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CMA Intermediate · Direct and Indirect Taxation · Exemption from Tax

Sharma Traders, a registered person, supplies goods on which the Government has granted absolute exemption, so the effective rate is nil. It issues an invoice of ₹2,00,000 and adds GST at 5% (₹10,000) from the buyer. Under the Explanation to section 11 of the CGST Act, 2017, what is the position?

Sharma Traders cannot collect the ₹10,000. When exemption is granted absolutely, the registered supplier shall not collect tax in excess of the effective rate, which is nil here. Agreement of the buyer or voluntary registration does not alter this restriction.

  1. ASharma Traders may collect the ₹10,000 since the buyer agreed
  2. BSharma Traders may collect the tax only if it has registered voluntarily
  3. CSharma Traders may collect the ₹10,000 provided it deposits it with the Government
  4. DSharma Traders must not collect tax in excess of the effective rate, which is nil, so collecting ₹10,000 is not permittedCorrect

Explanation

Where exemption is granted absolutely, the registered supplier shall not collect tax in excess of the effective rate. The effective rate here is nil, so the whole ₹10,000 collected is in excess of the effective rate. Buyer consent or later deposit does not change this rule.

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