In our previous article, we have explained a few GST definitions and terms you will come across. Here are a few more to help you understand GST better.
Place of business–
Place of business includes
(a) a place from where the business is normally carried on. It includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent
Import of goods simply means bringing goods into India from a place outside India.
Import of service means the supply of any service, where
(a) the supplier of service is located outside India,
(b) the recipient is located in India, and
(c) the place of supply of service is in India;
Currently, import of goods attracts CVD (in lieu of Excise duty) and SACD (in lieu of VAT). On import of taxable services, currently service tax is attracted.
In GST regime, import of goods and services shall be considered as “inter-state sales” and IGST would be levied on import of goods and services.
Even under GST regime, customs duty would be levied on import of goods along with IGST. In GST regime, for import of service, the service recipient in India will liable to pay GST (not the service provider located outside India). This is similar to current Service Tax law.
Under GST, exports would be zero rated, as currently they are. Similarly, supply of goods and/or services to a SEZ developer or an SEZ unit for consumption in processing will also be considered as an export and exempted from tax.
Export of goods simply means taking goods from India to a place outside India.
Export of services means the supply of any service when-
(a) the supplier of service is located in India,
(b) the recipient of service is located outside India,
(c) the place of supply of service is outside India,
(d) the payment for such service has been received by the provider in convertible foreign exchange, and
(e) The provider and the recipient of service are two distinct establishments and not merely establishments of the same person
This definition is similar to Rule 6A of the Service Tax Rules, 1994.
Further it is important to note that supply of services will be exempted from tax only if it satisfies ALL 5 conditions.
Note: Out of the 5 conditions, condition (c) is that the Place of Supply shall be outside India. Hence even if the recipient is outside India but if the place of supply is in India it will not be zero rated, i.e., GST will apply.
Input tax credit can be availed for making zero-rated supplies, even though such supply may be an exempt supply.
A registered taxable person exporting the goods or services shall be eligible for 2 options:
- Claim the Refund of the unutilized Input Tax Credit OR
- Claim refund of the IGST paid
This is an option available to small businesses and taxpayers having turnover less than Rs. 50 lakhs. They can opt for Composition scheme where they will tax at a nominal rate of 1% or 2.50% (for manufacturers) CGST and SGST each (rates will be notified later).
They will be required to maintain much less detailed records and file only 1 quarterly return instead of three monthly returns. However, they cannot issue taxable invoices, i.e., collect tax from customers, but are required to pay the tax out of their own pocket. They cannot also claim any input tax credit.
Composition levy is available to only small businesses. It is not available to inter-state sellers, e-commerce traders and operators.
For more information on composition levy please read our article.
Mixed Supply and Composite Supply
This is entirely new concept introduced in GST regime which will cover supplies made together whether the supplies are related or not.
Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply. The items cannot be supplied separately.
Illustration in Revised GST law: Where goods are packed, and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.
Tax liability will be the tax on the principal supply i.e., GST rate on the goods.
Mixed supply means two or more individual supplies of goods or services, or any combination, made together with each other by a taxable person for a single price. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
For tax under GST, a mixed supply comprising two or more supplies shall be treated as supply of that particular item which has the highest rate of tax.
Illustration in Revised GST law: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. All can be sold separately. Assuming aerated drinks have the highest GST rate, aerated drinks will be treated as principal supply.
To know more please read our article on mixed supply & composite supply.
GST is a completely new tax regime already taking India by storm. These are only a few of the most common phrases you will come across in GST. Hopefully they will help you to understand GST better. Feel free to read more of our articles in our blog.