Indirect Tax Laws: formula sheet

Key formulas

Elements of supply

Supply = goods or services + consideration + course or furtherance of business + taxable person + taxable territory

Deemed supplies without consideration (Schedule I type) are an exception to the consideration element. This includes import of services by a taxable person from a related person outside India in the course or furtherance of business, even if made without consideration. Always say which element is missing when you conclude 'not a supply'.

Composite supply

Tax rate = rate of the principal supply, applied on the full value of the bundle

Test is 'naturally bundled in the ordinary course of business'. Look for dependence of one item on another and customer expectation. Name the principal supply (for example, the machine) and the ancillary supply (for example, installation).

Mixed supply

Tax rate = highest rate among the items in the bundle, applied on the full single price

No natural bundling, single price. Do not split the value item-wise.

Reverse charge

Tax payable by recipient (not supplier) on notified goods or services, certain notified supplies by unregistered suppliers, and import of services

Recipient pays in cash, issues a self-invoice where required, and claims ITC if eligible. State the category in your answer.

Composition scheme conditions

Eligible only if turnover is within the notified limit and none of the disqualifying conditions apply

Disqualifiers include inter-state outward supplies, supplies through e-commerce operators (with notified exceptions) and notified goods such as ice cream, pan masala and tobacco. Rates are notified: 1% for manufacturers and traders (in effect, 0.5% CGST + 0.5% SGST), 5% for restaurants not serving alcohol, and 6% for specified service providers under Section 10(2A). Use the figures given in the question.

Composition taxpayer restrictions

No ITC, no tax collected from customers, bill of supply instead of tax invoice, all registrations of the same PAN must opt in

A composition taxpayer still pays RCM on its inward supplies where applicable.

Section 16 conditions

Registered person + business use + valid document + receipt + tax paid to government + return filed + shown in GSTR-2B

All conditions must be met together. If one fails, credit is deferred or denied until it is met. Check the current text for amendments.

Time limit to claim ITC

The earlier of (a) 30 November following the end of the financial year to which the invoice or debit note pertains, or (b) the date of filing the relevant annual return

Applies to invoices and debit notes. Late claims are lost, so check the dates in the case, including when the annual return was filed. Sections 16(5) and 16(6) give special extended deadlines for certain past years, introduced by amendment. Refer to the latest official text and follow any date given in the question.

Payment to supplier within 180 days

Not paid to supplier within 180 days of invoice date → reverse ITC with interest; re-claim when paid

Applies where the consideration is payable. It does not apply to supplies on which tax is paid under reverse charge.

Rule 42 flow for the month

T = total ITC in the month. C1 = T − (T1 + T2 + T3). C2 = C1 − T4. D1 = (E ÷ F) × C2. D2 = 5% × C2. C3 = C2 − D1 − D2. Eligible = T4 + C3

T1 is credit on blocked items, T2 is credit on inputs used exclusively for exempt supplies, T3 is credit on inputs used exclusively for non-business use, and T4 is credit on inputs used exclusively for taxable supplies (including zero-rated). T1, T2 and T3 are removed directly and are never eligible. C2 is the common credit. E is exempt turnover and F is total turnover. D1 is the part of C2 attributable to exempt supplies and D2 is the part attributable to non-business use.

Rule 42 reversal on common credit

Reversal = D1 + D2 = (Exempt turnover ÷ Total turnover) × C2 + 5% × C2

Compute monthly, then recompute on annual figures and adjust the difference. Short reversal attracts interest.

Rule 43 capital goods

Tc = ITC on capital goods ÷ 60 per month; Te = Tc × (Exempt turnover ÷ Total turnover of the tax period)

Capital goods used wholly for exempt supplies or non-business use get no credit. Wholly taxable use gets full credit. Common use (partly for exempt supplies) gets credit, then Te is reversed every month for the useful life of five years. The ratio used each month is provisional and is recomputed annually, with the difference adjusted.

Blocked credit test

Is the item in the section 17(5) list? If yes, check whether an exception applies

Blocked credit is not part of the common credit pool. Remove it first.

Section 73 time limits

Notice: at least 3 months before the order deadline. Order: within 3 years from the due date of the annual return for the year.

Non-fraud cases. Applies to periods before FY 2024-25; section 74A governs later periods.

Section 74 time limits

Notice: at least 6 months before the order deadline. Order: within 5 years from the due date of the annual return for the year.

Fraud, wilful misstatement or suppression cases. Same period caveat as above.

Section 73 penalty

No penalty if tax and interest are paid before notice or within 30 days of notice. If not, penalty is the higher of 10% of tax or ₹10,000.

Interest is payable in all cases. Check the exact conditions in the bare Act text given in your exam.

Section 74 penalty ladder

Penalty equals 15% of tax if paid before notice, 25% if paid within 30 days of notice, 50% if paid within 30 days of the order, otherwise 100% of tax.

Section 74 carries a much higher penalty, rising up to 100% of tax. Section 73 penalty is only 10% of tax or ₹10,000, whichever is higher. Check the exact percentages against the bare Act text if it is supplied.

First appeal

To the Appellate Authority within 3 months of communication of the order. Pre-deposit: 10% of disputed tax plus the admitted tax.

The 10% is capped at ₹25 crore each under CGST and SGST (₹50 crore in total). The Appellate Authority can condone a delay of up to one further month.

Appeal to Appellate Tribunal

Within 3 months of communication of the order. Further pre-deposit: 20% of disputed tax, over and above the amount paid earlier.

The 20% is capped at ₹50 crore each under CGST and SGST (₹100 crore in total). The Tribunal's powers to condone delay are limited to a further three months.

High Court appeal

Within 180 days of the Tribunal's order. Only if a substantial question of law is involved.

Then the Supreme Court.

Advance ruling

Applicant asks the Authority for Advance Ruling. Appeal to the Appellate Authority for Advance Ruling within 30 days.

The ruling binds the applicant and the jurisdictional officer, for the specific question asked. It covers matters such as classification, time and value of supply, ITC admissibility and registration liability.

Prosecution thresholds (tax evasion)

Above ₹5 crore: up to 5 years and fine. Above ₹2 crore up to ₹5 crore: up to 3 years and fine. Above ₹1 crore up to ₹2 crore: up to 1 year and fine.

Issuing invoices without supply, or availing ITC on such invoices (section 132(1)(b) and (c)), is punishable with up to 5 years and fine where the tax exceeds ₹5 crore. Lower slabs apply to lower amounts, so it does not always fall in the top slab. Prosecution needs Commissioner's sanction.

Assessable value (imports)

Assessable value = Transaction value + Rule 10 additions (CIF basis)

Start from the price paid or payable, then add the costs that Rule 10 requires and that are not already in the price.

CIF value

CIF = FOB + freight + insurance

If insurance is not ascertainable, it is taken as 1.125% of FOB. For air freight, the cost is capped at 20% of FOB.

Landing charges

Landing charges = 1% of CIF

Added to arrive at the assessable value, unless the question gives actual figures or says otherwise.

Order of duty computation

BCD = AV × rate; Surcharge = BCD × rate; IGST = (AV + BCD + Surcharge) × IGST rate

IGST is on the value including customs duties. Safeguard, anti-dumping and countervailing duties, if applicable, go into the IGST base as given in the question.

Fallback valuation order

Rule 3 transaction value → Rule 4 identical goods → Rule 5 similar goods → Rule 7 deductive → Rule 8 computed → Rule 9 residual

The importer may ask that Rule 8 be applied before Rule 7. Rule 9 uses reasonable means consistent with the other rules.

Rate and date rule

Imports: date of bill of entry presentation. Warehoused goods: date of removal. Exports: date of order permitting clearance and loading

The rate in force on the relevant date applies, not the date of arrival of the ship.

Authority for FTP

Foreign Trade (Development and Regulation) Act, 1992 → FTP issued by Central Government → administered by DGFT

Write this as the legal source in any theory answer.

IEC rule

Import or export of goods (and technology) needs an IEC, unless an exemption applies. For services, an IEC is needed only to claim FTP benefits

IEC is linked to PAN. State the exceptions only if the question asks.

Export obligation (EO)

Benefit of duty-free import is conditional on exporting within the prescribed period

On default, expect recovery of the duty foregone with interest, as the customs notification provides.

EPCG logic

Capital goods imported at zero customs duty → EO on goods made with them

Check the EO quantum and period in the authorisation. Do not quote figures unless the question gives them.

Advance Authorisation logic

Inputs physically incorporated in export product → duty-free import → export with prescribed value addition

Used for inputs, not for capital goods. Capital goods fall under EPCG.

SEZ supply under GST

Supply of goods or services to an SEZ unit or developer for authorised operations = zero-rated supply under section 16 of the IGST Act, 2017

Exporter can supply under bond or letter of undertaking without IGST, or pay IGST and claim refund.

EOU vs SEZ

EOU = unit in domestic tariff area, exports all output, benefits mainly under FTP and customs notifications. SEZ = specified area treated as foreign territory for trade operations, duties and tariffs, with zero-rating of supplies to it under section 16 of the IGST Act, 2017

An EOU is not an SEZ and has no such zero-rating. Supplies to an EOU are not zero-rated merely because the buyer is an EOU.

Quick revision

• First test every transaction: is it a supply, and is it taxable, exempt or outside GST?
• Check the conditions of the composition scheme before concluding a person can opt for it.
• Identify time, place and value of supply separately; do not blend them.
• Credit needs the conditions to be met; check blocked credits before claiming any.
• Match registration and invoicing duties to the facts, not to memory of thresholds alone.
• Link each return and payment to the correct period and person.
• For notices, note the stage: assessment, audit, demand, appeal or offence, and apply that stage's rules.
• In Customs, separate levy, valuation and exemption into three steps.
• Check whether an import or export needs approval or benefit under Foreign Trade Policy.
• State a conclusion in every answer, even if brief.
• Never mix terms of GST and Customs in the same sentence of your answer.
• Use the open book to confirm, not to learn.

Common mistakes

• Saying 'no consideration means no supply' in every case. Fix: Always check related persons, distinct persons, principal-agent and permanent transfer of business assets with ITC availed before concluding.
• Calling any package a composite supply. Fix: Ask if the items normally go together in the ordinary course of business. If a customer could just as easily buy them separately and the pairing is a marketing choice, it is mixed.
• Treating blocked credit as part of the common credit and applying the exempt ratio to it. Fix: Always subtract blocked credit (T1) before computing C2. Blocked credit is nil, not partly eligible.
• Blocking a credit without checking the exception. Fix: For each blocked head, ask whether the item is obligatory under law, is used for passenger transport or training, or feeds an outward supply of the same category.
• Treating section 73 and section 74 as interchangeable. Fix: Remember the pairs: no fraud means 3 months and 3 years. Fraud means 6 months and 5 years. Note the intent words in the facts first.
• Applying section 73 or 74 to FY 2024-25 demands without checking the period. Fix: Read the financial year in the question. For FY 2024-25 onwards, flag section 74A as applicable. For earlier years, use sections 73 and 74.
• Charging IGST on assessable value alone. Fix: Add BCD and surcharge to the assessable value first, then apply the IGST rate.
• Adding buying commission to the value. Fix: Buying commission is excluded. Commission to the seller's agent is added. Check whom the agent works for.
• Treating EOU and SEZ as the same Fix: Remember that an SEZ is treated as foreign territory for trade operations, duties and tariffs, while an EOU sits in the domestic tariff area.
• Using Advance Authorisation for capital goods Fix: Link Advance Authorisation to inputs incorporated in the export product and EPCG to capital goods.

Exam tips

• In MCQs, read the one sentence that decides the answer: 'single price', 'naturally bundled', 'without consideration' or 'unregistered supplier'.
• Write Schedule I and Schedule III ideas in plain words and apply them to the facts. Give a section number only if you are sure of it.
• For RCM, always name who pays and whether it is a notified category. Add a line on ITC availability to earn the extra mark.
• For composition, list every condition as a mini checklist. One failed condition is enough to deny eligibility, so state which one fails.
• In an integrated Paper 6 case, GST supply facts may be linked with valuation, ITC and place of supply. Mention the link in one line and move on.
• In a case study, read the facts for hidden conditions: unpaid supplier tax, missing GSTR-2B entry, late claim date, or personal use of an asset. They often decide the MCQ.
• For blocked credits, learn each head with its exception in one line. Examiners test the exception more than the head.
• Show a clear table of T1 to T4, C2, the ratio and the reversal. Marks are given for the working even if the final figure is wrong.