Analysis of Union Budget 2021 – GST
Finance Minister Nirmala Sitharaman has announced the Union Budget 2021 on 1st February 2021. Let’s discuss the amendments carried out in GST.
There are totally 16 (99 to 114) sections in Finance Bill 2021 relating to GST. Out of 16 sections, let’s discuss 2 sections relating to “Supply under GST” in this article.
Section 99 of Finance Bill, 2021
In this section, section 7 of CGST Act has been amended by inserting clause (aa) after clause (a) of Section 7(1).
Extract of Clause (aa) of section 7(1)
“the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration”.
To understand the impact of insertion of this clause we need to also understand section 113 of Finance Bill, 2021.
Section 113 of Finance Bill, 2021
Paragraph 7 of Schedule II of CGST Act shall be omitted and shall be deemed to have been omitted with effect from the 1st day of July, 2017.
Extract of Paragraph 7 of Schedule II of CGST Act
Supply of Goods
The following shall be treated as supply of goods, namely:—
Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
This paragraph has been omitted through section 113 of Finance Bill, 2021 and a retrospective effect has been created as it is deemed to have been omitted with effect from the 1st day of July, 2017 i.e. the appointed day.
First let us understand the pre – budget status of section 7 to understand the nuances of insertion of new clause, i.e. Clause (aa) of Sub-section (1) of Section 7 and omission of Paragraph 7 of Schedule II.
Pre-budget status of Section 7 of CGST Act
Extract of Paragraph 7 of Schedule II of CGST Act
Supply of Goods
The following shall be treated as supply of goods, namely:—
Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
Analysis
On independent reading of Paragraph 7 of Schedule II, we understand that only supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration is treated as Supply as Paragraph 7 of Schedule II specifically mentions only about “Supply of Goods” and Supply of services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is not discussed.
Does that mean Supply of Services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is not a supply under GST?
To find an answer to this question, we need to have a combined reading of Section 7(1)(a) and Paragraph 7 of Schedule II.
Extract of Section 7(1)(a)
For the purposes of this Act, the expression “supply” includes––
all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”
Analysis
As per Section 7(1)(a),
“supply” includes––
all forms of supply of goods or services or both such as sale,
Let us understand the definition of “Business” and “Person”.
“Business” is defined under Section 2(17) of CGST Act
“Business” includes ––
a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
f) admission, for a consideration, of persons to any premises;
g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and
i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities
“Person” is defined under section 2(84) of CGST Act.
Person includes—
a) an individual;
b) a Hindu Undivided Family;
c) a company;
d) a firm;
e) a Limited Liability Partnership;
f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013
h) any Body corporate incorporated by or under the laws of a country outside India;
i) a co-operative society registered under any law relating to co-operative societies;
j) a local authority;
k) Central Government or a State Government;
l) society as defined under the Societies Registration Act, 1860;
m) trust; and
n) every artificial juridical person, not falling within any of the above;
“an association of persons or a body of individuals, whether incorporated or not, in India or outside India” is included in “Person” definition in sub – clause (f) of Clause (84) of Section 2.
Analysis of Section 7(1)(a) of CGST Act
“supply” includes––
all forms of supply of goods or services or both such as
Since.
√ “Supply” includes all forms of supply of goods or services or both and
√ “Unincorporated Association” is included in the definition of “Person” in sub – clause (f) of Clause (84) of Section 2 and
√ “provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members” is included in the definition of “Business” in sub – clause (e) of Clause (17) of Section 2 and
√ Schedule II of CGST Act, 2017 enumerates activities which are to be treated as supply of goods or as supply of services
Supply of Services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is treated as supply under GST.
This has also been clarified by Circular No. 35/9/2018 – GST dated 5th March 2018.
Extract of the circular is as follows.
GST is levied on intra-State and inter-State supply of goods and services. According to section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, and includes activities specified in Schedule II to the CGST Act, 2017.
The definition of “business” in section 2(17) of CGST Act states that “business” includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.
The term person is defined in section 2(84) of the CGST Act, 2017 to include an association of persons or a body of individuals, whether incorporated or not, in India or outside India.
Further, Schedule II of CGST Act, 2017 enumerates activities which are to be treated as supply of goods or as supply of services. It states in para 7 that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods.
A conjoint reading of the above provisions of the law implies that supply of services by an unincorporated association or body of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of services. The above entry in Schedule II is analogous to and draws strength from the provision in Article 366(29A)(e) of the Constitution according to which a tax on the sale or purchase of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
Hence the answer to the question above:-
Does that mean Supply of Services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is not a supply under GST?
The answer is no. Supply of Services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is very much treated as supply under GST.
Let us take for example,
A Club supplies food and beverages to its members and non – members. It Charges GST only on the Food and Beverages supplied to non – members. Whereas no GST is charged on supply of food and beverages to its members.
Whether the act of Club by not charging GST on food and beverages supplied to its members is right?
The answer is clear No. As we already discussed above Supply of Services by an unincorporated Association to its members thereof for cash, deferred payment or other valuable consideration is very much treated as supply under GST. Hence supply of Food and Beverages by a club to its members is very much treated as supply under GST and tax shall be collected on the same.
Post Budget Status of Section 7 of CGST Act
1) A new clause has been inserted i.e. Clause (aa) of sub-section 1 of section 7 vide Section 99 of Finance Bill, 2021
2) Paragraph 7 of Schedule II has been omitted w.e.f. 1st July 2017 vide Section 113 of Finance Bill, 2021.
Impact of these two amendments carried out in Finance Bill, 2021
Extract of Clause (aa) of sub – section (1) of section 7 of CGST Act
“the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration”.
Analysis of Post Budget Status of Section 7 of CGST Act
As discussed above, during pre – budget there was an ambiguity whether “Supply of Services” by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration is treated as supply or not.
Reason for the Ambiguity
Paragraph 7 of Schedule II specifically mentioned only Supply of Goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration and not Supply of Services.
This was clarified by Circular No. 35/9/2018 – GST dated 5th March 2018.
Impact of amendments carried out in Section 99 and 113 of Finance Bill, 2021
The insertion of Clause (aa) of sub – section 1 of section 7 of CGST Act and omission of Paragraph 7 of Schedule II of CGST Act clarifies the treatment of supply of services by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration which had an ambiguity earlier and there is no new provision inserted through Finance Bill, 2021.
Clarification by Finance Bill, 2021
Supply of services by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration is very much treated as Supply under GST.
Conclusion
Hence we come to a conclusion that the insertion of Clause (aa) of sub – section 1 of section 7 of CGST Act and omission of Paragraph 7 of Schedule II of CGST Act is only a clarificatory amendment and not a new provision in itself.
Author Bio
Does this mean in case of Cooperative Housing Society doing self redevelopment of its Housing society will have to charge GST to its members on the Fair Value of the redeveloped flats?