Introduction:
Article explains provisions relating to Levy and Supply under GST as given in (Draft) Model Goods and Services Act, 2016 (GST Act) been explained.
Levy under GST:
Central Goods and Services Tax (CGST) & State Goods and Services Tax (SGST) – Section 7 of GST Act and Integrated Goods and Services Tax (IGST) – Section 4 of IGST Act
- CGST & SGST shall be levied on all intra-State Supplies of goods and/or services at the specified rate and payable every Taxable Person
- IGST shall be levied on all inter-State Supplies of goods and/or services at the specified rate and payable every Taxable Person
- By notification, CG or SG may notify specific category of goods / services on which tax is payable on reverse charge basis i.e., person receiving such goods / services shall be liable for payment of tax under GST. [Section 7(3) of GST Act].
From the above levy provisions following questions needs to be answered
- Concept of Supply – Section 3, Schedule I and Schedule II of the GST Act.
- Definition of Goods and Services.
- Concept of Taxable Person – Section 9 of the GST Act.
- How to determine whether supply is Inter-state or Intra State – Section 3 and 3A of the IGST Act.
Levy of GST on a transaction can be determined only after combined application of concept of supply and taxable person.
Supply:
Supply is the “taxable event under GST” like manufacture of goods under Excise, rendering of services under Service Tax and sale of goods under VAT.
Meaning and Scope of Supply:
Section 3 of GST Act
Supply includes
♣ All forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in course of or furtherance of business.
Comments:
- Being an inclusive definition, concept of supply become subjective.
- Supply is to be made by a person, so there is no requirement of 2nd person for the transaction, unlike Service Tax Law where service becomes chargeable only if 2 persons are present in a transaction. Thus under GST Regime supply to self can be liable to tax.
- Valuation of barter transactions under GST can be difficult.
♣ Import of Service, whether or not for a consideration and whether or not in course or furtherance of business.
Comments:
- Persons importing services for personal purposes shall also be liable to GST on reverse charge basis since the importation of service would be treated as a Supply whether or not for the business purposes. However small relief is available for the same which is highlighted in the definition of taxable person.
- Importation of Goods is dealt separately under the Customs Act and IGST shall be levied in addition to Basic Customs Duty.
♣ Matters to be treated as Supply without consideration as specified in Schedule I
Schedule I of GST Act
- Permanent transfer/disposal of business assets.
- Temporary application of business assets to a private or non-business use.
- Services put to a private or non-business use
- Assets retained after deregistration.
- Supply of goods and / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business except supply of goods by a registered taxable person to a job-worker shall not be treated as supply of goods.
Comments:
- Usage of laptops, cars or other assets by the employees for personal use shall be treated as supply and liable to GST, since the services provided by the employer to employee are not excluded from the scope of taxable person as highlighted in the definition of taxable person.
- Any supplies made without consideration shall be liable to GST unlike under Service Tax Law, where there is no consideration; there is no service at all.
- Valuation of Supplies made without consideration would be done as per the Comparison method as specified in Rule 4 of GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016:- The value shall be determined on the basis of the transaction value of goods and/or services of like kind and quality supplied at or about the same time to other customers. If the Comparison method could not be applied then Computed Value Method as specified in Rule 5 can be adopted and value as per the Rule 5 will be the cost of supply.
♣ Matters to be treated specifically as a supply of goods or as a supply of services as mentioned under Schedule II
Schedule II of GST Act
Matters to be treated a supply of Goods:
- Any Transfer of the title in goods.
- Any transfer of the title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration.
- Permanent transfer/disposal of business assets. (Refer Schedule I)
- Where any goods are sold by a person to recover the debt owed by the taxable person shall be deemed to be supply of goods by the taxable person.
- Assets retained after ceasing to be taxable person shall be supply of goods. (Refer Schedule I)
Matters to be treated a supply of Services:
- Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof.
- Any lease, tenancy, easement, license to occupy land.
- Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly.
- Any treatment or process which is being applied to another person’s goods. (Refer Schedule I)
- Temporary application of business assets to a private or non-business use.
- 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 before its first occupation, whichever is earlier.
- Temporary transfer or permitting the use or enjoyment of any intellectual property right
- Development, design, programming, customization, adaptation, up-gradation, enhancement, implementation of information technology software
- Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
- Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract
- Supply of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption).
Comments:
- Why the specific distinction is required (Purpose of Schedule II):
- If the rates of GST are different for Goods and Services, liability of GST would be different.
- Impact on availment and utilization of GST Credit.
- Determination of Time of supply of Goods and Services.
- Determination of Place of supply of Goods and Services.
(For the detailed discussion of provisions of Place & Time of Supply of Goods and/or Services, refer the article at the link https://taxguru.in/goods-and-service-tax/place-time-of-supply-of-goods-andor-services-under-gst-act-2016.html)
- On Works Contract and Supply of Foods, currently both VAT and Service tax are levied but under GST they would be treated only as a supply of services and taxed accordingly.
- Provisions of declared services as present under Service Tax Law are reproduced in Schedule II of the GST Act.
- Treatment of matters mentioned in Schedule I as a Supply of Goods or a Service is made clear.
♣ Transactions between Principal and Agent shall be deemed to be a supply.
♣ CG or SG may notify the transactions that are to be treated specifically as supply of goods only or supply of services only or neither a supply of goods nor a supply of services.
Definition of Goods:
Section 2(48) of the GST Act
Goods means every kind of movable property;
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
Excludes: – Actionable claim, Money and any Intangible Property.
Definition of Services:
Section 2(88) of the GST Act
Services means anything other than goods;
Includes: – Intangible Property and Actionable claim
Excludes: – Money
Taxable Person:
Understanding of Taxable person under GST is crucial because only taxable person is liable to pay GST on the supplies made by him.
Section 9 of the GST Act
♣ Person who carries on any business at any place in India and is registered or required to be registered under Schedule III of the GST Act.
♣ Persons who are required to be registered as per Schedule III shall not be considered as a taxable person until his aggregate turnover in a FY exceeds the specified threshold limits
(For the detailed discussion of provisions of Registration under Model GST Law, refer the article at the link https://taxguru.in/goods-and-service-tax/registration-model-gst-law-analysis-proposed-law.html).
♣ Agriculturist shall not be considered as a taxable person. [Agriculturist means a person who cultivates land personally, for the purpose of agriculture]
♣ The Central Government, a State Government or any local authority shall be regarded as a taxable person in respect of activities or transactions in which they are engaged as public authorities other than the activities or transactions as specified in Schedule IV to this Act.
Schedule IV contains the entries related to CG, SG or Local Authority as present in Negative List and Mega Exemption Notification of Service Tax Law.
♣ The following persons shall not be considered as taxable person:-
- Persons providing services as an employee in course or in relation to his employment. The exclusion is available only for services provided by the employee to the employer under employment contract and not vice-versa.
- Any person engaged in the business of exclusively supplying goods and/or services that are not liable to tax under this Act.
- Person liable to pay tax under reverse charge basis for the services received for personal purposes upto a prescribed threshold limit. This exclusion provides relief to the persons since importation of services for personal use is also treated as supply under GST.
Principles for determining whether the supply is Inter-State or Intra-State:
As per Section 3 of IGST Act, Supply of goods and/or services shall be Inter-State, if “Location of Supplier” and “Place of Supply” are in different States.
As per Section 3A of IGST Act, Supply of goods/services shall be Intra-State, if “Location of Supplier” and “Place of Supply” are in same State.
The conclusion about the type of supply from the above two principles can be made only after thorough understanding of the two components namely Location of Supplier and Place of Supply(POS) which are discussed in a separate article at the link https://taxguru.in/goods-and-service-tax/place-time-of-supply-of-goods-andor-services-under-gst-act-2016.html
Conclusion:
On application of provisions of Levy, Supply, definition of Goods & Services, it can be said whether a transaction is liable to GST or not. Supply under GST Regime would become a grey area if the definition remains so exhaustive.
Disclaimer:
The above analyses of several provisions of GST are only for general understanding of the readers and should not be relied upon before obtaining appropriate professional advice.
(For feedback or queries, author could be reached at bhaveshjain2673@gmail.com.)
Author Bio
World used as GST ACT, IGST ACT, CGST ACT. these are not act as on date. GST is still Model law.