FOB 10,550
Freight charges up to India 1,000
Insurance charges –Note 1- 119
1.125% of FOB
CIF 11,669
CIF/ Assessable value in Indian RS. 7,00,140
11,669x60/$

NOTE: At present handling charges not applicable for customs

98