The term ‘Supply’ mentioned in Section 7 (Scope of Supply) of the Central Goods and Service Tax Act, 2017 (CGST Act, 2017) had been amended retrospectively vide CGST (Amendment) Act, 2018 dated 30.08.2018 to exclude the activities listed in Schedule II from the inclusive definition of ‘Supply’. The clause (d) of sub-section 1 of Section 7 was deleted and a new sub-section (1A) in Section 7 has been inserted w.r.e.f. 01.07.2017. Newly inserted sub-section (1A) is reproduced herein as under-
“(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.”
Schedule II lists out certain activities which are either ‘supply of goods’ or ‘supply of services’. There are 18 classes of transactions enlisted Schedule II of which 5 classes of transactions are listed out as ‘supply of goods’ while 13 others would tantamount to ‘supply of services’.
After the aforesaid amendment, for activities or transactions mentioned in Schedule II it becomes necessary to check whether such activities or transactions meet the criteria as mentioned in sub-section (1) of Section 7 of the CGST Act, 2017. Before the aforesaid amendment, Schedule II was independent and there was no need to check whether entries in Schedule II meet the criteria as mentioned in sub-section (1) of Section 7 of the CGST Act, 2017. But now i.e. after the aforesaid amendment [deletion of clause (d) and insertion of sub-section (1A)], Schedule II has not its independent relevance and entries of Schedule II can be invoked under section 7(1A) only if an activity is qualified as ‘supply’ under Section 7(1) of CGST Act, 2017. By shifting the ‘placement’ of Schedule II from clause (d) of section 7(1) to a separate section 7(1A), it is made clear that firstly, a transaction must already be determined to be ‘supply’ and then, for the limited purposes of ‘treatment’ by fiction, entries in schedule II must be referred.
It is submitted that after the aforesaid amendment we have to check whether the activities or transactions are supply or not and if it is a supply as per section 7(1) of the CGST Act, 2017 then only we have to refer the Schedule II to check whether the said activity or transaction will constitute ‘supply of goods’ or ‘supply of services’. Earlier all the activities mentioned in Schedule II were treated as supply.
Matters to be treated as supply of goods [subject to a test of ‘supply’ under Section 7(1) of CGST Act, 2017].
1. Transfer of title in goods;
2. Transfer of future goods (i.e. property therein will pass at future date);
3. Transfer/disposal of business assets with or without consideration;
4. Goods forming part of business assets on ceasing to be a taxable person;
5. Supply of goods by an unincorporated association/body of persons to its members.
Matters to be treated as supply of services [subject to a test of ‘supply’ under Section 7(1) of CGST Act, 2017].
1. Transfer of right to use goods without transfer of title;
2. Lease, tenancy, easement, licence to occupy land;
3. Lease or letting out of building;
4. Job work on others’ goods;
5. Personal use/making available business goods for non-commercial/business usage whether or not for consideration;
6. Renting of immovable property;
7. Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier;
8. Temporary transfer or permitting the use or enjoyment of any intellectual property right;
9. Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
10. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
11. Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
12. Works contract (Composite Supply);
13. Supply (Composite Supply), by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Remark: As per Schedule II activities of agreeing to the obligation to refrain from an act, or to tolerate an act or situation or to do an act is to be treated as ‘supply of service’. Please refer to our article posted at Taxguru.com on 9th February 2021 regarding GST on Liquidated damages. After the aforesaid amendment, for GST on liquidated damages shall be applicable only if it is a ‘supply’ as per section 7(1) of the CGST Act, 2017.
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.