GST Rates & Exemptions – How to Calculate Tax under GST?

Note

• If discount is not known at the time of supply, no deduction thereof will be permitted from assessable value at the time of supply.
• Incidental expenses include all expenses connected with supply viz. packing, commission, loading, unloading, insurance, etc.

2. Introduction to GST Tariff

Introduction: Tariff is the backbone of any tax law in as much as it gives the description of taxable items in detail on which tax is leviable. The importance of descriptive tariff becomes more prominent when multiple rates of taxation are prescribed for various items under relevant tax laws. The Government has not notified any Tariff for GST but has notified only seven schedule of Rates. This is likely to give rise to avoidable litigation.

In the erstwhile indirect tax regime, levy on goods was based on Schedule either to the parent law or to the specific Tariff Act enacted by Parliament/State assembly for this purpose. For example Central Excise duties were leviable under Section 3 of the Central Excise Act, 1944 at the rates specified in the First Schedule to the Central Excise Tariff Act, 1985. This tariff had two components. One was the description of goods in detail specified with various parameters such as use, composition, etc., which was based on HSN nomenclature. The second component was the rates of duty/tax for each of such items. The goods were described in various Sections/Chapters with headings, sub-headings and tariff items. The description were read with various Section/Chapter notes which had statutory backing. Rules of interpretation also played a vital role in classifying goods in proper chapter/heading. Similarly in Services, the levy was based on negative list regime from 2012 onwards, i.e., except of negative list of services, all other services were leviable to Service Tax. Now the tax is leviable on the services specified with rates of tax in Notification No. 11/2017-C.T. (Rate), dated 27-6-2017.

Levy under GST: In the GST regime, levy is covered under four different enactments. As per Section 9 of CGST Act, 2017 there shall be levied a tax called the Central Goods and Services Tax on all intra-State supplies of goods or services or both (except on the supply of alcoholic liquor for human consumption) on the value determined under, at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendations of the Council. Similar provision exists in Section 9 of SGST Act, 2017 passed by various States and in Section 7 of UTGST Act, 2017 for levy of State/Union Territory Goods and Services Tax, respectively, on intra-State supplies. Similarly Section 5 of the IGST Act, 2017 prescribes levy of a tax called the Integrated Goods and Services Tax on all inter-State supplies of goods and services or both (except on the supply of alcoholic liquor for human consumption) on the value determined, at such rates, not exceeding forty per cent, as may be notified by the Government on the recommendations of the Council.

GST Tariff, scope of: From the levy provisions under GST, it is clear that maximum rate of tax has been prescribed in the Act itself and no separate tariff schedule has been referred to therein. The task of fixing the rates below maximum rate has been left to the Government on recommendation of GST Council. In view of the aforesaid legal provisions of levy, GST’s Tariff, i.e., rates fixed for different goods or services cannot be called a primary legislation as same has not been passed by Parliament/State legislature but it is a delegated legislation. Further, the Government on its own cannot fix the GST rates or grant exemption without it being recommended by GST Council.

Adoption of Customs Tariff for classification of goods: In view of aforesaid and to avoid classification disputes, notifications issued by Government indicate that Customs Tariff has been adopted for descriptive classification of goods under GST. The Section Notes, Chapter Notes and Rules of interpretation of Customs Tariff have also been adopted. This is on expected lines because IGST is also leviable on imported goods for which in any case, classification under Customs Tariff was required. Further, GST Invoice Rules & return formats also require mention of HSN Code of goods. It is prescribed that taxpayers whose turnover is above ` 1.5 crores but below ` 5 crores are required to use 2-digit code and the taxpayers whose turnover is ` 5 crores and above are required to use 4-digit code. Taxpayers whose turnover is below ` 1.5 crores are not required to mention HSN Code in their invoices. [From 1-4-2021, taxpayers whose turnover is up to ` 5 crores shall use 4-digit code while taxpayers with turnover more than this limit shall use 6-digit code. However, taxpayers upto turnover of ` 5 crores may not mention the number of digits of HSN Code in a tax invoice issued by him under the said rules in respect of supplies made to unregistered persons]. Adoption of Customs Tariff in the notification would also help in fulfilling this requirement as said Tariff is based on HSN. For services, said List/Annexure/Schedule contains list of services leviable to GST at various rates ranging from NIL, 5%, 12%, 18% and 28%. All other taxable services, are leviable to 18% GST. In respect of goods, broadly all goods have been covered under aforesaid five rates, except for goods of Chapter 71 where GST is 3% for most of the items and 0.25% on Rough Diamonds. Majority of items are covered under 18% tax rate. A cess at various rates ranging from 12% to 290% (specific rate in certain cases) has been imposed on specified luxury and demerit goods to compensate States for any revenue loss on account of implementation of GST. For details, Part 6 of this Tariff may be referred to.

Negative List of supplies: These are the supplies which have been declared as non-supplies of goods and services for levy of GST. Schedule III of CGST/SGST Act contains list of these activities. Since these are by law not taxable, no tinkering can be done by Council in respect of these supplies. However, Council is empowered to recommend to Government to notify any other additional item as a negative supply. These activities are:

1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any Court or Tribunal established under any law for the time being in force.

3(a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) 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.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and building (not the construction or renting).
6. Actionable claims, other than lottery, betting and gambling.
7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering in India.
8. Supply of warehoused goods to any person before clearance for home consumption.
9. Supply of goods by the consignee to any other person by endorsement of documents of title to the goods after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

A list of exempted/tax free/non-taxable goods has been provided in the Notification No. 2/2017-C.T. (Rate), dated 28-6-2017 and other related provisions of the CGST Act. The corresponding exemptions have also been notified for IGST, SGST & UTGST.

Zero-rated supply: The statutory concept of Zero-rated supply in terms of Section 16 of IGST Act, may be distinguished from fully exempted supplies notified on recommendation of Council. Statutorily, a zero-rated supply means export of goods or services or both; or supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. In other words these supplies even if otherwise taxable, are not to be charged to any tax. Credit of input tax is available for making these zero-rated supplies for export or SEZ, notwithstanding that such supply may be, an exempt supply. Even where inputs/input services are partly used for making these supplies, credit attributable to such supplies is admissible in terms of Section 17(2) of the CGST Act. However, exceptions contained in Section 17(5) of Act ibid are applicable for which no credit is available. Registered person can supply goods or services or both under bond or Letter of Undertaking, without payment of integrated tax and claim refund of unutilised input tax credit; or he may supply goods or services or both, on payment of integrated tax and claim refund of such tax paid on goods or services or both. Vide clause 114 of Finance Bill, 2021, it is proposed to restrict zero-rated supply only in respect of authorized operations of SEZ. This would be effective from a date to be notified after enactment of Bill.

NIL rated or exempted supplies: While negative and zero-rated supplies are those which are mentioned in Statute, NIL rated supplies are those where Council has recommended no tax or 0% tax and are covered under Notification issued by Government in this regard. No credit of input/input services would be available for these items. Further, a person exclusively engaged in the supply of these items, is also not required to take registration. Basically these are essential goods/services of daily use/need required by a layman. A List of these items is given in this Tariff in Part 3.