GST & Customs Duty: Essential Concepts and Compliance

Posted on Sep 15, 2025 in Economy

GST Fundamentals: Cascading Effect & Registration

Cascading Effect: Definition & Elimination by GST

Cascading effect refers to ‘tax on tax’, where a product is taxed at every stage of the supply chain without allowing credit for the tax paid at the previous stage.

Example Before GST Implementation

• A manufacturer pays excise duty on goods.
• A wholesaler buys it and pays VAT on the total price (which includes excise duty).

This resulted in double taxation.

How GST Eliminated Cascading Effect

GST is a value-added tax that allows seamless Input Tax Credit (ITC) across supply chains.

• ITC allows businesses to claim credit for the tax paid on purchases.
• Tax is levied only on the value addition.

Thus, GST avoids tax on tax, making goods/services cheaper and the tax structure more transparent.

GST Registration for Inter-State Suppliers

Yes, Veena Toys must register under GST.

Compulsory GST Registration Under Section 24

As per Section 24 of the CGST Act, 2017, compulsory registration is required in the following cases regardless of turnover:

1. Inter-state supply of goods – Veena Toys is supplying in different states.
2. E-commerce operators (if applicable).
3. Persons required to pay tax under Reverse Charge Mechanism.
4. Casual taxable persons.
5. Non-resident taxable persons.
6. Persons required to deduct TDS/TCS under GST.

Hence, as Veena Toys is involved in inter-state supply, registration is mandatory under Section 24(i) of the CGST Act.

GST Exemptions for Specific Services

Transportation of Goods Exemptions

Services by a Goods Transport Agency (GTA) are exempt if goods are transported for:

• Agricultural produce
• Milk, salt, food grains
• Newspapers or magazines
• Relief materials
• Defence or government departments (non-commercial)

Educational Institution Service Exemptions

Services provided by an educational institution are exempt under GST if:

• Services are provided by pre-school to higher secondary institutions.
• Services to students, faculty, or staff.
• Transportation, catering (mid-day meal), security, housekeeping, admission services.

Determining Place of Supply Under IGST Act, 2017

Case Study: Event Organization for Registered Recipient

Applicable Law: Section 12(7) of IGST Act

Section 12(7) of the IGST Act, 2017 deals with the place of supply for services provided by way of organization of events.

• When the recipient is a registered person: The place of supply shall be the location of the recipient.
• When the recipient is unregistered: The place of supply is the location where the event is actually held.

Analysis of Ujjwal Events Case

• Arnav Jewellers is registered in Chennai, Tamil Nadu.
• The supplier is Ujjwal Events, based in Kolkata (West Bengal).
• Events are organized at New Delhi (India) and Singapore (outside India).

Conclusion for Ujjwal Events

• Since Arnav Jewellers is a registered person, the place of supply will be Chennai, Tamil Nadu (i.e., the location of the recipient) for both events, irrespective of the place where the events are held, as per Section 12(7)(a).

Thus, this is an inter-state supply, and IGST will be applicable.

Case Study: Event Organization for Unregistered Recipient

Applicable Law: Section 12(7) for Unregistered

Again, Section 12(7) applies when the recipient is unregistered.

• In such case, the place of supply is the location where the event is held.

Wedding in Mumbai (India)

• Recipient: Rahul (Unregistered, Kochi)
• Event Place: Mumbai, Maharashtra

So, place of supply = Mumbai, i.e., Maharashtra.

Since the supplier is in Karnataka and place of supply is Maharashtra — IGST is applicable (Inter-State supply).

Wedding in Malaysia (Outside India)

• As per Section 13 of the IGST Act, when the location of supplier or recipient is in India and the place of supply is outside India, it’s considered an export of service, if all conditions are met:
  • Supplier in India
  • Recipient outside India or payment in foreign currency
  • Service used outside India

However, if the recipient is in India, and payment is in INR, then it may not qualify as export. In that case, place of supply = location of the event, i.e., Malaysia.

Thus, the answer will differ, and it may be considered an export of service if other export conditions are met (like foreign currency and location of use).

Composite vs. Mixed Supply in GST

Definitions Under CGST Act, 2017

Composite Supply [Section 2(30)]

• A composite supply is a supply consisting of two or more taxable supplies of goods or services, or both,
• Which are naturally bundled and supplied in conjunction with each other in the ordinary course of business,
• One of which is a principal supply.

Example of Composite Supply

• Sale of a mobile phone along with charger – phone is principal, charger is incidental.

Tax Treatment for Composite Supply

Tax rate applicable to the principal supply is applied to the entire composite supply.

Mixed Supply [Section 2(74)]

• A mixed supply is a supply consisting of two or more individual supplies of goods or services, or any combination,
• Made together for a single price, but not naturally bundled.

Example of Mixed Supply

• Gift hamper containing chocolates, perfume, cosmetics — each with different tax rates.

Tax Treatment for Mixed Supply

Tax rate applicable to the item with the highest rate is applied to the entire supply.

Case Study: Marriage Package Analysis

The trader offers a marriage package containing:

• Double bed
• Refrigerator
• Washing machine
• Wooden wardrobe

All sold together at a single price, but invoiced separately for each item.

Analysis of Marriage Package

• These items are not naturally bundled — they are not usually sold together in the normal course of business.
• Each has individual utility and can be sold separately.
• Just combining them into a package does not make it a composite supply.
• Therefore, this is a Mixed Supply.

Conclusion for Marriage Package

This is a case of Mixed Supply, and GST shall be charged at the highest rate applicable among all items in the package.

Input Tax Credit (ITC) on Capital Goods

Under the CGST Act, 2017, input tax credit (ITC) refers to the credit of GST paid on purchases that can be used to offset output GST liability.

Rules for ITC on Capital Goods

1. Definition:

   • Capital goods are goods used or intended to be used in the course or furtherance of business and whose benefit extends beyond a year (e.g., machinery, equipment).

2. Eligibility:

   • Registered persons can claim ITC on capital goods if used for business purposes.
   • ITC is not available if capital goods are used for personal purposes or exclusively for exempt supplies.

3. Conditions for Claiming ITC:

   • Must be used in the course of business.
   • Tax invoice should be available.
   • The goods must have been received.
   • ITC must be claimed within the time limit (before due date of September of the next financial year or date of annual return, whichever is earlier).

4. Blocked Credit (Sec 17(5)):

   • ITC is not available on capital goods used for personal use, or for goods used in construction of immovable property.

5. Capital Goods Used for Both Taxable and Exempt Supplies:

   • ITC is apportioned accordingly (proportionate credit allowed only for taxable use).

6. Capital Goods Used for Non-Business Use:

   • No ITC allowed.

7. ITC Reversal:

   • If capital goods are sold, ITC may need to be reversed as per Rule 44 of CGST Rules.

Apportionment of ITC for Mixed Supplies

When a registered person uses goods/services (including capital goods) for both taxable and exempt supplies, then full ITC is not allowed.

Apportionment of ITC: Section 17, CGST Act

1. Exclusive Use:

   • If used exclusively for taxable supply → Full ITC allowed
   • If used exclusively for exempt supply → No ITC allowed

2. Common Inputs/Input Services:

   • For common goods/services used for both taxable and exempt, only proportionate ITC is allowed.

3. Apportionment Formula (Rule 42 & 43):

   • T = Total Input Tax
   • T1 = ITC for non-business purposes → Not allowed
   • T2 = ITC for exempt supply → Not allowed
   • T3 = Blocked credit (as per Section 17(5)) → Not allowed
   • T4 = ITC for taxable supply → Allowed
   • T5 = Common ITC used for both taxable and exempt supplies

   Final eligible ITC = T4 + (proportion of T5 used for taxable supply)

4. Monthly Reversal:

   • Apportionment and reversal is done on a monthly basis, and final adjustments are made at the end of the year.

Forward Charge vs. Reverse Charge Mechanism (RCM)

Examples of Reverse Charge Mechanism

• Services by a Goods Transport Agency (GTA)
• Services by an advocate
• Supply from unregistered to registered persons (under Section 9(4), applicable in specific cases).

Outward vs. Inward Supply Under Reverse Charge

Outward Supply Under Reverse Charge

Meaning of Outward Supply (RCM)

Outward supply under reverse charge refers to goods or services supplied by a person, but the liability to pay tax is shifted to the recipient instead of the supplier.

Characteristics of Outward Supply (RCM)

• The supplier does not collect tax from the recipient.
• The supplier does not pay GST; instead, the recipient pays it directly to the government.
• Still, the supply made by the supplier is called an outward supply, even though he doesn’t pay tax.
• Supplier must mention “Reverse Charge” on the invoice.
• Supplier may be unregistered, yet the recipient (if registered) is liable to pay tax under RCM.

Examples of Outward Supply (RCM)

• Legal services provided by an advocate to a business entity.
• Services provided by Goods Transport Agency (GTA).
• Supply of certain goods like cashew nuts, bidi wrapper leaves, etc.

Inward Supply Under Reverse Charge

Meaning of Inward Supply (RCM)

Inward supply under reverse charge refers to the purchase or receipt of goods or services by a person where he is liable to pay tax under the reverse charge mechanism.

Characteristics of Inward Supply (RCM)

• The recipient of goods/services is responsible for paying GST.
• The recipient must self-invoice if the supplier is unregistered.
• Tax paid on such inward supplies can be claimed as Input Tax Credit (ITC) if used for business purposes.

Compliance for Inward Supply (RCM)

• The recipient must report and pay the GST under RCM in GSTR-3B.
• ITC can be claimed in the same month, provided the conditions are satisfied.

Examples of Inward Supply (RCM)

• A registered business availing services of a GTA.
• Import of services.
• Receipt of goods from an unregistered supplier (where Section 9(4) applies).

Summary Table: Outward vs. Inward RCM

GST Fundamentals: Definition & Key Features

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax levied on every value addition. It subsumes multiple indirect taxes like VAT, Service Tax, Excise Duty, etc.

Key Features of GST

• Destination-based Tax: Tax is collected where goods/services are consumed.
• Dual GST Model: Central GST (CGST), State GST (SGST), Integrated GST (IGST).
• One Nation, One Tax: Eliminates the multiplicity of indirect taxes.
• Input Tax Credit (ITC): Prevents tax-on-tax.
• Threshold Exemption: Small businesses below turnover threshold are exempt.
• Online Filing: Easy compliance through GSTN.

Input Tax Credit (ITC): Concept & Conditions

ITC allows registered taxpayers to claim credit of tax paid on purchases used for business.

Conditions for Claiming ITC

• Possession of tax invoice.
• Receipt of goods/services.
• Tax charged is paid to government by supplier.
• Returns are filed.
• Not for personal or exempt supply use.
• Goods received in installments: credit only after the last installment.

Composite & Mixed Supply: Definition & Tax Liability

Composite Supply

Two or more supplies naturally bundled (e.g., flight with meal).

→ Taxed at the rate of principal supply.

Mixed Supply

Two or more independent supplies sold together (e.g., Diwali hamper).

→ Taxed at the highest applicable rate.

Example: Mixed Supply Calculation

A combo of watch (18%) + chocolate (5%) = Mixed Supply → Tax @18%.

Time & Place of Supply Under GST

Time of Supply

Time of Supply determines when GST liability arises:

Time of Supply for Goods

Earlier of invoice date or payment receipt.

Time of Supply for Services

Earlier of date of provision or payment.

Place of Supply

Place of Supply determines IGST or CGST+SGST:

Place of Supply for Goods

Location of delivery.

Place of Supply for Services

Based on recipient’s location or service performance.

Reverse Charge Mechanism (RCM): Applicability & Impact

RCM means tax is payable by the recipient instead of the supplier.

Cases for RCM Applicability

• Supply by unregistered person to registered person.
• Notified goods/services (e.g., legal services, GTA).
• Import of services.

Impact of RCM

• Recipient must pay tax & can claim ITC (if eligible).

Customs Duty: Definition & Types

Customs Duty is a tax levied on import/export of goods under the Customs Act, 1962.

Types of Customs Duty

• Basic Customs Duty (BCD)
• Countervailing Duty (CVD)
• Anti-Dumping Duty
• Safeguard Duty
• IGST on Imports

Purpose of Customs Duty

Revenue generation and protection of domestic industry.

Customs Law: Import & Export Procedures

Import Procedure

1. Import General Manifest (IGM)
2. Filing Bill of Entry
3. Assessment & Duty Payment
4. Customs clearance

Export Procedure

1. Shipping Bill filing
2. Inspection & Clearance
3. Port clearance
4. Export General Manifest (EGM)

Customs Valuation: Determining Assessable Value

Customs duty is calculated on the Assessable Value.

Assessable Value Calculation

Assessable Value = Transaction Value +

• Freight
• Insurance
• Loading/unloading charges
• Commissions, design fees, etc.

Valuation rules ensure fair tax based on the actual cost of goods imported.

Prohibited, Restricted, & Dutiable Goods in Customs

Prohibited Goods

Banned (e.g., drugs, counterfeit).

Restricted Goods

Require license (e.g., arms, chemicals).

Dutiable Goods

Goods on which customs duty is imposed.

Each category has separate clearance norms under customs law.

Anti-Dumping Duty: Purpose & Imposition

Anti-Dumping Duty is imposed when foreign goods are sold in India at a price lower than their domestic market value, harming Indian industries.

Purpose of Anti-Dumping Duty

• Protect domestic industry from unfair trade.
• Ensure fair competition.

Levied after investigation by the Directorate General of Trade Remedies (DGTR).