CHAPTER-3 LEVY AND COLLECTION OF TAX

SECTION-5 LEVY AND COLLECTION

 SECTION AND RELEVANT RULE

(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption [and un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption]^[3], on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:

Provided that the integrated tax on goods [other than the goods as may be notified by the Government on the recommendations of the Council]^[2] imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

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

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

[(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.]^[1]

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

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

Reference for Amendments:-

[1] Substituted for “(4) The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both” by The Integrated Goods and Services Tax (Amendment) Act, 2018 (No. 32 of 2018) – Brought into force w.e.f. 01. 02.2019.
[2] Inserted by The Integrated Goods and Services Tax (Amendment) Act, 2023 (No. 30 of 2023) dated 18.08.2023. Brought into force w.e.f. 01.10.2023.
[3] Inserted vide The Finance (No.2) Act, 2024 (No. 15 of 2024) dated 16.08.2024, to be bought in force w.e.f. 01.11.2024 Notification No. 17/2024-Central Tax dated 27.09.2024. 

ANALYTICAL REVIEW

The charging section 5 of IGST Act explains the manner of levy & collection of GST in the taxable territory by the authorities.

The section can be understood in 3 parts as depicted as follows-

The provisions of the said section can be summarized as under-

LEVY of GST on ELECTRONIC COMMERCE OPERATOR (SEC. 5(5)):- Levy of GST is only on notified services supplied through e-commerce operator, wherein E-commerce operator is liable for payment of tax.

“Electronic commerce” has been defined in Sec. 2(44) of the CGST Act, 2017 to mean the supply of goods or services or both, including digital products over digital or electronic network.

“Electronic commerce operator” as defined under Section 2(45) of the CGST Act, 2017, means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

Following services have been notified for payment of tax by electronic commerce operator under section 9(5) of the CGST Act:

Wherein:

“Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS). [Explanation to Notification no. 17/2017-CTR w.e.f. 01/07/2017]

“maxicab”, “motorcab” and “motor cycle” shall have the same meanings as assigned to them respectively in clauses (22), (25) and (26) of section 2 of the Motor Vehicles Act, 1988. [Explanation to Notification no. 17/2017-CTR w.e.f. 01/07/2017]

Wherein, section 22(1) of the said CGST Act provides that every supplier is 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 Rs.20 lakhs.

The highlights of this sub-section are as under:

1. Any goods supplied through e-commerce operator would not cover under this provision.
2. E-commerce operator is not liable for payment of under sub-section (5) of section 9 of the CGST Act if the persons supply services as specified in clause (2) & (3) of above table is liable for registration under section 22(1) of the CGST Act, meaning thereby aggregate turnover of said persons exceed Rs.20 Lakhs.
3. A representative of e-commerce operator in taxable territory shall be liable to adhere the provision of this act, if the e-commerce operator is not in the taxable territory.

RELEVANT NOTIFICATION

Relevant Circular

SECTION-6 POWER TO GRANT EXEMPTION FROM TAX

 SECTION AND RELEVANT RULE

(1) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.

(2) Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of tax any goods or services or both on which tax is leviable.

(3) The Government may, if it considers necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an Explanation in such notification or order, as the case may be, by notification at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such Explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.

Explanation. – For the purposes of this section, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both.

ANALYTICAL REVIEW

Power to grant Exemption from tax

Section 9 of CGST Act/SGST Act and Section 5 of IGST Act are the Charging Sections for the purposes of levy of GST. CGST and SGST shall be levied on all intra-state supplies of goods and/or services and IGST shall be levied on all inter-state supplies of goods and/or services respectively. Therefore, when a supply of goods/services falls within the purview of the charging section, such supply is chargeable to GST.

However, for determining the liability to pay taxes we need to further analyse the goods/services in order to determine whether such supply of goods/services are exempt from tax or not.

In general, an exemption is a lawful reduction of the amount of income that would otherwise be taxed for a qualifying reason. It is a particular amount of money that is not taxed.

It is necessary for the Government to grant exemptions to the industry in order to boost to particular sectors, achieve regional development, encourage infrastructure, etc.

The in depth provisions relating to exemptions and the power to grant such exemptions have been granted to the Government vide section 11 of the CGST Act/SGST Act and Section 6 of the IGST Act, which have been discussed in detail in this Chapter.

Government has issued the following notifications by virtue of powers conferred by section 6 of the IGST Act, 2017.

1. Exemption on services (Nil Rated Goods) – Notification No. 9/2017-Integrated Tax (Rate)
2. Exempted Goods (NIL Rated Goods) – Notification No. 02/2017-Central Tax (Rate)

Under this Chapter, Additional inter-state exempted services have been discussed in detail. Apart from these services, services which are exempted are discussed in Analytical review of Section 11 of the CGST Act, 2017.

1. Entry No. 10:Services received from a service located in a non-taxable territory by—

• • the Central Government, State Government, Union territory, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;
  • an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or

1. 1. 1. way of supply of online educational journals or periodicals to an educational institution other than an institution providing services by way of—

• • • • pre-school education and education up to higher secondary school or equivalent; or
      • education as a part of an approved vocational education course;]

(Inserted by Notification No. 2/2018-Integrated Tax (Rate) dt. 25.01.2018 w.e.f. 25.01.2018)

• • a person located in a non-taxable territory:

Provided that the exemption shall not apply to— online information and database access or retrieval services received by persons specified in entry (a) or entry (b); (As amended vide Notification No. 12/2023- Integrated Tax (Rate) dated 26.09.2023 w.e.f. 01.10.2023. So as to extend the exemption of IGST on Services received from a provider of service located in a non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry.

Earlier, Exemption under this Entry was restricted on Services received from a provider of service located in a non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry.)

2. Entry No. 10D:Supply of services having place of supply in Nepal or Bhutan, against payment in Indian rupee.

[Omitted by Notification No. 2/2019-Integrated Tax (Rate), dated 4-2-2019, w.e.f. 4-2-2019. Prior to its omission, Sl. No. 10D, was inserted by Notification No. 42/2017-Integrated Tax (Rate), dated 27-10-2017, w.e.f. 27-10-2017]

3. Entry No. 10F:Services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons in accordance with Explanation 1 in section 8 of the Integrated Goods and Services Tax Act, 2017.

Provided the place of supply of the service is outside India in accordance with section 13 of Integrated Goods and Services Tax Act, 2017.

[Inserted by Notification No. 15/2018-Integrated Tax (Rate), dated 26-7-2018, w.e.f. 27-7-2018]

4. Entry No. 10G:Import of services by United Nations or a specified international organisation for official use of the United Nations or the specified international organisation.

Explanation. —For the purposes of this entry, unless the context otherwise requires, “specified international organisation” means an international organisation declared by the Central Government in pursuance of section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to which the provisions of the Schedule to the said Act apply.

[Inserted by Notification No. 15/2018-Integrated Tax (Rate), dated 26-7-2018, w.e.f. 27-7-2018]

5. Entry No. 10H:Import of services by foreign diplomatic mission or consular post in India, or diplomatic agents or career consular officers posted therein.

Foreign diplomatic mission or consular post in India, or diplomatic agents or career consular officers posted therein shall be entitled to exemption from integrated tax leviable on the import of services subject to the conditions, —

• • that the foreign diplomatic mission or consular post in India, or diplomatic agents or career consular officers posted therein, are entitled to exemption from integrated tax, as stipulated in the certificate issued by the Protocol Division of the Ministry of External Affairs, based on the principle of reciprocity;
  • that the services imported are for official purpose of the said foreign diplomatic mission or consular post; or for personal use of the said diplomatic agent or career consular officer or members of his or her family.
  • that in case the Protocol Division of the Ministry of External Affairs, after having issued a certificate to any foreign diplomatic mission or consular post in India, decides to withdraw the same subsequently, it shall communicate the withdrawal of such certificate to the foreign diplomatic mission or consular post;
  • that the exemption from the whole of the integrated tax granted to the foreign diplomatic mission or consular post in India for official purpose or for the personal use or use of their family members shall not be available from the date of withdrawal of such certificate.

[Inserted by Notification No. 15/2018-Integrated Tax (Rate), dated 26-7-2018, w.e.f. 27-7-2018]

6. Entry No. 10L (Notification No. 08/2024- Integrated Tax(Rate)dated 08.10.2024 w.e.f. 10.10.2024): Exemption extended to Import of services by an establishment of a foreign airlines company from a related person or any of its establishment outside India, when made without consideration. This GST exemption is applicable provided that:

• • Indian establishment of the foreign airline company is required to pay GST at the applicable rates on the transport of goods and passengers, as per the GST law
  • Certification is obtained from the Ministry of Civil Aviation
  • Reciprocal treatment is confirmed, ensuring that Indian airlines are not subject to similar taxes by the foreign country for identical services

Circular No. 234/28/2024-GST dated 11.10.2024 – Import of Services by Foreign Airline Companies: Import of services by an establishment of a foreign airline company from related persons or other establishments outside India, without consideration, is exempt from GST from 10th October 2024. The GST payments on such services between 01.07.2017 and 09.10.2024 will be regularized on an “as is where is” basis.

7. Entry No. 42:Services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves.
8. Entry No. 54:Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India.

Some other Exemptions

1. Intra-State supplies received by a TDS deductor from any unregistered supplier exempt from CGST

Intra-State supplies of goods or services or both received by a deductor under section 51, from any unregistered supplier, is exempt from the whole of the central tax leviable thereon under section 9(4), subject to the condition that the deductor is not liable to be registered otherwise than under section 24(vi)

[Notification No.9/2017 CT (R) dated 28.06.2017].

2. Services imported by unit/developer in SEZ exempt from IGST

All services imported by a unit/developer in the Special Economic Zone (SEZ) for authorised operations are exempt from the whole of the integrated tax leviable thereon under section 3(7) of the Customs Tariff Act, 1975 read with section 5 of the IGST Act, 2017

[Notification No. 18/2017 IT (R) dated 05.07.2017].

3. Central Government’s share of profit petroleum exempted from CGST

Intra-State supply of services by way of grant of license or lease to explore or mine petroleum crude or   natural gas or both, has been exempted from so much of CGST as is leviable on the consideration paid to the Central Government in the form of Central Government’s share of profit petroleum as defined in the contract entered into by the Central Government in this behalf.

[Notification No. 5/2018 CT (R) dated 25.01.2018]

Parallel exemption from IGST has been extended to inter-State supply of such services vide Notification No. 5/2018 IT (R) dated 25.01.2018.

4. IGST exempted to the extent it is paid on the consideration attributable to royalty and license fee included in transaction value under rule 10(1)(c) of Customs Valuation (Determination of value of imported Goods) Rules, 2007.

IGST leviable on import of services in relation to temporary transfer or permitting the use or enjoyment of any intellectual property right has been exempted to the extent of the aggregate of the duties of customs leviable under section 3(7) of the Customs Tariff Act, 1975, on the consideration declared under section 14(1) of the Customs Act, 1962 towards royalties and license fees included in the transaction value as specified under rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 on which the appropriate duties of customs have been paid. [Notification No. 6/2018 IT (R) dated 25.01.2018].

RELEVANT NOTIFICATION

 SECTION-6A POWER NOT TO RECOVER GOODS AND SERVICES TAX NOT LEVIED OR SHORT LEVIED AS A RESULT OF GENERAL PRACTICE

 SECTION AND RELEVANT RULES

Notwithstanding anything contained in this Act, if the Government is satisfied that––

(a) a practice was, or is, generally prevalent regarding levy of integrated tax (including non-levy thereof) on any supply of goods or services or both; and

(b) such supplies were, or are, liable to––

• • integrated tax, in cases where according to the said practice, integrated tax was not, or is not being, levied; or
  • a higher amount of integrated tax than what was, or is being, levied, in accordance with the said practice,

the Government may, on the recommendation of the Council, by notification in the Official Gazette, direct that the whole of the integrated tax payable on such supplies, or, as the case may be, the integrated tax in excess of that payable on such supplies, but for the said practice, shall not be required to be paid in respect of the supplies on which the integrated tax was not, or is not being, levied, or was, or is being, short-levied, in accordance with the said practice.]^[1]

Reference for Amendments:-

[1] Inserted vide The Finance (No.2) Act, 2024 (No. 15 of 2024) dated 16.08.2024, to be bought in force w.e.f. 01.11.2024 Notification No. 17/2024-Central Tax dated 27.09.2024. 

RELEVANT NOTIFICATION