Chargeability of GST & Goods and Services under CGST Act, 2017 – Section 9 and Section 5 Explained with Examples

Chargeability of GST & Goods and Services – Explained with Examples

GST (Goods and Services Tax) is a destination-based indirect tax levied on the supply of goods and services in India. Chapter 3 of the CGST Act, 2017 explains when GST becomes chargeable, who is liable to pay tax, and what constitutes goods and services.

Understanding the charging provisions is essential because GST can be payable either by the supplier, the recipient, or even an e-commerce operator in certain cases.

Section 1: Short Title, Extent and Commencement

Section 1 of the Central Goods and Services Tax (CGST) Act, 2017 lays down the basic framework of the Act. It specifies the name of the law, the geographical area where it is applicable, and the date from which it came into force.

1. Name of the Act

The law is known as the Central Goods and Services Tax Act, 2017 (CGST Act, 2017). It governs the levy and collection of Central GST (CGST) on intra-state supplies of goods and services in India.

Example:
When a dealer in Jharkhand sells goods to a customer within Jharkhand, CGST is levied under the provisions of the CGST Act, 2017.

2. Extent of the Act

The CGST Act extends to the whole of India. Therefore, its provisions are applicable throughout the country.

Example:
Whether a business operates in Delhi, Maharashtra, Tamil Nadu, or Assam, the CGST Act applies uniformly to all registered taxpayers across India.

3. Commencement of the Act

The CGST Act, 2017 came into force on 1st July 2017, marking the implementation of the Goods and Services Tax regime in India.

Example:
A sale made on 30 June 2017 was governed by the earlier indirect tax laws such as VAT and Excise Duty. However, a sale made on 1 July 2017 or thereafter became subject to GST.

Key Points at a Glance

Particulars	Details
Name of the Act	Central Goods and Services Tax Act, 2017
Applicable Area	Whole of India
Effective Date	1 July 2017
Governs	Levy and collection of CGST on intra-state supplies

Conclusion

Section 1 provides the foundation of the CGST Act by defining its title, territorial applicability, and commencement date. It establishes that the CGST Act, 2017 is a nationwide legislation that has been effective since 1 July 2017.

Section 9 – Charging Section of the CGST Act, 2017

Section 9 is the charging section of the Central Goods and Services Tax (CGST) Act, 2017. It provides the legal authority for levying and collecting CGST on the supply of goods and services. This section identifies the taxable transactions, determines the person liable to pay GST, and specifies whether tax is to be paid under the Normal Charge Mechanism (NCM) or the Reverse Charge Mechanism (RCM).

Scope of Section 9

Section 9 answers three important questions:

• On what transactions is GST levied?
• Who is liable to pay GST?
• Whether GST is payable under Normal Charge Mechanism or Reverse Charge Mechanism?

Accordingly, Section 9 is divided into four major parts:

1. Section 9(1) and Section 9(2) – Normal Charge Mechanism (NCM)

Under these provisions, GST is levied on intra-state supplies of goods and services and is normally paid by the supplier.

Example:
ABC Electronics sells a television worth ₹50,000 to a customer within Jharkhand. Since it is an intra-state supply, ABC Electronics (the supplier) is liable to collect and deposit CGST and SGST.

 

2. Section 9(3) – Reverse Charge Mechanism on Notified Supplies

Under this provision, the Government may notify certain goods or services for which GST is payable by the recipient instead of the supplier.

Example:
XYZ Ltd. receives legal services from an advocate and pays professional fees of ₹1,00,000. GST under reverse charge will be paid by XYZ Ltd. (recipient) and not by the advocate.

 

3. Section 9(4) – Reverse Charge on Specified Supplies from Unregistered Persons

Where a registered person receives specified goods or services from an unregistered supplier, GST may be payable by the recipient under reverse charge.

Example:
A registered builder purchases cement worth ₹2,00,000 from an unregistered supplier for use in a construction project. GST liability will be discharged by the builder under Reverse Charge Mechanism.

 

4. Section 9(5) – Liability of E-Commerce Operators

For certain notified services supplied through an E-Commerce Operator (ECO), GST is payable by the E-Commerce Operator instead of the actual supplier.

Example:
A passenger books a cab through Uber and pays a fare of ₹800. GST on the transportation service is deposited by Uber (E-Commerce Operator) rather than the driver.

Summary of Section 9

Provision	Mechanism	Person Liable to Pay GST
Section 9(1) & 9(2)	Normal Charge Mechanism (NCM)	Supplier
Section 9(3)	Reverse Charge Mechanism (RCM)	Recipient
Section 9(4)	Reverse Charge Mechanism (RCM)	Registered Recipient
Section 9(5)	E-Commerce Operator Mechanism	E-Commerce Operator

Conclusion

Section 9 forms the backbone of the GST levy mechanism. It determines the taxable event, identifies the person responsible for payment of tax, and provides for both the Normal Charge Mechanism and the Reverse Charge Mechanism. Understanding these provisions is essential for proper GST compliance and avoiding tax disputes.

Section 9(1) and 9(2): Normal Charge Mechanism (NCM)

Section 9(1) and Section 9(2) of the CGST Act, 2017 provide for the Normal Charge Mechanism (NCM), under which the liability to pay GST rests on the supplier of goods or services. These provisions constitute the general rule for levy and collection of GST on intra-state supplies.

Conditions for Levy of GST under Section 9(1) and 9(2)

GST is levied:

• On intra-state supplies of goods or services.
• On the supply of goods and/or services.
• Alcoholic liquor for human consumption is excluded from the ambit of GST.
• Tax is charged on the transaction value (assessable value).
• GST is levied at the rates prescribed under the GST law.
• Tax is collected and deposited by the supplier (taxable person).
• GST becomes payable on the basis of the time of supply.

Example: Intra-State Supply under Normal Charge Mechanism

ABC Traders, Kolkata, sells furniture worth ₹1,00,000 to a customer located in West Bengal. Since both the supplier and the place of supply are within the same state, the transaction qualifies as an intra-state supply, and CGST and SGST are applicable.

Calculation of GST

Particulars	Amount (₹)
Value of Furniture	1,00,000
CGST @ 9%	9,000
SGST @ 9%	9,000
Total GST	18,000
Invoice Value	1,18,000

Analysis

• Value of supply = ₹1,00,000
• Applicable GST Rate = 18%
• CGST = ₹9,000
• SGST = ₹9,000
• Total Invoice Amount = ₹1,18,000

In this case, ABC Traders (supplier) is responsible for collecting ₹18,000 as GST from the customer and depositing the same with the Government under the Normal Charge Mechanism.

Another Example

XYZ Electronics, Ranchi, sells a refrigerator worth ₹50,000 to a customer in Jharkhand.

GST Rate = 18%

• CGST @ 9% = ₹4,500
• SGST @ 9% = ₹4,500
• Total GST = ₹9,000
• Invoice Value = ₹59,000

Here also, XYZ Electronics, being the supplier, is liable to collect and pay GST to the Government.

Key Features of Section 9(1) and 9(2)

• GST is levied on intra-state supplies.
• The liability to pay tax is generally on the supplier.
• Tax is charged on the transaction value.
• Alcoholic liquor for human consumption is outside the scope of GST.
• CGST and SGST are levied simultaneously on intra-state transactions.
• These provisions operate under the Normal Charge Mechanism (NCM).

Conclusion

Section 9(1) and Section 9(2) form the foundation of the GST levy system. Under the Normal Charge Mechanism, the supplier is responsible for collecting and remitting GST on intra-state supplies of goods and services. Most business transactions under GST are governed by these provisions, making them fundamental to understanding the GST framework.

Petroleum Products under GST

Under the GST regime, certain petroleum products have been kept outside the scope of GST for the time being. Consequently, these products continue to be taxed under the existing indirect tax structure, such as Central Excise Duty and Value Added Tax (VAT) imposed by the States. As per Section 9 of the CGST Act, these products will become part of GST only from a date recommended and notified by the GST Council.

Petroleum Products Currently Outside GST

The following five petroleum products are presently excluded from GST:

• Petrol (Motor Spirit)
• Diesel (High-Speed Diesel)
• Aviation Turbine Fuel (ATF)
• Natural Gas
• Crude Oil

Since these products are outside GST, Input Tax Credit (ITC) on taxes paid on such products is generally not available under the GST framework.

Example

Suppose XYZ Transport Ltd. purchases diesel worth ₹1,00,000 for operating its fleet of trucks.

• GST is not applicable on diesel.
• The sale of diesel is subject to Excise Duty and State VAT.
• XYZ Transport Ltd. cannot claim Input Tax Credit (ITC) under GST on the taxes paid on diesel.

Therefore, the taxes paid on diesel become part of the operating cost of the business.

Another Example

An airline purchases Aviation Turbine Fuel (ATF) worth ₹50 lakh for domestic operations.

Since ATF is currently outside GST:

• GST is not charged on the supply of ATF.
• Existing taxes such as Excise Duty and VAT continue to apply.
• Input Tax Credit under GST is not available on such taxes.

Future Inclusion in GST

The GST Council has been empowered to recommend the date from which these petroleum products may be brought under the GST regime. Once notified, these products will become taxable under GST, and businesses may be able to avail Input Tax Credit on such purchases.

List of Petroleum Products Outside GST

Petroleum Product	Present Tax System	Covered under GST
Petrol	Excise Duty + VAT	No
Diesel	Excise Duty + VAT	No
Aviation Turbine Fuel (ATF)	Excise Duty + VAT	No
Natural Gas	Existing Tax Structure	No
Crude Oil	Existing Tax Structure	No

Conclusion

Although GST has subsumed most indirect taxes in India, five petroleum products—petrol, diesel, aviation turbine fuel, natural gas, and crude oil—continue to remain outside its ambit. These products will become part of GST only when the GST Council recommends and the Government notifies their inclusion, thereby enabling a uniform tax structure and potentially allowing businesses to claim Input Tax Credit.

Section 9(3): Reverse Charge Mechanism (RCM)

Section 9(3) of the CGST Act, 2017 empowers the Government to notify certain categories of goods and services on which the liability to pay GST shifts from the supplier to the recipient. This mechanism is known as the Reverse Charge Mechanism (RCM). Under this provision, the recipient of the notified goods or services is responsible for paying GST directly to the Government instead of the supplier. 

Meaning of Reverse Charge Mechanism

Normally, GST is paid by the supplier under the Normal Charge Mechanism. However, in specified cases notified by the Government, the recipient becomes liable to discharge the GST liability.

Key Features of Section 9(3)

• Applicable only to notified goods and services.
• GST liability is shifted from the supplier to the recipient.
• Tax is paid directly to the Government by the recipient.
• Input Tax Credit (ITC) of the tax paid under RCM can generally be availed subject to prescribed conditions.
• The supplier is not responsible for paying GST on such supplies.

 

Example: Legal Services Provided by an Advocate

XYZ Ltd. receives legal services from an advocate.

Professional Fees

₹50,000

GST Rate

18%

GST Payable under RCM

₹50,000 × 18%

= ₹9,000

Particulars	Amount (₹)
Professional Fees	50,000
GST @ 18%	9,000
Total Value of Service	59,000

Analysis

• The advocate provides legal services to XYZ Ltd.
• Legal services are notified under Section 9(3).
• The advocate is not liable to pay GST.
• XYZ Ltd. (recipient) is required to pay GST of ₹9,000 directly to the Government under Reverse Charge Mechanism.
• Subject to eligibility, XYZ Ltd. can claim Input Tax Credit of ₹9,000.

Another Example: Goods Transport Agency (GTA) Services

ABC Manufacturing Ltd. hires a Goods Transport Agency for transportation of goods.

Freight Charges = ₹20,000

GST Rate = 5%

GST Liability = ₹1,000

In this case, ABC Manufacturing Ltd. (recipient) pays GST of ₹1,000 under Reverse Charge Mechanism, while the GTA does not pay GST.

 

Comparison between Normal Charge and Reverse Charge

Basis	Normal Charge Mechanism	Reverse Charge Mechanism
Person liable to pay GST	Supplier	Recipient
Collection of Tax	By Supplier	By Recipient
Applicable to	General supplies	Notified goods/services
Tax Payment	Through outward liability	Direct payment by recipient
Input Tax Credit	Available to recipient	Available to recipient subject to conditions

 

Conclusion

Section 9(3) of the CGST Act provides for the Reverse Charge Mechanism (RCM), whereby the Government may notify certain goods and services for which the liability to pay GST is shifted from the supplier to the recipient. This provision ensures better tax compliance and efficient collection of GST in specified sectors. Examples of such notified services include legal services, Goods Transport Agency (GTA) services, and certain services provided by the Government.

Section 9(4): Reverse Charge on Supplies Received from Unregistered Persons

Section 9(4) of the CGST Act, 2017 empowers the Government to notify specified classes of registered persons who are required to pay GST under the Reverse Charge Mechanism (RCM) on supplies received from unregistered suppliers. Presently, this provision mainly applies to the construction sector, where registered promoters are liable to pay GST on certain procurements made from unregistered persons. 

Applicability of Section 9(4)

Where:

• A registered person receives goods or services from an unregistered supplier, and
• Such supplies are covered under the notified provisions,

the recipient (registered person) is liable to pay GST under Reverse Charge Mechanism.

Common Examples in the Construction Sector

• Cement
• Iron rods
• Concrete mixers
• Architect services
• Other construction-related goods and services

 

Example: Purchase of Cement from an Unregistered Supplier

ABC Builders Ltd., a registered promoter, purchases cement worth ₹2,00,000 from an unregistered supplier.

Calculation of GST Liability

Particulars	Amount (₹)
Value of Cement Purchased	2,00,000
GST Rate	28%
GST Payable under RCM	56,000
Total Cost Including GST	2,56,000

Working

GST payable under Reverse Charge:

₹2,00,000 × 28% = ₹56,000

Analysis

• The supplier is unregistered.
• Cement is used in the construction sector.
• GST liability shifts to the recipient under Section 9(4).
• Therefore, ABC Builders Ltd. is liable to pay ₹56,000 directly to the Government under Reverse Charge Mechanism.

 

Another Example: Architect Services

XYZ Developers Ltd. receives architectural services from an unregistered architect.

Professional Fees = ₹1,00,000

GST Rate = 18%

GST Payable under RCM:

₹1,00,000 × 18% = ₹18,000

Thus, XYZ Developers Ltd. will discharge GST liability of ₹18,000 under Reverse Charge Mechanism.

Key Features of Section 9(4)

• Applicable to supplies received from unregistered persons.
• Mainly relevant to the construction sector.
• GST liability shifts from the supplier to the registered recipient.
• Tax is paid directly by the recipient under Reverse Charge Mechanism.
• Input Tax Credit (ITC) may be available subject to fulfillment of prescribed conditions.

 

Difference between Section 9(3) and Section 9(4)

Particulars	Section 9(3)	Section 9(4)
Applicable to	Notified goods and services	Supplies from unregistered persons
Supplier Status	Registered or unregistered	Specifically unregistered
Person liable to pay GST	Recipient	Registered recipient
Basis	Government notification of goods/services	Specified classes of registered persons
Major Area of Application	Legal services, GTA, etc.	Construction sector

 

Conclusion

Section 9(4) of the CGST Act, 2017 provides for the levy of GST under the Reverse Charge Mechanism when specified registered persons receive goods or services from unregistered suppliers. This provision is particularly important for the construction sector, ensuring that tax liability is discharged by the registered recipient and promoting greater tax compliance.

Section 9(5): Liability of E-Commerce Operators (ECO)

Section 9(5) of the CGST Act, 2017 provides that for certain notified services supplied through an Electronic Commerce Operator (ECO), the liability to pay GST rests on the e-commerce operator instead of the actual supplier of services. Thus, although the underlying service is provided by an individual service provider, GST is collected and deposited by the e-commerce platform. 

Meaning of E-Commerce Operator (ECO)

An Electronic Commerce Operator (ECO) is a person who owns, operates, or manages a digital platform for the supply of goods or services.

Examples include:

• Uber
• Ola
• Swiggy
• Zomato
• MakeMyTrip

Under Section 9(5), GST liability shifts from the service provider to the e-commerce operator for specified services.

 

Notified Services Covered under Section 9(5)

1. Passenger Transport Services through Radio Taxis

Services provided by:

• Radio taxis
• Motor cabs
• Motorcycles
• Omnibuses

through platforms such as Uber and Ola.

2. Accommodation Services

Hotel, inn, guest house, club, campsite, or other commercial accommodation services supplied through e-commerce operators, subject to prescribed conditions.

3. Restaurant Services through Online Platforms

Food delivery services supplied through online platforms such as Swiggy and Zomato.

 

Example: Cab Booking through Uber

A customer books a cab through Uber.

Fare Charged

₹500

GST Rate

5%

GST Amount

₹500 × 5%

= ₹25

Total Amount Paid by Customer

₹500 + ₹25

= ₹525

Particulars	Amount (₹)
Cab Fare	500
GST @ 5%	25
Total Amount	525

Analysis

• The cab service is actually provided by the driver.
• However, since the service is supplied through Uber, which is an Electronic Commerce Operator, GST liability arises on Uber.
• Therefore, Uber deposits ₹25 as GST with the Government under Section 9(5).

 

Another Example: Restaurant Services through Swiggy

A customer orders food through Swiggy.

Food Value = ₹1,000

GST Rate = 5%

GST Amount = ₹50

Invoice Value = ₹1,050

Although the food is prepared by the restaurant, Swiggy, being the e-commerce operator, is liable to collect and deposit GST of ₹50.

 

Another Example: Accommodation Services

A customer books a room through an online platform.

Room Rent = ₹4,000

GST Rate = 12%

GST Amount = ₹480

Total Amount = ₹4,480

Where the conditions specified under Section 9(5) are satisfied, the e-commerce operator becomes liable to pay GST.

 

First and Second Liability

Particulars	First Liability	Second Liability
Radio Taxi Services	E-Commerce Operator	Service Provider
Restaurant Services	E-Commerce Operator	Restaurant (in specified cases)
Accommodation Services	E-Commerce Operator	Service Provider (subject to conditions)

 

Key Features of Section 9(5)

• Applicable only to notified services.
• GST liability shifts from the service provider to the E-Commerce Operator (ECO).
• The ECO is responsible for collection and payment of GST.
• The actual supplier is relieved from GST liability for such supplies.
• This provision facilitates easier tax collection and compliance.

Conclusion

Section 9(5) of the CGST Act, 2017 creates a special mechanism whereby the Electronic Commerce Operator is made liable to pay GST on certain notified services such as passenger transport through radio taxis, accommodation services, and restaurant services supplied through online platforms. Even though the underlying service is provided by individual service providers, the tax responsibility rests with the e-commerce operator, ensuring efficient tax administration and compliance.

Section 5 of the IGST Act – Levy and Collection of IGST

Section 5 of the Integrated Goods and Services Tax (IGST) Act, 2017 is the charging section for inter-state supplies of goods and services. The provisions of Section 5 are broadly similar to Section 9 of the CGST Act, 2017, with the key difference being that IGST is levied on inter-state transactions, whereas CGST and SGST are levied on intra-state transactions.

Scope of Section 5 of the IGST Act

IGST is levied:

• On inter-state supplies of goods or services.
• On the transaction value of supply.
• At the rates prescribed under the GST law.
• Tax is collected by the Central Government.
• Liability to pay tax may arise under the Normal Charge Mechanism (NCM) or Reverse Charge Mechanism (RCM), similar to Section 9 of the CGST Act.

 

Example: Inter-State Supply of Goods

A dealer in Jharkhand sells machinery worth ₹5,00,000 to a buyer located in Odisha.

Since the location of the supplier and the place of supply are in two different states, the transaction qualifies as an inter-state supply, and IGST is applicable.

Calculation of IGST

Particulars	Amount (₹)
Value of Machinery	5,00,000
IGST @ 18%	90,000
Invoice Value	5,90,000

Analysis

• Supplier State: Jharkhand
• Place of Supply: Odisha
• Nature of Supply: Inter-State Supply
• Applicable Tax: IGST
• Tax Liability: ₹90,000

Therefore, the dealer will collect IGST of ₹90,000 from the buyer and deposit it with the Government.

 

Another Example

XYZ Electronics, West Bengal, supplies computers worth ₹2,50,000 to a customer in Bihar.

GST Rate = 18%

IGST = ₹2,50,000 × 18%

= ₹45,000

Total Invoice Value = ₹2,95,000

Since the supplier and recipient are located in different states, the transaction is treated as an inter-state supply, and IGST is charged.

 

Difference between Intra-State and Inter-State Supply

Particulars	Intra-State Supply	Inter-State Supply
Supplier and Place of Supply	Same State	Different States
Applicable Law	CGST Act, 2017	IGST Act, 2017
Taxes Levied	CGST + SGST	IGST
Tax Collection	Shared between Centre and State	Collected by Central Government
Example	Supply within Jharkhand	Supply from Jharkhand to Odisha

 

Key Features of Section 5 of the IGST Act

• Applicable to inter-state supplies.
• Provisions are similar to Section 9 of the CGST Act.
• IGST is levied instead of CGST and SGST.
• Tax is charged on the value of supply.
• Tax may be payable under Normal Charge or Reverse Charge Mechanism.
• Facilitates seamless flow of Input Tax Credit across states.

Conclusion

Section 5 of the IGST Act, 2017 provides for the levy and collection of Integrated Goods and Services Tax (IGST) on inter-state supplies of goods and services. Similar to Section 9 of the CGST Act, it governs the chargeability of tax but specifically applies to transactions involving two or more states. Thus, whenever goods or services move from one state to another, IGST becomes applicable.

IGST on Import of Goods

Imports into India are treated as inter-state supplies and are subject to Integrated Goods and Services Tax (IGST) in addition to Basic Customs Duty (BCD). The IGST on imported goods is levied and collected under Section 3 of the Customs Tariff Act, 1975, at the point when customs duty is levied on such goods.

Taxes Applicable on Imported Goods

Imported goods are generally subject to the following taxes:

1. Basic Customs Duty (BCD)
2. Integrated Goods and Services Tax (IGST)

While BCD is levied under the Customs Act, IGST is imposed under Section 3 of the Customs Tariff Act, 1975.

 

Example: Import of Machinery

Suppose XYZ Ltd. imports machinery into India.

Value of Imported Machinery

₹10,00,000

Step 1: Basic Customs Duty (BCD)

BCD @ 10%

= ₹10,00,000 × 10%

= ₹1,00,000

Step 2: Assessable Value for IGST

IGST is calculated on the value including BCD.

Assessable Value for IGST

= Value of Machinery + BCD

= ₹10,00,000 + ₹1,00,000

= ₹11,00,000

Step 3: IGST Calculation

IGST @ 18%

= ₹11,00,000 × 18%

= ₹1,98,000

 

Total Tax Liability

Particulars	Amount (₹)
Value of Imported Machinery	10,00,000
Basic Customs Duty (BCD) @10%	1,00,000
Value for IGST Calculation	11,00,000
IGST @18%	1,98,000
Total Taxes	2,98,000

 

Analysis

• Imported machinery value = ₹10,00,000
• BCD payable = ₹1,00,000
• IGST payable = ₹1,98,000
• Total indirect taxes payable = ₹2,98,000

Thus, the importer is required to pay both BCD and IGST at the time of import.

 

Another Example

ABC Ltd. imports electronic equipment worth ₹5,00,000.

BCD @10%

= ₹50,000

Value for IGST

= ₹5,00,000 + ₹50,000

= ₹5,50,000

IGST @18%

= ₹99,000

Total Taxes

Particulars	Amount (₹)
BCD	50,000
IGST	99,000
Total Tax Liability	1,49,000

 

Key Features of IGST on Imports

• Imports are treated as inter-state supplies.
• Both BCD and IGST are payable on imported goods.
• IGST is levied under Section 3 of the Customs Tariff Act, 1975.
• IGST is calculated on the value of goods including customs duty.
• Input Tax Credit (ITC) of IGST paid on imports is generally available to registered persons, subject to the provisions of the CGST Act.
• IGST is collected at the time customs duty is levied.

Conclusion

The import of goods into India attracts both Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST). IGST is levied under Section 3 of the Customs Tariff Act, 1975 and is calculated on the assessable value inclusive of BCD. This mechanism ensures that imported goods are taxed in a manner similar to domestic supplies and maintains parity between imported and indigenous products.

Meaning of Goods under GST

The term "Goods" is fundamental to the GST law because GST is levied on the supply of goods and services. Under the GST framework, goods broadly include every kind of movable property and certain items attached to the earth that are capable of being severed. Actionable claims such as lottery, betting, and gambling are also treated as goods.

What are Goods?

Goods include:

• Every kind of movable property.
• Growing crops and trees.
• Things attached to the earth which can be severed without substantial damage, such as signboards and standing timber.
• Actionable claims, including lottery, betting, and gambling.

Thus, anything that is movable and capable of being bought and sold generally qualifies as goods under GST.

 

Characteristics of Goods

1. Movable Property

Goods consist of movable properties that can be transferred from one person to another.

Examples:

• Machinery
• Furniture
• Mobile phones
• Computers
• Vehicles

 

2. Growing Crops and Trees

Although crops and trees are attached to the earth, they are treated as goods because they can be severed and sold.

Examples:

• Standing wheat crop
• Sugarcane crop
• Timber trees

 

3. Things Attached to Earth

Certain items attached to the earth are regarded as goods if they can be removed without affecting their essential nature.

Examples:

• Signboards
• Electric poles
• Standing timber

 

4. Actionable Claims

Actionable claims represent contingent rights and are treated as goods under GST in specified cases.

Examples:

• Lottery tickets
• Betting
• Gambling

 

Example 1: Sale of Machinery

ABC Manufacturing Ltd. sells machinery worth ₹8,00,000 to XYZ Industries.

Since machinery is movable property, its sale constitutes a supply of goods under GST.

Therefore, GST will be applicable on the transaction.

 

Example 2: Sale of Standing Crops

A farmer sells standing sugarcane crops to a sugar mill for ₹3,00,000.

Since growing crops are treated as goods, the transaction is regarded as a supply of goods under GST.

 

Example 3: Sale of Furniture

PQR Furniture House sells office furniture worth ₹1,50,000 to a customer.

Furniture is movable property and hence qualifies as goods. Accordingly, GST is chargeable on the sale.

Items Treated as Goods

Particulars	Treated as Goods
Machinery	Yes
Furniture	Yes
Mobile Phones	Yes
Standing Crops	Yes
Trees and Timber	Yes
Lottery	Yes
Betting and Gambling	Yes
Land and Building	No
Money	No
Securities	No

Key Points

• Goods primarily consist of movable property.
• Growing crops and things attached to the earth that can be severed are also goods.
• Lottery, betting, and gambling are treated as goods under GST.
• Immovable property, money, and securities are not treated as goods.
• GST is levied on the supply of goods in accordance with the provisions of the CGST Act.

Conclusion

Under GST, the term goods covers every kind of movable property, growing crops, severable items attached to the earth, and certain actionable claims. Therefore, transactions involving machinery, furniture, standing crops, and lottery are treated as supplies of goods and are subject to GST. A proper understanding of the meaning of goods is essential because the levy of GST depends upon whether a transaction involves goods or services.

Meaning of Services under GST

Under the GST law, services are defined in a very broad manner. In simple terms, anything other than goods is treated as a service. Services may involve performing an activity, refraining from an activity, or tolerating an act or situation. Thus, the scope of services under GST is very wide.

What are Services?

A service is any transaction that does not involve the supply of goods. Services can be broadly classified into two categories:

1. Active Services
2. Passive Services

 

1. Active Services

Active services involve the performance of some activity by one person for another in return for consideration.

Examples of Active Services

• Chartered Accountant services
• Legal services
• Consultancy services
• Advertising services
• Banking services
• Insurance services

Example: Chartered Accountant Services

ABC Ltd. engages a Chartered Accountant for conducting a tax audit and pays professional fees of ₹1,00,000.

Since the Chartered Accountant performs a professional activity, the transaction constitutes a supply of service under GST.

Therefore, GST will be applicable on the professional fees.

 

Example: Consultancy Services

XYZ Pvt. Ltd. hires a management consultant for business restructuring and pays consultancy charges of ₹5,00,000.

Since consultancy involves the performance of an activity, it is treated as a service and is liable to GST.

 

2. Passive Services

Passive services arise when a person agrees not to do something, tolerates an act, or permits an act in return for consideration.

Example: Non-Compete Agreement

Company A enters into an agreement with Company B whereby Company B agrees not to compete in the market for five years.

In consideration for this restriction, Company A pays ₹10 lakh to Company B.

Since Company B has agreed to refrain from carrying on a competing business, the amount received represents consideration for a service.

Therefore, the payment of ₹10 lakh is treated as consideration for the supply of service and is liable to GST.

 

Another Example of Passive Service

Suppose Mr. X owns a trademark and allows Company Y to use the trademark for a royalty of ₹20 lakh.

By permitting Company Y to use the trademark, Mr. X is providing a service. Hence, royalty received is taxable under GST.

 

Classification of Services

Type of Service	Nature	Examples
Active Service	Performing an activity	Chartered Accountant services, Consultancy services
Passive Service	Refraining from doing something or permitting an act	Non-compete agreement, Licensing of trademarks

 

Difference between Goods and Services

Basis	Goods	Services
Nature	Tangible movable property	Intangible activities
Transfer	Ownership may be transferred	Performance or obligation is involved
Examples	Machinery, Furniture, Mobile Phones	Legal services, Consultancy services
Physical Existence	Usually tangible	Usually intangible

 

Key Points

• Anything other than goods is treated as a service.
• Services may involve performing an activity or refraining from an activity.
• Professional services such as accounting and consultancy are examples of active services.
• Non-compete agreements and licensing arrangements are examples of passive services.
• Consideration received for agreeing not to do something is also treated as consideration for a supply of service.

Conclusion

The term service under GST has a very wide scope and covers all transactions other than goods. Services may be active, where some activity is performed, or passive, where a person agrees not to perform an activity. Consequently, professional services, consultancy services, and non-compete agreements are all regarded as supplies of services and are subject to GST.

Neither Goods nor Services under GST

Under the GST law, certain items are specifically excluded from the scope of both goods and services. Consequently, transactions involving these items are generally not subject to GST. However, any activity relating to such items for a consideration is treated as a supply of service and may attract GST.

Items Which are Neither Goods nor Services

The following are neither goods nor services:

• Money
• Securities

Therefore, the mere transfer or exchange of money and securities does not constitute a supply under GST.

Services Relating to Money or Securities are Taxable

Although money and securities themselves are outside the ambit of GST, any activity performed in relation to them for a consideration is regarded as a supply of service and is taxable.

Examples include:

• Foreign exchange conversion charges.
• Demand draft commission.
• Bank charges.
• Brokerage on securities transactions.

 

Example 1: Forex Conversion Charges

Suppose Mr. A approaches a bank to convert USD 1,000 into Indian Rupees.

Transaction

• Exchange of USD into INR: Not taxable
• Bank conversion charges: Taxable

Assume the bank charges a commission of ₹1,500.

GST @18%

= ₹1,500 × 18%

= ₹270

Particulars	Amount (₹)
Currency Exchange Amount	Not Taxable
Bank Commission	1,500
GST @18%	270
Total Charges Payable	1,770

 

Analysis

The exchange of currency itself involves money and is therefore not a supply. However, the commission charged by the bank for providing the conversion facility is considered a supply of service, and GST is applicable.

 

Example 2: Demand Draft Commission

Mr. B purchases a Demand Draft of ₹1,00,000 from a bank.

The bank charges:

• DD Commission = ₹200

GST @18%

= ₹36

Total Charges Payable

= ₹236

Analysis

The demand draft represents money, which is neither goods nor services. However, the commission charged by the bank for issuing the demand draft is a service and attracts GST.

 

Example 3: Brokerage on Sale of Shares

Mr. X sells shares worth ₹5,00,000 through a stock broker.

• Sale of shares (securities): Not taxable
• Brokerage charged by broker = ₹5,000

GST @18%

= ₹900

Thus, while securities themselves are outside GST, the brokerage charged for facilitating the transaction is taxable as a service.

 

Examples of Taxability

Transaction	GST Applicability
Transfer of money	No
Exchange of USD into INR	No
Bank commission on forex conversion	Yes
Issue of demand draft	No
DD commission charged by bank	Yes
Sale of shares	No
Brokerage on securities	Yes

 

Key Points

• Money and securities are neither goods nor services.
• Mere transfer of money or securities does not attract GST.
• Services provided in relation to money or securities are taxable.
• Bank charges, forex conversion fees, and brokerage are treated as supplies of services.
• GST is levied only on the consideration charged for such services.

Conclusion

Money and securities are specifically excluded from the definition of both goods and services under GST. Therefore, transactions involving their transfer are not taxable. However, any activity performed in relation to money or securities for a consideration—such as foreign exchange conversion, demand draft issuance, or brokerage services—is treated as a supply of service and is subject to GST.

Summary of Chargeability Provisions under GST

The following table summarizes the major charging provisions under the CGST Act, 2017 and the IGST Act, 2017, along with the person liable to pay GST and practical examples. These provisions determine whether tax is payable by the supplier, recipient, e-commerce operator, or importer.

Section	Person Liable to Pay GST	Nature of Liability	Example
Section 9(1) & 9(2)	Supplier	Normal Charge Mechanism (NCM)	Sale of furniture by a dealer within the same State
Section 9(3)	Recipient	Reverse Charge Mechanism (RCM)	Legal services received from an advocate
Section 9(4)	Registered Recipient	Reverse Charge Mechanism (RCM)	Purchase of cement or other construction materials from an unregistered supplier
Section 9(5)	E-Commerce Operator (ECO)	Special Liability Mechanism	Uber cab services, online restaurant services through Swiggy or Zomato
Section 5 of IGST Act	Supplier	Normal Charge Mechanism (NCM)	Inter-state supply of goods or services
Import of Goods	Importer	Customs Duty + IGST	Import of machinery from China

 

Quick Overview

Section 9(1) & 9(2) – Normal Charge Mechanism

• Liability: Supplier
• Example: Sale of furniture worth ₹1,00,000 within West Bengal.

Section 9(3) – Reverse Charge Mechanism

• Liability: Recipient
• Example: Legal services provided by an advocate to a company.

Section 9(4) – Supplies from Unregistered Persons

• Liability: Registered Recipient
• Example: Purchase of cement by a builder from an unregistered supplier.

Section 9(5) – E-Commerce Operator

• Liability: E-Commerce Operator
• Example: Cab services through Uber or restaurant services through Swiggy.

Section 5 of IGST Act

• Liability: Supplier
• Example: Sale of machinery from Jharkhand to Odisha.

Import of Goods

• Liability: Importer
• Example: Import of machinery from China, attracting Basic Customs Duty and IGST.

Conclusion

The charging provisions under the Goods and Services Tax (GST) regime, contained in Section 9 of the CGST Act, 2017 and Section 5 of the IGST Act, 2017, constitute the foundation of GST in India. These provisions determine the circumstances under which GST is levied and identify the person responsible for discharging the tax liability.