INTERPRETATION OF CENTRAL GOODS AND SERVICES TAX (CGST) ACT (PART-7)(Meaning of Important Terms)

[Dr. Sanjiv Agarwal]

This part of the series contains meanings of certain terms covered in Section 2 of the CGST Act, 2017.  These are Goods, Government, GST Practitioner, India, Input, Input Service , Input Service Distributor, Input Tax and Input Tax Credit.

Goods [Section 2(52)]

'Goods' means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

A very wide definition of goods covering all movable properties with the exception of money and securities have been provided in GST law. Immovable properties are not included in 'goods'. For the first time in indirect taxation, actionable claims have been considered as goods but in case these actionable claims are claims on money or securities, they will continue to be not covered by definition of goods. It is not only the tangible goods but intangible goods have also been covered as goods. Example : DEPB licenses, carbon credits etc will also be considered as goods.

The term ‘ Services’ has been defined in section 2(102) to mean anything other than the goods. Thus considering that the GST Act covers transaction of supply of goods and / or services, thus to bring any receipt of payment outside the scope of taxation, that receipt of payment should be in respect of items not taxable, taxable at nil or zero rate of tax or exempt from tax.

Government [Section 2(53)]

'Government' means the Central Government.

In IGST Act, 'Government' would mean only the 'Central Government'.

• State Governments or Government of Union territory have been excluded

The meaning of Central Government has not been defined in GST law. Section 3(8)(b)  of General Clauses Act 1897, defines Central Government as under:

"Central Government" shall in relation to anything done or to be done after the commencement of the Constitution, means the President; and shall include-

• in relation to functions entrusted under clause (1) of article 258 of the Constitution, to the Government of a State, the State Government acting within the scope of the authority given to it under that clause;
• in relation to the administration of a Part C State, the Chief Commissioner or the Lieutenant-Governor or the Government of a neighboring State or other authority acting within the scope of the authority given to him or it under article 239 or article 243 of the Constitution, as the case may be; and
• in relation to the administration of a Union Territory, the administrator thereof acting within the scope of the authority given to him under article 239 of the Constitution;

GST Practitioner [Section 2(55)]

'Goods and services tax practitioner' means any person who has been approved under section 48 to act as such practitioner.

GST practitioner means a person who has been approved as such under the Act.  Approval, eligibility, duties, obligations, removal etc of practitioner shall be prescribed. Final responsibility for the jobs undertaken by GST practitioner shall be of registered person only.

India [Section 2(56)]

'India' means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters.

'India' has been defined to mean and include the following :

• the territory of the Union as referred to in clauses (2) and (3) of Article 1 of the Constitution of India;
• its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;
• the seabed and the subsoil underlying the territorial waters;
• the air space above its territory and territorial waters; and
• the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.

It is important to note that the definition of term ‘ India’ does not specifically include installation, structure and vessels located in continental shelf and exclusive economic zone for the purpose of extracting/ prospecting/ production of mineral oil and natural gas and supply thereof.

Input  [Section 2(59)]

'Input' means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

Goods, as defined in section 2(52), which are used or intended to be used in the course or furtherance of business could either be capital goods or other goods. Such other goods will be considered as Inputs.

Goods other than capital goods used or intended to be used for furtherance of business by supplier shall be considered as inputs. Goods to be called inputs need to pass through two tests. One, it is used or intended to be used in the course or furtherance of business and two, these are not capital goods.

Input Service [Section 2(60)]

'Input service' means any service used or intended to be used by a supplier in the course or furtherance of business.

For any service to be considered as input service, it is necessary that it is used or intended to be used in the course or furtherance of business. Thus any service which does not pass this test of use in the course or furtherance of business will not be called input service and thus will not be eligible for availment of input tax credit.

It should be a service(not a good). Such service should be used or intended to be used by supplier in the course of or furtherance of business.

Input Service Distributor [Section 2(61)]

'Input Service Distributor' means an office of the supplier of goods or services or both which receives tax invoices issued under Section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office.

The term ‘Input Service distributor’ has been defined in section 2(61) of GST law to mean:

1. An office of the supplier of goods and / or services,
2. Which receives tax invoices issued under Section 31,
3. Towards receipt of input services  ,
4. Who issues tax invoices or such other documents for distributing  the credit of CGST, SGST, IGST paid on such services,
5. To supplier of taxable goods and services having same PAN as that of such office.
6. For the purpose of distribution of such credit, such ISD shall be treated as supplier of services.

Supplier of goods and / or services may have an office, which is not engaged in supply of goods and / or services but which is meant to facilitates the other offices having the same PAN, which are directly engaged in supply of goods and / or services. Such office will be treated as Input Service Distributor (ISD) in GST.

As ISD is a facilitating office, the input services used by it are considered to be meant for use in the course or furtherance of business of other offices which are directly engaged in the supply of goods and / or services.

Under the scheme of GST law, an ISD has been considered for availing the input tax credit on all the input services used by it and allocating or apportioning such credit to all the other offices under the same PAN which are engaged in supply of goods and / or services.

The ISD is entitled to take credit of services used by it and further, ISD has been made eligible for distributing the credit of ITC so accumulated to various other units proportionately. Under the provisions of Section 24 of CGST law, every ISD is required to be registered under the Act.

Input Tax [Section 2(62)]

'Input tax' in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or

both made to him and includes-

1. the integrated goods and services tax charged on import of goods;
2.  the tax payable under the provisions of sub-sections (3) and (4) of section 9;
3.  the tax payable under the provisions of sub-section (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
4. the tax payable under the provisions of sub-section (3) and sub-section (4) of section 9 of the respective State Goods and Services Tax Act; or
5. the tax payable under the provisions of sub-section (3) and sub-section (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

Input tax includes IGST, CGST, SGST paid on the supply of goods and / or services to such taxable person.  Input tax also includes tax paid on reverse charge basis. Input tax also includes tax paid by registered taxable person on reverse charge basis on receipt of goods from a  person not liable to be registered.

Input tax also includes the IGST paid on import of goods by a taxable person. Though the definition provides for tax paid on import of goods, it should not be read as to mean that tax paid on import of services is not covered. It is worth noting in this regard that tax on import of services is required to be payable on reverse charge basis and tax paid on reverse charge basis is also covered by the definition of input tax. However, tax paid as composition levy under the provisions of section 10 will not be considered as an input tax.   

Input Tax Credit [Section 2(63)]

'Input tax credit' means the credit of input tax.

Input tax credit means credit of input tax as defined in section 2(62). From the definition of input tax and Input tax credit, it is important to note that:

1. The credit of CGST, SGST, IGST and UTGST and tax paid under reverse charge mechanism shall be available as input tax credit (ITC).
2. The tax credit is available to registered taxable person only.
3. Tax credit is a tax charged on goods and services supplied to taxable person.
4. Goods and services on which credit is eligible should be used or meant to be used in the course or furtherance of business of such taxable person.

(To be continued.....)

Discussions to this article

[ANIL ANIKHINDI]

Dear Dr. Sanjiv Agarwal

Very good article. I think you should publish a book compiling all your articles written so far on GST.