Supply Under Model GST Law – Some Examples

Vivek Bapat 22 Sep 2016 7,600 Views 0 comment Print Goods and Services Tax | Articles

The Model GST Law was kept in the public domain in June 2016. It is a race against the time in order to implement the GST across the entire country by 1st April 2017.

From origin based taxation system (in case of Excise and VAT/CST), GST will shift to consumption based tax system (i.e. the Taxes will go to the states where the goods and / or services are consumed). The taxable event of charging indirect tax system is going to changed from an event based (i.e. manufacture in case of Excise Duty, provision of Service in case of Service tax and Sale in case of VAT / CST) to an act based (i.e. supply whether of goods and / or services).

The definition of the term “SUPPLY” as is given under section 3 of the Model GST Law , like the definition of “manufacture” is an inclusive one.

Inclusive definitions have always resulted in litigation between the Assessee’s and the Tax Department. As to what constitutes “manufacture” has always been a matter of dispute between Assessee and the Excise Department. The term “manufacture” has come to be decided by the numerous judgment’s of the Hon’ble Supreme Court and various High Courts.

Similar is the case with the definition of the term “Input” and “Input Service”, both of which are inclusive definitions under the CENVAT Credit Rules, 2004.

The term “Supply” has been defined to include all forms of supply of goods and / or services, which includes 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.

Importation of Service whether or not for consideration and whether or not in the course of or for the furtherance of business is also a “Supply”.

It should be noted that the supply should be in the course of business or for the furtherance of business.

Thus any supply of goods by an Assessee undertaken in the course of his business whether or not for the purpose of furtherance of business, will constitute Supply and the supply will be subject to GST – either CGST & SGST (if the supply is within the State) or IGST (in case the supply is Inter-state).

Eg. A company is giving its used computers, tables, air-conditioners etc. to a school or charitable organization. The disposal of computers, tables and air-conditioners is supply of goods and is subject to GST.

If the supply is for the furtherance of business like supply of free sample, supply for testing and analysis, then also the supply will attract GST.

The Central Government or the State Government shall specify by way of Notification, transactions which are to be treated as –

i. Supply of goods and not as supply of services; or

ii. Supply of services and not as supply of goods; or

iii. Neither Supply of goods nor supply of services

Such Notification shall be issued by the Central Government / State Government on the recommendation of the GST Council.

As per Section 3 (1)(c) of the Model GST Law, the term “Supply” will include supply made or agreed to be made without consideration. The contents of Schedule I and some illustrative examples of such supply are tabulated below –

Schedule I – MATTER TO BE TREATED AS SUPPLY WITHOUT CONSIDERATION – SOME EXAMPLES:

Matters under Schedule I	Illustrative examples of transactions
Permanent Transfer / disposal of Business Assets	A company is donating its used computers, tables, air-conditioners etc. to a school or charitable organization. A Proprietor / Partner / MD of a company is given / takes any of the company assets eg. car / furniture / table or any of the other assets of the company, with the assent of the other partners / Board, without consideration. Capital goods / Plant and Machinery transferred to another unit located in another state. Free distribution of medicines by a Pharmaceutical company during natural calamity.
Temporary application of Business assets to a private or non-business use.	Company guest house / cottage and vehicles given to an employee for his personal function. Company Vehicle used for arranging picnic for employees. Using Company’s Auditorium / Conference hall for a movie show for employees as a part of HR activities.
Services put to a private or non-business use.	Services and staff of a CA firm used by the CA for maintaining the books of accounts of his wife carrying another business. A Hotel owner allocates some rooms of his hotel for the family member.
Assets retained after de-registration	Stock of goods in hand, business assets and any other inventory in hands of the business entity who is opting for de-registration after the turnover falls below the exemption limit or if it is surrendering the registration certificate.
Supply of goods and / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business	Supply of free Samples supply of goods for testing and analysis Giving some free service to prospective client.

Similarly Schedule II specifies the matters which are to be treated as whether they are supply of goods or supply of services. The matters enumerated therein are listed below –

Matters under Schedule II	Supply of Goods / Services	Illustrative examples of transactions
Transfer of Title in goods	Goods	Sale of goods by one taxable person to another
Transfer of right to use the goods without transfer of title in goods	Services	Machinery given on rent for specified period along with operator. Hydra / Crane given on rent for loading / unloading of goods along with operator. Rent a car operator
Transfer of title in goods with the agreement that property in goods will pass at a future date	Goods	Hire purchase agreement Installment purchase agreement
Lease, Tenancy, easement, licence to occupy land or building	Services	Commercial or Residential Rent Agreements Lease Agreement to give land on lease for specified period
Treatment or process	Services	Job work on some other person’s goods, irrespective of whether the activity amounts to manufacture or not.
Transfer of business assets on the direction of the management / person carrying on the business	Goods	Self consumption, self supply, free samples etc.
Private use or non-business use of business assets or goods	Services	Use of Company vehicle for private use with the permission / direction of the person carrying on the business. Use of Company guest house for private function.
Sale of goods by another person to recover the debts of the taxable person	Goods	Banking / financial company selling the goods / assets of the Company to recover the debts from the taxable person. Liquidator appointed either by the Creditors or by the Shareholders and selling the goods / business assets, to pay the debts of the company.
Person ceases to be taxable person	Goods	Person closing down his taxable business. Partnership firm is dissolved.
Renting of immovable property	Services	Factory / Commercial / Residential building given on rent.
Construction of Complex, building, civil structure where the consideration is received either in part or in full before the issuance of the completion certificate or before its occupation whichever is earlier	Services	Construction of Commercial / Residential Complex
Temporary transfer or permitting the use of any intellectual property rights	Service
Development, designing, programming, customisation, adaption, upgradation, enchancement or implementation of information technology software	Service	Programming or development of Information technology software will now be a service only. [end of the confusion perhaps whether sale or service].
Agreeing to the obligation to refrain from an act, to tolerate an act or situation or to do an act	Service	Damages for inefficient services Penalty imposed for late completion of agreed contract Notice pay
Works Contract including transfer of property involved in the execution of works contract	Service	Works contract will be deemed as Supply of Service even if it involves transfer of property in goods during such execution of works contract.
Transfer of right to use the goods whether or not for specified period	Services	As discussed above at Sr. No. 2 of this table.
Supply by way of or as a part of services of food or any other article for human consumption or any drink (other than alcoholic drink)	Service	Catering Services, Service provided in Hotel, restaurant, food outlet, joint etc.
Supply of goods by an unincorporated association or body of persons to its members for cash or deferred payment	Goods	Goods sold by a body of persons to its members for cash or on deferred payment.

Thus it can be seen that the word “Supply” is of very vide import and many transactions are covered under this term which otherwise were not taxable either under VAT or Central Excise or Service Tax.

Job Work Under GST