Will anything and everything, done anywhere, for anybody, for business/no business, for money/without money will constitute supply under GST??
In my previous article ‘Concept of Supply of Goods and Services in GST and Issues‘ , I tried to throw light on the concept of supply u/s 3 of Model GST Law. We discussed section 3 there and left the Schedule I & II, which contain further provisions in relation to Supply. We will discuss Schedule I here in this article. Although Schedule I contains only 5 clauses but it has created a havoc in the minds of Tax practitioners, who have gone through it. These provisions are Draconian and against the interest of General Public and will cause a lot of confusion in the mind of people as well as tax practitioners. These provisions are such that they can entitle any transaction to be covered under ambit of GST. We explain here how.
What happens in case where there is no consideration received or receivable against the Supply made?
Sec 3(1)(c) of Model GST Law says that the Supply specified in schedule I shall be included in supply irrespective of fact that they are made or agreed to be made without consideration. Schedule I consist of 5 such cases and one proviso to it. However the clause 5 of Schedule I is most controversial and has opened the Pandora’s Box of possibilities and somewhat absurdity which we will discuss later in this article. For now let’s start with Schedule I one by one.
Schedule I start with the title “Matters to be treated as supply without consideration”. The title itself is misleading. By a plain understanding one can understand that it will cover transactions which are to be treated as supply as if they are not made for consideration. However the transactions covered here are as such that even if they are without consideration they should be treated as supply and GST should be charged on the same. Thus the title should be “Matters to be treated as supply even without consideration.
Now, Schedule I is reproduced below:-
1. Permanent transfer/disposal of business assets.
2. Temporary application of business assets to a private or non-business use.
3. Services put to a private or non-business use.
4. Assets retained after deregistration.
5. Supply of goods and / or services by a taxable person to another taxable or nontaxable person in the course or furtherance of business.
Provided that the supply of goods by a registered taxable person to a job-worker in terms of section 43A shall not be treated as supply of goods.
1. Permanent transfer/disposal of business assets : Earlier also there were provisions in VAT Laws for such transfers and the dealers were liable to pay VAT on sale of such assets but earlier it was taxable only on the basis of transaction value. As per this clause even if there is no consideration is received but assets are permanently transferred out of business then they will be covered under GST and the value shall be taken as per Valuation rules. This will give revenue authorities opportunity to question every sale of asset.
2. Temporary application of business assets to a private or non business use: This provision is going to create some issues as there are many assets which are at various points used for self and one can’t create a log of it to decide its time and value. Further at times it happens during the assessment proceedings of Income Tax Act, 1961 that AO disallows the depreciation, running maintenance and repairs on vehicles. So there might be situations that assessing authorities under GST issue notices on the basis of Income Tax Assessments.
For Ex:- The Taxi owner used his taxis during the marriage of his son, Now as per this clause he will have to pay GST on the said use as if the same has been hired by someone else.
This is absurd. How come a person be paying tax for his own use.
3. Services put to a private or non-business use: Now this is going to cost service providers specifically professional very much. Due to these the authorities have got immense powers. They can question everybody about their private/non business services.
For Ex- A professional cook provided his services on a Sunday to some school for judging a Cooking competition without any consideration. Now the authorities can say that even since no business same is a services under this clause hence a supply under GST.
4. Assets retained after deregistration: At the event of deregistration total value of assets retained shall be deemed to be supply so that the Govt. can take back the credit allowed.
5. Supply of goods and / or services by a taxable person to another taxable or nontaxable person in the course or furtherance of business: This is the most vicious provision in this schedule. Every transaction which is not covered anywhere will be covered. It has following ingredients.
i) No Consideration
ii) Supply by a taxable person
iii) To any other person (be it taxable or non taxable)
iv) In the course or furtherance of business.
Thus, this means if any supply by a taxable person to any other person and without consideration is a supply under GST. The experts say that Stock transfers will be covered under this clause to be taxable considering same person registered under different states to be separate taxable persons as per sec 9 of the Model GST Law.
This will create huge impact. For Ex- A Chartered Accountant files his father-in-law’s returns and gives consultancy to whom he cannot ask for payment, then under this provision it is a supply under GST Law and he will have to pay GST on it. This is hilarious as well as draconian as the authorities will use this power like anything to constitute a supply under GST.
Thus I can say anything and everything done, for anybody, for money/without money will constitute supply under GST. For the purpose of business/no business we need to see clauses. In clause 5 only business transactions are covered while in other clauses all non business transactions are covered.
However supply of goods and/or services by a Job worker shall not be considered a supply under provisions of Sec 43A which will discuss later under another article.
Thus the answer to title question is YES, anything and everything, done anywhere, for anybody, for business/no business, for money/without money will constitute supply under GST.
Again, in my opinion, Schedule I contains such draconion provisions that their use may create huge problems in the tax compliances by the assessees and the Govt should look into these before passing the final law. Stay tuned for my next article to understand the Schedule II- Deemed supply transactions.
(CA Ranjan Mehta, +91-9672372075, firstname.lastname@example.org)