Activities to be treated as supply, even if made without consideration

In the current article we will discuss about activities to be treated as supply even if made without consideration under Goods & Services Tax (GST).

Activities to be treated as supply, even if made without consideration under GST

 As per section 7 of CGST ACT 2017, supply includes the activities specified in “Schedule-I”, made or agreed to be made without consideration. So here we will discuss about all those schedule-I activities . Schedule-I has prescribed 4 activities as follows:-

1. Permanent transfer or disposal of “Business assets” where input tax credit has been availed on such assets.

Where business assets are transferred permanently and input tax credit has already been availed then that would be considered as supply and GST has to be paid accordingly. However entry no 1 of Schedule-I is applicable only in case where business asset is disposed of after availing input tax credit, if not input tax credit has been availed on such business asset then there would not be any GST payable on such disposal.

2. Supply of goods or service or both between related persons or between distinct person as specified in section 25 when made in the course or furtherance of business.

Provided that “Gift” not exceeding 50,000 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.

Let us understand about related person that is given as per explanation to sec 15 of CGST Act.

Persons shall be deemed to be “related persons” if––

• such persons are officers or directors of one another’s businesses;
• such persons are legally recognized partners in business;
• such persons are employer and employee;
• any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
• one of them directly or indirectly controls the other;
• both of them are directly or indirectly controlled by a third person;
• together they directly or indirectly control a third person; or
• they are members of the same family;

The term “person” also includes legal persons and persons who are associated in the business of one another in that one is the sole agent or sole distributor.

3. Supply of goods:-

♦ By a principal to his agent where the agent undertakes to supply such goods on behalf of principal or

♦ By an agent to his principal where the agent undertakes to receive such goods on behalf of the principal

Now let us understand the meaning of agent and principal. As per section 2(88) “Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both. As per 2(5) of CGST Act “Agent” means a person including a factor, broker, commission agent, arhatia, del-credre agent, an auctioneer or any other mercantile agent by whatever name called who carries on supply or receipt of goods or services or both on behalf of another.

4. Import of “Service” by a taxable person from a related person outside India or from any of his other establishment outside India, in the course or furtherance of business.

Let us understand with an example A ltd USA is the holding company of B ltd, India. B ltd imports business consultancy services from A ltd in the course or furtherance of business then the aforesaid importation of service shall fall within the ambit of term “Supply” and B ltd shall be liable to pay IGST.

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