For applicability of provisions of any act/law there shall be a ‘Taxable Event’. In GST ‘Supply’ is that taxable event that triggers applicability of provisions of CGST/SGST/IGST/UTGST act 2017.
As per Section 7 (1) – Supply
The term Supply has been defined under section 7 (1) of the CGST Act by way of Scope of Supply which 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;
To constitute a Supply, two conditions subject to exceptions stated under the Act must be fulfilled simultaneously.
- Supply of goods or services or both; and
- consideration by a person in the course or furtherance of business.
Further Schedule II of CGST Act, 2017 Para 5(e) “Agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act, is supply of service.
After referring to the aforementioned definition the said clause can be broken into parts which read as follow:
Obligation to tolerate an act or a situation :- Means to accept the occurrence or existence of an act or a particular thing, which is imposed by a condition or circumstances, in a contract, agreement or any other document which is legally enforceable by law.
Hence, as per schedule II to do an act, refrain from doing an act or not to do an act is also considered as supply of service.
Issue in the present case :
Whether GST Act, 2017 is applicable where “Taxable event” i.e Supply of goods or services or both are contingent in nature, means on happening of an event or occurrence of an event which are completely based on future expectations will that triggers section 7 of GST Act, 2017???
Following are examples where Supply of goods or services or both and consideration against such supply are contingent in nature and the same be treated as Supply.
- X purchase lottery ticket for Rs. 10/- and expecting jackpot of Rs. 10,00,000/-.
- Y is betting with Mr. Z (like derivative contract ) and agrees to pay 5,00,000/- if share price of XYZ Ltd. Fall below Rs. 50/ share.
- A doing gambling in casino on No. 5 for consideration of Rs. 10,00,000/-
Here, in all above cases “Taxable event” i.e supply depends on occurrence/happening of an event of lottery, betting, gambling.
As per section 2(52) “ Goods” includes “ Actionable claim” and as per section 3 of transfer of property Act 1882, “Actionable claim” means a claim to any debt.
Where in above all cases definition of supply triggers on happening/occurrence of an event and after happening if we take appropriate action against such claim due to default made by recipient on non payment of any amount of lottery , betting, gambling.
Following are examples where Consideration against such supply of goods or services or both are contingent in nature.
- X have a right to claim amount against any damage or destruction of assets from insurance co., where consideration is uncertain.
- Y transfers promissory note for unsecured debt to Mr. X, where claim amount is uncertain.
- A claims arrears of rent from Mr. B, where consideration is uncertain.
- Claims for loss of source income or reduction of revenue due to performance of contract, where consideration is uncertain.
GST Act, 2017 is silent where consideration against supply of goods or services or both is contingent in nature and where certainty of consideration occurs at the time of actual receipt.
There is one issue, which were further clarified by department that is:-
Interest on non- payment of contract amount
Mr. X enters into contract with Mr. Y for supply of hand sanitizer for Rs. 5,00,000/- and Mr. Y will make due payment within 3 months from issue of invoice (credit period), in case of default Mr. Y has contracatual obligation to pay sum of interest @ 1.5% /month interest on invoice amount.
Mr .Y delayed payment of invoice for 6 month and chargeable to interest @ 9% i.e (500000*9%=45000)
GST department further clarified that interest amount is liable to tax at the time of receipt of such interest from recipient. Not at the time of issue of original invoice on which interest got leviable.
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