Levy and collection

Section 7 — Levy and collection

BLOCK 2 — PARALLEL PROVISIONS

BLOCK 3 — COMMENTARY

1. Statutory Architecture

2. Historical Context

Section 7 UTGST is the charging section for intra-UT supplies in UTs without Legislature. It mirrors CGST s. 9 + SGST s. 9 framework. The maximum rate cap of 20% (vs 40% IGST) reflects that intra-UT supplies attract CGST + UTGST combined, so each component is capped at 20% (combined 40% maximum at intra-UT level).

Sub-section (4) was substituted by UTGST Amendment Act 2018 w.e.f. 01.02.2019 — parallel to CGST s. 9(4) substitution. Original sweeping RCM on all unregistered-supplier purchases was suspended by Notification 38/2017-CT + parallel UT notifications from 13.10.2017. Substituted sub-section narrowed scope to notified class + notified categories. Real-estate framework under Notif 7/2019 effective 29.03.2019.

Mohit Minerals (2022) doctrinal anchor applies — Council recommendations persuasive; RCM notification cannot enlarge charging section beyond composite-supply scope. Constitutional foundation in Article 246A.

3. Judicial Evolution

Union of India v Mohit Minerals Pvt Ltd — (2022) 10 SCC 700 [Supreme Court — 3-Judge Bench (Constitution Bench questions)]

Brief Facts: Importers of coal on CIF basis were held liable under Notification Nos. 8/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate) to pay IGST on ocean freight component under reverse charge under s. 5(3)/(4) of the IGST Act. Importers challenged the levy as ultra vires the charging section and contended that IGST had already been paid on CIF value (which included freight) at the time of import under s. 3(7) of the Customs Tariff Act.

Issue: Whether IGST could be levied separately on the ocean freight component of CIF imports when the entire CIF value (inclusive of freight) had suffered IGST under s. 3(7) of the Customs Tariff Act; and whether GST Council recommendations are binding on the Union and States.

HELD: Levy struck down. The Court held that the impugned notification offended the principle of 'composite supply' under s. 8 of the CGST Act because ocean freight in CIF imports is part of the composite supply of imported goods and cannot be artificially severed. Further, the GST Council's recommendations are recommendatory, not binding, on the Union and States — both Parliament and State legislatures have simultaneous legislative power under Article 246A.

"The recommendations of the GST Council are not binding on the Union and the States. The recommendations only have a persuasive value. To regard them as binding would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST."

Relevance: Foundational authority on the IGST charging section, the limits of reverse-charge notifications under s. 5(3)/(4), and the constitutional architecture of the GST Council. Repeatedly cited in RCM, place-of-supply, and composite-supply disputes.

Union of India v VKC Footsteps India Pvt Ltd — (2022) 2 SCC 603 [Supreme Court — 2-Judge Bench]

Brief Facts: Manufacturer-exporters with inverted duty structure (input GST > output GST) sought refund of accumulated input tax credit under s. 54(3) read with Rule 89(5) of the CGST Rules. Rule 89(5) permitted refund of unutilised ITC only on 'inputs' (goods), excluding 'input services'. Gujarat HC struck down the exclusion; Madras HC upheld it. SC heard the conflict.

Issue: Whether Rule 89(5) of the CGST Rules — by restricting inverted-duty refund to inputs (goods) and excluding input services — is ultra vires s. 54(3) of the CGST Act.

HELD: Rule 89(5) upheld. The Court held that s. 54(3) is enabling, not mandatory, and the legislative policy choice to confine inverted-duty refund to inputs (goods) is constitutionally permissible. The refund of unutilised ITC is not a constitutional right; it is a statutory concession that the legislature can shape and limit. The Court urged the GST Council to revisit the formula but did not strike down the rule.

"Refund of unutilised ITC is a statutory entitlement, not a constitutional right. The legislature in its wisdom may choose to grant the entitlement with such conditions and limitations as it thinks fit. We cannot rewrite the formula by judicial fiat."

Relevance: Definitive authority on inverted-duty refund mechanics, the policy/discretion distinction in refund jurisprudence, and the standard of review for delegated legislation under GST.

Chief Commissioner of Central Goods and Service Tax v Safari Retreats Pvt Ltd — (2024) SCC OnLine SC 2966 [Supreme Court — 2-Judge Bench]

Brief Facts: Safari Retreats constructed a shopping mall and leased it out — output supply was taxable rental. It sought ITC on construction goods/services (cement, steel, works contract). Revenue invoked s. 17(5)(d) of the CGST Act to deny ITC on inputs/input services used in construction of immovable property other than plant or machinery 'on his own account'. Orissa HC read down s. 17(5)(d) for leasing-out cases; SC heard the appeal.

Issue: Whether s. 17(5)(d) bars ITC on construction inputs/services where the immovable property constructed is itself used to make taxable outward supplies (here, rental); and what is the scope of the 'plant or machinery' exclusion.

HELD: ITC permitted in a 'functionality test' framework. The Court held that whether a building qualifies as 'plant' within the 'plant or machinery' exclusion is a fact-specific functional inquiry — if the building itself is the means by which the registered person makes outward taxable supplies (e.g., a hotel, a mall, a warehouse), it can qualify as plant and ITC on its construction is admissible. Matter remitted for application of functionality test.

"Whether a particular building qualifies as a plant within the meaning of the expression 'plant or machinery' is a question of fact that has to be determined keeping in mind the business of the registered person and the role that building plays in that business."

Relevance: Critical reset on ITC architecture for real-estate / leasing / hospitality. Important for IGST place-of-supply (immovable property) disputes where ITC architecture interacts with location-of-supply rules under s. 12(3) of the IGST Act.

Union of India v Bharti Airtel Ltd — (2022) 4 SCC 328 [Supreme Court — 2-Judge Bench]

Brief Facts: Bharti Airtel claimed it had under-reported ITC in GSTR-3B for July-Sept 2017 (the early GST months when GSTR-2A was not operational) and sought rectification of GSTR-3B for those months to correct the under-claim. Delhi HC permitted rectification; Revenue appealed to SC.

Issue: Whether GSTR-3B for past periods can be rectified to correct an under-claim of ITC where the registered person's books would support the correction but GSTN does not allow retrospective edit.

HELD: Rectification not permitted. The Court held that the GST return-filing regime is self-assessed; the registered person is duty-bound to verify entitlements at the time of filing and cannot, after the fact, claim that GSTR-2A was not available. ITC is a statutory entitlement that must be claimed within the period prescribed under s. 16(4) and not through retrospective rectification.

"GST is a self-assessment regime. The registered person bears the burden of correctly computing and reporting tax liability at the time of filing the return. The unavailability of GSTR-2A does not absolve the assessee of this duty."

Relevance: Substance-over-form authority on self-assessment, the finality of GSTR-3B, and limits on retrospective rectification — critical for place-of-supply disputes where mis-classification may be alleged years later.

Skill Lotto Solutions Pvt Ltd v Union of India — (2021) 15 SCC 667 [Supreme Court — 3-Judge Bench]

Brief Facts: Petitioner, a distributor of lottery tickets, challenged the levy of GST on lottery on the ground that lottery is an 'actionable claim' which is not 'goods' for GST purposes (the actionable-claim exclusion in Schedule III) and therefore the constitutional power to tax goods is missing.

Issue: Whether lottery is 'goods' under the CGST/IGST Acts; whether the inclusion of lottery as a taxable actionable claim is constitutional; and whether the valuation under s. 15 (face value of lottery ticket) is permissible.

HELD: Levy upheld. The Court held that the definition of 'goods' under s. 2(52) of the CGST Act is wide enough to include actionable claims, and the inclusion of lottery within taxable actionable claims is a legislative policy choice within Parliament's competence. Valuation at face value is not arbitrary because the prize component is a contingent payout, not a deduction.

"The definition of 'goods' in the CGST Act, by including actionable claims, is a deliberate expansion of the historical concept and is constitutionally permissible. Lottery, being one of the three specified actionable claims rendered taxable, is liable to GST at face value."

Relevance: Constitutional anchor for the breadth of 'goods' under GST and for the legislative discretion in designing valuation rules. Foundational for actionable-claim/derivative-instrument supply disputes.

All India Federation of Tax Practitioners v Union of India — (2007) 7 SCC 527 [Supreme Court — 3-Judge Bench]

Brief Facts: The constitutional validity of the service-tax levy on chartered accountants, cost accountants, and architects was challenged on the ground that these professions had been historically regulated by State legislation and were therefore outside Union legislative competence.

Issue: Constitutional foundation of the service-tax levy — whether 'service' can be taxed by the Union under the residuary entry (Entry 97 List I) and what is the doctrinal nature of a service-tax levy.

HELD: Service-tax upheld. The Court held that service-tax is a value-added tax on the value of services rendered, traceable to Entry 97 of List I until Entry 92C was inserted by the Constitution (88th Amendment). The economic concept of value addition through services is the doctrinal basis on which service-tax — and now GST on services — rests.

"Service-tax is a value-added tax on the commercial activity of providing services. The taxable event is the rendition of service and the levy attaches to the value addition at the point of service delivery."

Relevance: Constitutional anchor for taxation of services under GST — pre-101st-Amendment doctrinal framework that informs the place-of-supply concept under s. 12 and s. 13 of the IGST Act.

4. Circulars and Notifications

Notification 1/2017-Union Territory Tax (Rate) dated 28.06.2017 — UT tax rate schedule for goods

Mirror of Notif 1/2017-CT(R) for UT tax component on intra-UT supplies.

Notification 11/2017-Union Territory Tax (Rate) dated 28.06.2017 — UT tax rate schedule for services

Mirror of Notif 11/2017-CT(R) for UT tax component.

Notification 4/2017-Union Territory Tax (Rate) dated 28.06.2017 — RCM on specified goods

Mirror of Notif 4/2017-CT(R).

Notification 13/2017-Union Territory Tax (Rate) dated 28.06.2017 — RCM on specified services

Mirror of Notif 13/2017-CT(R) — GTA, legal, sponsorship, Government services, etc.

Notification 17/2017-Union Territory Tax (Rate) dated 28.06.2017 — ECO deemed-supplier framework

Mirror of Notif 17/2017-CT(R) — radio taxis, accommodation, housekeeping; subsequently restaurant (post 01.01.2022).

Notification 7/2019-Union Territory Tax (Rate) dated 29.03.2019 — Real-estate RCM under substituted s. 7(4)

First operative notification under substituted sub-section. Real-estate promoters receiving cement, capital goods, > 80% input threshold from unregistered.

UTGST Amendment Act 2018 dated Effective 01.02.2019 — Substituted s. 7(4)

Companion to CGST + IGST amendments narrowing RCM scope to notified class + categories.

5. Worked Examples

6. Practitioner Planning

• For intra-UT supplies in UTs without Legislature, invoice CGST + UTGST equally.
• For Ladakh transition (pre vs post 31.10.2019), diarise treatment change.
• For RCM under s. 7(3), parallel framework with CGST s. 9(3) — same notifications apply.
• For substituted s. 7(4) post FA 2018, recall narrow scope (Notif 7/2019 real-estate).
• For ECO under s. 7(5), apply same framework as CGST + SGST.
• For petroleum products, deferred charge under s. 7(2); pre-GST regime continues.
• For maximum rate disputes, 20% cap is outer boundary.
• For inter-UT or inter-State supplies, recall IGST applies (not UTGST).
• Coordinate with CGST + IGST compliance frameworks.
• Periodic review of UT-specific notifications.

7. Litigation Defence

• Mohit Minerals defence — for any RCM notification enlarging charge.
• Maximum-rate cap 20% defence — for any rate exceeding cap.
• Vatika Township prospectivity — for rate changes / amendments.
• Bharti Airtel self-assessment finality.
• VKC Footsteps refund framework.
• Safari Retreats construction ITC functionality test.
• Mafatlal unjust enrichment.
• Skill Lotto legislative latitude.
• AIFTP constitutional anchor.
• Petroleum deferral defence under s. 7(2).
• Pre-substitution s. 7(4) framework defence for pre-01.02.2019 periods.
• Hierarchy-of-instruments defence.

8. Procedural Map

Step 1. Identify intra-UT supply

Same UT without Legislature.

Step 2. Apply CGST + UTGST

Parallel framework.

Step 3. For RCM under s. 7(3), apply Notif 4/2017 or 13/2017-UT(T)(R)

Mirror notifications.

Step 4. For substituted s. 7(4), apply Notif 7/2019 for real-estate

Narrow scope.

Step 5. For ECO, apply Notif 17/2017 framework

Deemed supplier.

Step 6. Compute UTGST at notified rate

Per Notif 1/2017 or 11/2017-UT(T)(R).

Step 7. Report in GSTR-1 / GSTR-3B

Standard framework via s. 21.

Step 8. For mis-classification, apply s. 12 UTGST (wrongly-paid framework)

Parallel to s. 19 IGST.

Step 9. Maintain master notification log

Practitioner tool.

Step 10. Periodic CBIC notification review

Ongoing.

CROSS-REFERENCES

• s. 1 UTGST — Commencement.
• s. 2 UTGST — Definitions.
• s. 8 UTGST — Exemption.
• s. 9 UTGST — Payment.
• s. 10 UTGST — ITC transfer.
• s. 12 UTGST — Tax wrongly paid.
• s. 21 UTGST — Application of CGST.
• s. 9 CGST — Parallel intra-State charge.
• s. 5 IGST — Inter-State charge.
• Notification 1/2017-UT(T)(R) — Goods rate.
• Notification 11/2017-UT(T)(R) — Services rate.
• Notification 4/2017-UT(T)(R) — RCM on goods.
• Notification 13/2017-UT(T)(R) — RCM on services.
• Notification 17/2017-UT(T)(R) — ECO framework.
• Notification 7/2019-UT(T)(R) — Real-estate RCM under substituted s. 7(4).
• UTGST (Amendment) Act 2018 — Substituted s. 7(4).
• Constitution Article 246A.
• Constitution Article 269A — Apportionment.
• Mohit Minerals (2022) — Charging section integrity.
• GST Council recommendations.