Consideration in relation to the supply of goods or services includes
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
PROVIDED that a deposit, given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies the deposit as consideration for the said supply;
INCLUSIVE VS. EXHAUSTIVE DEFINITION
The Supreme court in west Bengal state warehousing corporation Vs. Indrapuri studio Pvt. Ltd. has examined the meaning of inclusive and exhaustive definition as appearing in various statues. The word “include” when used, enlarge the meaning of expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declared that they shall includes.
MEANING OF CONSIDERATION- SEC 2(D) OF INDIAN CONTRACT ACT,1872
The definition of ‘consideration’ as given in section 2 (d) of the Indian Contract Act, 1872 as follows-
MEANING OF PHRASE USED IN DEFINITION
A restaurateur offered ‘free’ meals to drivers of buses carrying passengers as an inducement to bring potential customers to his business premise. Since the meals were not given to drivers of empty buses, there is a direct link between the act of bringing passengers to the food outlet and the provision of the free meals. The consideration here is the free meals provided.
THE “NEXUS” BETWEEN SUPPLY AND
CONSIDERATION
Sydney High Court define the meaning of Supply In case of QUANTAS AIRWAYS LIMITED VS COMMISSIONER OF TAXATION
CONTRACTUAL RECIPROCITY
Example: An artist performing on a street does an activity without consideration even though passersby may drop some coins in his bowl kept after feeling either rejoiced or merely out of compassion. They are, however, under no obligation to pay any amount for listening to him nor have they engaged him for his services. On the other hand if the same person is called to perform on payment of an amount of money then the performance becomes an activity for a consideration.
CONSIDERATION FROM ANY OTHER PERSON
Example: Mr. A contracts with Mr. B to provide hampers worth Rs. 10,000 to its business clients. The consideration for the supply of the hampers is paid by Mr. A as stipulated in the contract.
TYPES OF CONSIDERATION
Consideration can be in monetary or non-monetary form or partly in monetary form and partly in non-monetary form.
SUBSIDIES
SECURITY DEPOSIT-PROVISO
PROVIDED that a deposit, given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies the deposit as consideration for the said supply;
There is an ambiguity in law;
1. Whether deposit applied for a contract where the contract has been completed (supply has been made) or security deposit forfeited for non performance or breach of contract where contract has not completed(supply did not take place).
2. The law is not clear about the security deposit forfeited for non performance or breach of contract.
RELEVANT CASE LAW ON FORFEITED DEPOSIT
Sydney High Court In FC of Tv RELIANCE CARPET CO PTY LTD 2008 ATC 20-028 the Full Federal Court held that the forfeiture of a security deposit is consideration for supply. Accordingly, there is Taxable supply on which to impose GST.
“In the circumstances it may fairly be said that upon execution of the contract the applicant made a supply in that, in terms of s 9-10(2)(g) of [the Act], it ‘entered into an obligation’ to do the things it was bound to do under the contract.”
Relevant Section;
(g) an entry into, or release from, an obligation: (i) to do things; or (ii) to refrain from an act; or (iii) to tolerate an act or situation.
(1)A deposit held as security for the performance of an obligation is not treated as *consideration for a supply, unless the deposit:
(a) is forfeited because of a failure to perform the obligation; or (b) is applied as all or part of the consideration for a supply.
(1)The GST payable by you on a *taxable supply for which the *consideration is a deposit that was held as security for the performance of an obligation is attributable to the tax period during which the deposit:
(a) is forfeited because of a failure to perform the obligation; or
(b) is applied as all or part of the consideration fora supply.
SOMETHING MORE THEN EXISTING OBLIGATION/LEGAL DUTY
GRANTS/ CHARITABLE ACTIVITY
Q 4. Will giving away essential commodities by a charitable institution be taxable activity?
In order to be a supply which is taxable under GST, the transaction should be in the course or furtherance of business. As there is no quid pro quo involved in supply for charitable activities, it is not a supply under GST.
FINES AND PENALTY CHARGES
Example: A fine or a penalty charge for late return of a DVD compact disc is a consideration for a supply of hire as the customer has extended the use of the DVD compact disc for a longer period.
DEEMED SUPPLY ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION-SCHEDULE I
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods—
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
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Nice Article.
Please confirm whether GST will be applicable on cash incentive paid to consultants/advisors for providing good services?