Essential GST Terminology: A Comprehensive Overview - Part Two

This article builds upon previous discussions regarding fundamental GST definitions. Here, we delve into additional crucial terms to enhance your understanding of the Goods and Services Tax framework.

Place of Business

A 'place of business' encompasses several scenarios, including the primary location where commercial activities are routinely conducted, such as a warehouse or storage facility used by a taxable entity for goods or services. It also refers to the site where a taxable individual keeps their financial records, or any location where business operations are managed via an agent.

Imports

The 'import of goods' signifies the act of bringing products into India from an international location. Similarly, the 'import of service' describes a service provision where the supplier is situated outside India, the recipient is in India, and the service's place of supply is also within India. Previously, imported goods were subject to Countervailing Duty (CVD) and Special Additional Duty of Customs (SACD). Under the GST framework, both imported goods and services are categorized as 'inter-state sales,' attracting Integrated Goods and Services Tax (IGST). Customs duty remains applicable to imported goods alongside IGST. For service imports under GST, the Indian recipient bears the responsibility of paying GST, rather than the foreign service provider, mirroring the previous Service Tax regulations.

Exports

Under the GST regime, exports are subject to zero-rating, a practice consistent with previous tax laws. This also applies to supplies of goods or services to Special Economic Zone (SEZ) developers or units for consumption within processing activities, which are treated as exports and exempt from tax. The 'export of goods' simply means transporting goods from India to a location outside the country. The 'export of services' is defined by five specific conditions: (a) the service supplier is located in India, (b) the service recipient is located outside India, (c) the place where the service is supplied is outside India, (d) payment for the service is received by the provider in convertible foreign exchange, and (e) the provider and recipient are distinct legal entities, not merely branches of the same person. This aligns with Rule 6A of the Service Tax Rules, 1994. It is critical that all five conditions are met for a service supply to qualify for tax exemption. Notably, if the place of supply is within India, even with an overseas recipient, the supply will not be zero-rated and GST will be applicable. Taxpayers can claim Input Tax Credit (ITC) for zero-rated supplies, even if they are otherwise exempt. Registered taxable individuals exporting goods or services have two choices: either claim a refund for any unutilized Input Tax Credit or claim a refund for the Integrated Goods and Services Tax (IGST) paid.

Composition Levy

The Composition Levy is an elective scheme designed for small businesses and taxpayers whose annual turnover is below Rs. 50 lakhs. Under this scheme, participants can choose to pay tax at a reduced rate, typically 1% or 2.50% (for manufacturers) of both Central GST (CGST) and State GST (SGST) respectively, with specific rates to be formally announced. This scheme simplifies compliance, requiring less detailed record-keeping and only one quarterly return instead of three monthly filings. However, businesses under this scheme are not permitted to issue taxable invoices or collect tax from customers; they must pay the tax from their own funds. Additionally, they cannot claim Input Tax Credit. The Composition Levy is exclusively for small businesses and is not accessible to inter-state sellers, e-commerce traders, or operators. For more details on the composition levy, refer to our article.

Mixed Supply and Composite Supply

The GST framework introduces the distinct concepts of 'mixed supply' and 'composite supply,' which refer to multiple goods or services provided together, regardless of their intrinsic relationship.

Composite supply involves two or more goods or services that are naturally bundled and supplied together in the usual course of business, where one item is the primary supply. These components cannot be offered individually. For instance, if goods are packaged, transported, and insured, this constitutes a composite supply where the goods themselves are the principal supply. Consequently, the tax liability is determined by the GST rate applicable to the principal supply (i.e., the goods).

In contrast, a mixed supply consists of two or more independent goods or services, or any combination thereof, sold by a taxable person for a single price. Each item in a mixed supply can be provided separately and does not rely on the others. If these items were sold individually, it would not be considered a mixed supply. For GST purposes, a mixed supply is taxed at the rate of the component with the highest tax liability. An example provided in the revised GST law illustrates a package containing canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks, and fruit juices sold for one price. Since each item can be sold separately, it's a mixed supply. If aerated drinks have the highest GST rate, they will be deemed the principal supply for tax calculation. To learn more, consult our article on mixed and composite supplies.

The GST regime represents a significant shift in India's tax landscape, and these terms are among the many essential concepts encountered. Gaining familiarity with them is crucial for a clearer understanding of GST. We encourage you to explore further articles available on our blog for additional insights.