Page 4 - Chap1 Charge of Tax & Concept of Supply

01. Important Definitions

Q. 1:Elaborate the difference between zero rated supplies and exempted supplies. [CA Final MTP April 23]
Answer: The difference between zero rated supplies and exempted supplies is as follows:-
S.No. Exempted supplies Zero rated supplies

1 Exempt supply means supply of any goods or Zero-rated supply means (i) export of goods &/or
services or both which attracts nil rate of tax or services or (ii) supply of goods &/or services to SEZ
which may be wholly exempt from tax and includes unit/SEZ developer.
non-taxable supply.

2 No tax is payable on the outward exempted No tax is payable on the outward supplies; Input
supplies. However, the input supplies used for supplies are also to be tax free (by way of refund of
making exempt supplies are to be taxed. ITC).

3 Credit of input tax needs to be reversed, if taken. No Credit for input tax may be availed for making zero
ITC is allowed on the exempted supplies. rated supplies, even if such supply is an exempt
supply. ITC is allowed on zero-rated supplies
4 Value of exempt supplies, for apportionment of Value of zero-rated supplies shall be added along
ITC, shall include supplies on which the recipient is with the taxable supplies for apportionment of ITC.
liable to pay tax under reverse charge basis,
transactions in securities, sale of land and, subject to
Paragraph 5(b) of Schedule II, sale of building.

5 Any person engaged exclusively in the business of A person exclusively making zero rated supplies
supplying goods or services or both that are not needs to register as refund of unutilized ITC or
liable to tax or wholly exempt from tax under the IGST paid shall have to be claimed.
CGST or IGST Act shall not be liable to
registration.

02. Section 7(1)(b):- Import of service for consideration read with para 4 of Schedule I
Q.2: Mrs. Pragati received legal advice for her personal problems & paid 1,000 pound as legal fees to Miss
Unnati of U.K. (London).
Explain whether the above activity of import of service would amount to supply u/s 7 of the CGST Act, 2017?
If in above case, both of them are real sisters & no consideration is paid then will it change your answer?
Further in the above case, if both of them are real sisters & Mrs. Pragati receives legal advice for her business
& she doesn't pay any consideration then what will be your answer?
[Note:- It has been most logically assumed that miss Unnati is wholly/mainly dependant on Miss Pragati]
Answer: Legal Provision:-
Ü As per Section 7(1)(b) of the CGST Act, 2017, importing services for a consideration is considered a supply,
whether for business or personal use.
Ü As per Para 4 of Schedule I, importing services without consideration from a related person outside India is
considered a supply if it is for business purposes.
Conclusion:
Ü If Mrs. Pragati pays £1,000 for personal legal advice It is a supply under Section 7(1)(b) because there is a
consideration, even though it’s for personal use.
Ü If both are real sisters and no payment is made Not a supply, as it is not for business.
Ü If both are real sisters, no payment is made, but the service is for business It is a supply under Schedule I,
as it is from a related person and used for business purposes.

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