The Goods and Services Tax (GST) regime, introduced in India on July 1, 2017, revolutionised the indirect taxation system by subsuming a myriad of Central and State taxes. One of the most crucial aspects of this tax regime is the levy of tax and the exemptions granted under specific circumstances. These two components define the scope and limits of the GST law and impact the ultimate tax liability on the supply of goods and services.
This article explores the statutory provisions, principles, and key judicial pronouncements related to the levy of tax and exemption from tax under the GST framework, primarily governed by the Central Goods and Services Tax Act, 2017 (CGST Act) and its corresponding State and Union Territory enactments.
Legal Framework Governing Levy of GST
Charging Section – Section 9 of CGST Act, 2017
Section 9 is the primary charging section under the CGST Act:
- Sub-section (1) provides that GST shall be levied on all intra-State supplies of goods or services or both, except the supply of alcoholic liquor for human consumption.
- The tax is to be collected at such rates as may be notified by the Government on the recommendations of the GST Council, but not exceeding 20%.
- Sub-section (2) extends the levy to petroleum products, though they are presently kept outside GST’s purview.
- Sub-section (3) and (4) deal with the reverse charge mechanism (RCM), where the liability to pay tax is on the recipient.
- Sub-section (5) provides that in case of specified categories of services, GST shall be paid by e-commerce operators.
IGST and UTGST Acts
The Integrated Goods and Services Tax Act, 2017, applies to inter-State transactions. Section 5 of the IGST Act mirrors Section 9 of the CGST Act, with the levy capped at 40% (20% CGST + 20% SGST).
In Union Territories without a legislature, the Union Territory Goods and Services Tax Act, 2017 (UTGST) governs intra-UT supplies.
Levy on Composite and Mixed Supplies
As per Section 8 of CGST Act, the tax liability on composite supply is determined by the principal supply, whereas a mixed supply attracts the highest rate of tax applicable on any individual component of the supply.
Key Concepts in Levy
1. Supply as Taxable Event
Section 7 of the CGST Act defines ‘supply’ expansively to include sale, transfer, barter, exchange, license, rental, lease or disposal for a consideration in the course or furtherance of business. The supply must be:
- Made by a taxable person,
- In the course of business,
- And not specifically exempt.
2. Time, Place, and Value of Supply
These determine:
- When tax is levied (Time of Supply – Sections 12, 13),
- Where tax is levied (Place of Supply – Sections 10 to 13 of IGST Act),
- On what amount tax is levied (Value of Supply – Section 15 of CGST Act).
Exemptions from GST
1. Section 11 of CGST Act – Power to Grant Exemptions
The Government may exempt goods or services from tax absolutely or conditionally through a notification, based on the recommendations of the GST Council.
Section 11(1): General exemption in public interest.
Section 11(2): Exemption by special order under exceptional circumstances.
Similar power is granted under Section 6 of the IGST Act for inter-State supplies.
2. Types of Exemptions
A. Absolute Exemptions
- No GST liability regardless of whether the recipient is registered.
- Example: Unbranded fruits, vegetables, education services by an institution.
B. Conditional Exemptions
- Applicable only if certain conditions are fulfilled.
- Example: Services by a GTA (Goods Transport Agency) where the recipient pays tax under RCM.
C. Partial Exemptions
For small businesses:
Exemption up to ₹20 lakh annual turnover (₹10 lakh in special category states) – Section 22.
GST Exemption Notifications
The Government has issued various exemption notifications under CGST, SGST, and IGST Acts. These are updated periodically.
Some Important Notifications:
Notification No. 2/2017 – Central Tax (Rate): Exempts certain goods.
Notification No. 12/2017 – Central Tax (Rate): Exempts certain services.
Notification No. 9/2017 – Integrated Tax (Rate): Exempts inter-State supplies of specific services.
These notifications cover:
- Healthcare services,
- Educational services,
- Services by government entities,
- Religious and charitable activities,
- Services to SEZs (Zero-rated).
Important Case Laws
1) Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company (2018)
The Constitution Bench of the Supreme Court held that exemption notifications under taxing statutes must be interpreted strictly, and the burden lies on the assessee to prove eligibility. In cases of ambiguity, the benefit cannot go to the taxpayer but must favour the revenue.
The Court overruled the earlier view in Sun Export Corporation (1997), which had held that ambiguous exemption provisions should benefit the assessee, and clarified that while charging provisions may be construed in favour of the taxpayer in case of doubt, exemption clauses demand stricter interpretation to prevent undue revenue loss.
2) Government of Kerala v. Mother Superior Adoration Convent (2021)
The Supreme Court held that buildings used principally for religious, charitable, or educational purposes, including residential quarters for nuns and hostels for students attached to educational institutions, are eligible for exemption from building tax under Section 3(1)(b) of the Kerala Building Tax Act, 1975.
The Court rejected the State’s strict interpretation, ruling that such buildings serve a purpose integrally connected with religious or educational activities. Emphasising the beneficial nature of the exemption, the Court distinguished between general and promotional exemptions in tax statutes and upheld the Kerala High Court’s view that liberal interpretation is warranted to achieve the statute’s purpose.
Judicial Review of Exemptions and Levy
A. Leviability of GST on Ocean Freight
Gujarat High Court in Mohit Minerals Pvt. Ltd. v. Union of India (2020) held that taxing ocean freight separately under RCM when IGST was already paid on CIF value led to double taxation and was unconstitutional.
Confirmed by the Supreme Court in 2022 – the tax on ocean freight was quashed.
B. GST Levy for Intermediary Export Services
In Dharmendra M. Jani v. Union of India & Ors. (2021), the Bombay High Court ruled on the constitutional validity of Section 13(8)(b) of the Integrated Goods and Services Tax (IGST) Act, 2017, which deemed the location of the supplier (in India) as the place of supply for intermediary services, thereby subjecting such export services to CGST and SGST.
The petitioner, engaged in providing marketing services to foreign clients, argued that this fiction violated Articles 245, 246A, 269A, and 286 of the Constitution and the very nature of GST as a destination-based tax.
The Division Bench delivered a split verdict: Justice Ujjal Bhuyan held the provision unconstitutional and ultra vires for taxing export of services as intra-state supply, while Justice Abhay Ahuja reserved his opinion to be delivered later.
Recommendations and Conclusion
Stable exemption policies with fewer amendments are necessary to enhance certainty.
- A centralised exemption interpretation authority could reduce litigation.
- Exemptions should be needs-based, targeted to socially beneficial sectors, and reviewed periodically to avoid misuse.
While the levy and exemptions under GST are constitutionally and statutorily grounded, their practical implementation often involves interpretative and procedural complexities. Proper understanding of notifications, legal precedents, and compliance procedures is essential for both businesses and tax professionals.
References
[1] Central Goods and Services Tax Act, 2017
[2] Commissioner of Customs v. Dilip Kumar and Co., (2018) 9 SCC 1
[3] Government of Kerala v. Mother Superior Adoration Convent, (2021) 3 SCC 238
[4] Mohit Minerals Pvt. Ltd. v. Union of India, 2022 SCC OnLine SC 657
[5] Dharmendra M. Jani v. Union of India & Ors., Writ Petition No. 2031 of 2018
