Constitutional Framework, Levy, Supply and Charge of GST
This domain tests the constitutional basis of GST, the charging sections, and the concept of supply that decides whether a transaction is taxable at all.
Constitutional foundation
The 101st Constitutional Amendment inserted Articles 246A, 269A and 279A. Article 246A gives Parliament and the States concurrent power to levy GST on supplies of goods or services. Article 269A empowers Parliament to levy IGST on inter-State supplies, with apportionment between the Union and States as recommended by the GST Council. Article 279A constitutes the Council. Council recommendations are persuasive but not binding on the legislature or the taxpayer (Mohit Minerals, 2022). Alcohol for human consumption is excluded by Article 366(12A); petroleum crude, petrol, diesel, ATF and natural gas are within GST but their levy date is deferred.
Levy and charge
Section 9 of the CGST Act levies CGST, and the SGST Acts levy SGST, on intra-State supply. Section 5 of the IGST Act levies IGST on inter-State supply. The taxable event is supply, not manufacture, sale or transfer. Section 7 read with Schedules I, II and III defines the scope: Schedule I covers supplies made without consideration, such as permanent transfer of business assets on which ITC was availed, supplies between related persons in the course of business, principal-agent supplies and import of services from a related person. Schedule III lists neither-goods-nor-services items, including employee services and functions of constitutional bodies. Section 8 distinguishes composite supply (naturally bundled, taxed at the principal supply rate) from mixed supply (independent supplies, taxed at the highest rate).
Worked example
A Pune manufacturer permanently transfers a machine, on which ITC was taken, to its Surat branch for nil consideration. Schedule I entry 1 makes this a supply despite nil consideration. The movement is between Maharashtra and Gujarat, so it is inter-State and IGST applies; value is determined under the related/distinct persons valuation rule rather than the nil price.
Traps
- Treating free samples to unrelated customers as a supply: generally not a supply, but ITC must be reversed under section 17(5)(h).
- Confusing composite and mixed supply rates.
- Assuming GST Council recommendations are judicially binding.