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CMA Intermediate · Direct and Indirect Taxation · Exemption from Tax

Aarav Traders supplies goods that a Section 11(1) notification has exempted absolutely. The goods would otherwise attract 12% tax. Aarav invoices a Rs 50,000 supply and adds Rs 6,000 as GST. Which statement follows from the Explanation to Section 11?

When goods are exempted absolutely, the effective rate is nil, and the Explanation to Section 11 says the registered supplier shall not collect tax in excess of the effective rate. So Aarav cannot charge Rs 6,000 GST, even with buyer consent or an intention to deposit it.

  1. AAarav must not collect tax in excess of the effective rate, which is nil, so collecting Rs 6,000 is not permittedCorrect
  2. BAarav may collect Rs 6,000 if the buyer agrees in writing
  3. CAarav may collect tax at half the rate, Rs 3,000, because exemption is only partial
  4. DAarav may collect Rs 6,000 provided it is deposited with the Government

Explanation

The Explanation states that where an exemption is granted absolutely, the registered supplier shall not collect tax in excess of the effective rate. For an absolute exemption the effective rate is nil, so no tax of Rs 6,000 can be collected. Buyer consent or later deposit does not change this bar.

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