Daily Dose of GST Update By CA Pradeep Jain

Definition of Exempt supplies, Goods and Inputs

Taking further to our discussion, we are continuing our discussion the definitions  given under Section 2 of revised GST law and comparing the same with old model GST law to know the changes made in revised law:-

 Section 2(42): Exempt Supplies: This has been defined to mean supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which attract nil rate of tax or which may be exempt from tax under section 11.

When we compare this definition  with definition in Model GST law, it can be noticed that NIL rate of tax will be classified as exempt supplies for the purpose of this act. The definition of exempt supply is also important for the purpose of allowing input tax credit. When the input tax credit is partly used for taxable supply and party for exempt supply then the credit will be restricted to so much credit as is attributable to taxable supply as per provision of Section 17(2) of Revised GST law. But inclusion of NIL rate of tax into exempt supply would mean that earlier there was an interpretation that cenvat could be allowed on such supplies but after the amendment, it is clear that nil rated supplies will be exempt supplies and as a result, so much cenvat as is attributable to such supplies shall not be allowed.

Also, the definition of “exempt supply” also include those supply which are exempted under Section 11. We see that there is no change in this regard on comparing with old GST law except earlier the Section giving exemption was Section 10 only. Even there is no major difference in wording of new and old section. However, certain points are relevant for Section 11 which are as under:-

a. The Central or State Government can issue notification to give exemption from payment of GST but it will be done on recommendation of GST council only.

b. The Central or State Government can also issue special order to give exemption from payment of GST in exceptional circumstances but it will also be issued on recommendation of GST council.

c. There is a power in Central and State Government to issue an explanation to add in this notification or order within one year to explain the scope of notification or order and this will have effect that this explanation will be part of statue from the date of notification. This can be welcome step to clarify doubts but at the same time, it can dangerous as it may create liability retrospectively. The interpretation taken by assessee on language of notification can be undone by issue of an explanation.

d. There is no need to issue notification in public gazette only but it can be effective on publication on website of the Government. This is also major change from the existing position. Even the Apex Court has held that the notification will effective from the date of issue of notification in official gazette.

1. Section 2(48) Goods: There has been substantial change in the definition of goods. The new definition reads as follows:

“Goods means every kind of movable property other than money and  securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”

The old definition read as follows:

“goods’’ means every kind of movable property other than actionable claim and money but includes securities, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply;

Explanation.– For the purpose of this clause, the term ‘moveable property’ shall not include any intangible property.

When both the definitions are compared, it can be noted that goods will now include actionable claim, intangible property and exclude securities. In other words Shares / debenture / Mutual Funds etc have been excluded from GST and transaction in these will not be subjected to GST. There was dispute and share market was demanding to exclude the securities from GST and it is welcome step on part of Government. Similarly actionable claim will be included in Goods instead of services. Also the explanation has been deleted under new definition giving effect that intangible property will be covered under goods now instead of services. This is done with the intention to end the ongoing dispute over the software service classification.

2. Section 2(54): Input: The new definition read as follows:

“Input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;”

The old definition read as follows:

“input” means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made there under, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business;

The intention behind the amendment has largely been to simplify it to avoid any litigation. It can be noted that in the old law, the definition was oriented towards mandating the use of the goods for making the outward supply. In the new definition, this condition has been done away with and the only condition retained is that the inputs should be used in the furtherance of business. This will avoid litigation to a large extent where there is dispute over the use of inputs. The only fact that it has been used for the purpose of business itself will be sufficient to render it eligible for the purpose of availing cenvat.

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