pri GST on Activity or Transaction between BOI/AOP & Vice Versa GST on Activity or Transaction between BOI/AOP & Vice Versa

GST on Activity or Transaction between Body of Individual (BOI)/Association of Person (AOP) and its Member and Vice Versa proposed vide finance bill 2021

Original Section 7 of CGST Act 2017 effective from 01.07.2017 was as under:

Section-7 Scope of supply. (1) For the purposes of this Act, the expression “supply” includes–

(a) 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;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Paragraph 7 of Schedule-II

“Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.”

Understanding & Interpretation

  • All the activity listed in schedule-II is supply as clause (d) is after word includes. Hence to conclude whether an activity is supply or not Schedule-II is relevant to have look into it. In other words, mere listing of activity in schedule-II is enough to brought it into scope of supply.
  • Hence, as per para 7 mentioned above supply of goods (NOT SERVICES) by any unincorporated association or body of persons for consideration whether in the course of business or not to a member is SUPPLY in terms of clause (d) of section 7.
  • Supply from MEMBER to ASSOCIATION (i.e. vice versa case) for consideration is not supply as it is not covered by the Paragraph 7 of Schedule-II. 

Section 7 of CGST Act 2017 as amended by Central Goods and Services Tax (Amendment) Act, 2018 effective from 01.02.2019 are as under

Section-7 Scope of supply. (1) For the purposes of this Act, the expression “supply” includes––

(a) 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;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d)  the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

“(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”;

Understanding & Interpretation

  • Post amendment in 2018 clause (d) of section (7) (1) is omitted and such omission was retrospective i.e. with effect from 01.07.2017.
  • Further one more subsection namely 7(1A) is inserted as under and such insertion is effective from 01.07.2017

“(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”;

  • On conjoint reading of omission of clause (d) and insertion of subsection (1A) of section (7) mere listing of an activity in schedule-II is NOT enough to brought it into scope of supply unless it will satisfy the test of clause (a) or clause (b) or (c) of subsection (1) of section (7).
  • Consequently supply of goods by any unincorporated association or body of persons for consideration (NOT IN THE COURSE OF BUSINESS) to a member or vice versa is no more SUPPLY as it will not satisfy the either of the test of clause (a) or clause (b) or (c) of subsection (1) of section (7).

Section 7 of CGST Act 2017 as amended by Central Goods and Services Tax (Amendment) Act, 2018  and proposed to be amended by Finance Bill, 2021

Section-7 Scope of supply. (1) For the purposes of this Act, the expression “supply” includes––

(a)    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;

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or viceversa, for cash, deferred payment or other valuable consideration.

Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained

in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;”.

(b)  import of services for a consideration whether or not in the course or furtherance of business; and

(c)  the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

“(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.”;

Paragraph 7 of Schedule-II [OMMITTED RETRSPECTIVE FROM 01.07.2017]

“Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.”

Understanding & Interpretation

  • The activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for consideration ((WHETHER OR NOT IN THE COURSE OF BUSINESS) shall be deemed to be supply.
  • Supply of goods or services (earlier services was not covered) by an Association of person or Body of Individual to its member or vice versa (member to Association of person or Body of Individual) for consideration ((WHETHER OR NOT IN THE COURSE OF BUSINESS) shall be deemed to supply.
  • Person and its members or constituents shall be deemed to be two separate persons
  • This is amendment retrospective and have overriding effect over any judgement of any court.

Conclusion on 16.02.2021 after introduction of Finance Bill 2021

1. Initially from 01.07.2017 to 01.02.2019 only supply of goods (NOT SERVICES) by the association of person/body of individual to its member for consideration (whether in the course of business or not) was supply but vice versa that is supply of goods by member to association of person/body of individual was not supply for section 7.

2. Post amendment vide CGST Act 2018 notified on 01.2.2019 effective from 01.07.2017 neither supply of goods from association of person/body of individual to member nor supply of goods by member to association of person/body of individual remains supply that is even supply of goods by the association of person/body of individual to its member is no more supply.

3. Proposed amendment vide finance bill 2021 to be effective from 01.07.2017 supply of goods or services(both) from association of person/body of individual to member and vice versa that supply of goods/services by member to association of person/body of individual shall be supply whether it is in the course of business or not.

This is the position on 16.02.2021 and finance bill 2021 is yet to be approved by the Parliament and President.

Disclaimer: Effort have been made to make article error free , but it is possible that some error might have crept into.

Author: CA Rajnish Kumar, Delhi Email: carajnishkumarca@gmail.com Mobile-+918130883807

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