SECTION : Levy of and Exemption from Tax

  • Lesson Objectives

    On completion of this lesson, you will be able to understand:

    ·         Section 9 – Levy and Collection

    ·         Article 265 of Indian Constitution

    ·         Article 246A of Indian Constitution

    ·        Concepts related to levy of GST.

    Please go through the First Video of the Chapter 2.

    Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by the Authority of Law.


    Article 246A of the Constitution, which was introduced by the Constitution (101st Amendment) Act, 2016 confers concurrent powers to both parliament and state legislatures to make laws with respect to GST. However, clause 2 of Article 246A read with Article 269A provides exclusive power to the Parliament to legislate with respect to inter-state trade or commerce.


    Section 9 of CGST Act provides the maximum rate of tax that can be levied on supplies leviable to tax, the manner of collection of tax and the person responsible for paying such tax.


    Let’s understand various concepts related to levy of GST.


                       I.            Taxable Supply

    Every taxable supply will be subjected to GST.

    A taxable supply refers to any supply of goods or services both, which qualifies as a supply in terms of Section 7.   

    It does not include

    a)     Alcoholic liquor for human consumption

    b)    Petroleum Crude

    c)     High Speed Diesel

    d)    Motor Spirit (commonly known as petrol)

    e)     Natural Gas and

    f)      Aviation Turbine Fuel


    II. Tax Payable

    If the location of the supplier and the place of supply are within the same state, the transaction will be an intra-state supply. All other supplies made by / to SEZ, and all other supplies will be regarded as inter-state supplies.


    The nature of the tax would depend upon the nature of supply.

    SI No.




    Inter-state Supplies



    Intra-state Supplies



    UTGST will be applied in case of intra-state supplies within a Union Territory.


    The IGST Law provides the basis for determination of a supply as an intra-state supply or an inter-state supply. It is Supply of goods and/or services. CGST & SGST will be levied on intra-state supplies while IGST will be levied on inter-state supplies.


    III. Tax Liability

    The tax should be paid by a ‘Taxable Person’ i.e. a person who is liable to obtain registration, or a person who has obtained registration.


    Normally the Registered Person or who supplies goods or services will have to collect and pay the GST. But under the below circumstances, the responsibility is on the other person.


    a)     The Recipient

    Under reverse charge mechanism, the recipient (buyer) needs to pay GST. It applies to cases where goods / services are imported or in case of notified supplies.


    In cases of supply by an unregistered supplier to a registered person, GST shall be paid by the recipient under Reverse Charge Mechanism. A registered taxable person who is liable to pay tax on reverse charge should issue a Tax Invoice on making any inward supply of goods or services from unregistered person.


    b)    Liability on Third Person

    In case of Government undertakings or departments, they have to deduct Tax at source from various suppliers of goods and services.


    E-commerce Operators are also required to collect tax at source (TCS) from the Suppliers of goods and services.


    IV. Rate of Tax

    The rate of tax will be notified based on the recommendation of the GST Council. However the rates of tax contained in these notifications cannot exceed 20% under each limb (i.e. 20% under CGST Law and 20% under SGST Law). These rates would be notified based on the recommendation of the GST Council.


    In order to determine the applicable rate of tax, the below approach to be followed.

    a)     Identify whether the supply is an intra-state supply

    b)    Identify whether the supply is a plain supply / composite supply / mixed supply and adopt the treatment accordingly.

    c)     Identify HSN of the goods or services and applicable rate of tax as per rate notification.

    d)    Identify whether the HSN applies to more than one description-line. If yes, analyse which of the description is most specific to the supply in question.

    e)     Once classification is ascertained, identify whether such goods or services qualify for any exemption (partially or wholly) from payment of tax.


    V. Taxable Value

    The rate of tax so notified will be applied on the value of goods or services. The transaction value will be accepted subject to inclusions / exclusions specified as per Law.


    Transaction Value will be taken only when price is the sole consideration and the supplier and the recipient are not related persons. In all other cases, the value of supply will be that value which is determined in terms of the valuation rules.


    Notification of transactions

    Central Government or State Government on the recommendation of the GST Council can notify a transaction to be the supply of goods and/or services and consequently chargeable to GST.


    The Central or the State Government, on the recommendation of the GST council can also exempt the supplies from the levy of GST either generally or subject to conditions.



    Importation of services, for a consideration and whether or not in the course or furtherance of business will constitute a Supply.

    Exempted Supply


    Question: When exemption from whole of tax collected on goods and/or services has been granted unconditionally, can taxable person collect and pay tax?


    Answer: No, the taxable person providing such goods or services shall not collect the tax on such goods or services.


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