The taxable event in any tax law is of utmost significance as the levy of tax is based on occurrence of that event. For instance, taxable event for excise is ‚Äėmanufacture‚Äô, for VAT/CST is ‚Äėsale‚Äô, for service tax is ‚ÄėProvision of service‚Äô, etc. Under GST all the taxable events will be replaced with only one event which is ‚ÄúSupply‚ÄĚ and hence the term supply will be the backbone of the GST Act. The sub committee report on Model GST Law [1] (Model GST Law‚Äô or ‚ÄėReport‚Äô) which was released in the public domain recently, has given a glimpse of the scope of the term ‚Äėsupply‚Äô. This article assesses the definition of supply and focuses on the inclusive part, which essentially covers all supplies made without consideration.


As per the aforesaid report on the Model GST Law, the definition of the term ‚ÄúSupply‚ÄĚ has been explained as follows:

“(1) Supply of goods and/or services includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal, and importation of services, made or agreed to be made for a consideration by a person in the course or furtherance of business and also includes a supply specified in Schedule I, made or agreed to be made without a consideration.


The aforesaid scope of supply seeks to include all kinds of supplies such as sale, transfer, barter etc. and also refers to certain Schedule 1 to the Model GST law. The said schedule comprises of a list of transactions which would be treated as ‚ÄėSupply without Consideration‚Äô.


Consideration as per Service Tax:

The definition of term service provided in the Sec. 65B(44) of the Finance Act, 1994 (hereinafter referred to as ‚ÄėThe Act‚Äô) defines service as ‚Äúan activity carried out for another for consideration..‚ÄĚ, but what constituted the term ‚Äúconsideration‚ÄĚ was not elaborately defined in the Act. Meaning of the term ‚Äėconsideration‚Äô was provided in Explanation (a) to Section 67 of the act which stated that:

‚ÄėConsideration includes any amount that is payable for the services provided or to be provided‚Äô.

Since this definition is inclusive it will not be out of place to refer the definition of ‚Äėconsideration‚Äô as mentioned under the Indian Contract Act 1872, which is very wide in nature. Also, The Taxation of Services: An Education Guide, sought to explain the term ‚Äėconsideration‚Äô to mean everything received or recoverable in return for a provision of service which includes monetary payments and any consideration of non-monetary nature or deferred consideration as well as recharges between establishments located in a non- taxable territory on one hand and a taxable territory on the other hand.

Consideration as per Model GST Law:

The aforesaid position may be subject to change, as the Model GST law has proposed to define the term consideration. As per Section 2(20) of the said legislation the term consideration has been defined as:

“Consideration in relation to the supply of goods and/or services to any person, Includes:

any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the person or by any other person;

the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the person or by any other person:

Provided that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;‚ÄĚ

Thus any sum paid or payable for supply of goods/and or services may form a part of consideration. The second part of the definition of consideration may include monetary value of any forbearance, which is proposed to be brought under the purview of new definition of consideration. This provision could be viewed as being in line with the current provisions of Section 66E of the Finance Act 1994 i.e. Declared services, for example, an amount paid as contractual penalty for non supply of goods could still be treated as ‚Äúmonetary value of forbearance‚ÄĚ and therefore could be considered as consideration.

So far, it can be seen that the definition of the term ‚Äúconsideration‚ÄĚ provided under the Model GST law bears some resemblance with the meaning of ‚Äúconsideration‚ÄĚ under the current regime. However, the similarities end here and now the Model GST Law has proposed to introduce a concept of ‚Äúsupply without consideration‚ÄĚ.


The concept of supply without consideration appears to be a deviation from the currently applicable concepts where, a service provided without any consideration is excluded from the levy of service tax. Similarly sale made without a consideration is outside the purview for the levy of Value Added Tax. Although the concept of supply without consideration does exist in the current indirect tax framework for e.g. under Central Excise, there exists a valuation mechanism for goods cleared as free samples and same were liable to Central Excise duty; the nature of transactions which are deemed as ‚Äúsupply without consideration‚ÄĚ are different. For the purpose of understanding the above concept, the transactions pertaining to ‚ÄúSupply without Consideration‚ÄĚ under Schedule 1 are reproduced as follows:

  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. Self supply of goods and/or services.
  5. Assets retained after deregistration.

Accordingly, the above listed transactions would be treated as supplies even if made without consideration. At this juncture, it is to be noted that the charging section under the Model GST law proposes to levy CGST/SGST/IGST on all intra-state/inter-state supply of goods and/or services. On a conjoint reading of the charging section with meaning and scope of the term of ‚Äúsupply‚ÄĚ, it can be said that it is intended to bring the kind of transactions mentioned in Schedule 1, under the purview of CGST/SGST/IGST.

This can be interpreted to mean that certain transactions which were totally outside the scope of levy of indirect taxes under the current regime; could be brought under the purview of the proposed Goods and Services tax law, for e.g.: Self supply of goods and/or services.


Further, the Model GST law does not talk about a lot of critical aspects relating to taxability of matters to be treated as supply without consideration, for example:

  • While the legislature intends to bring certain transactions, which are to be treated as supply without consideration, under the purview of CGST/SGST/IGST, it does not provide any mechanism for the same to arrive at a value on which tax could be levied. For e.g.: the Model GST law is silent as to the value on which the tax would be calculated in case of temporary application of business assets to a private or non-business use. Would tax be levied on depreciated value of such assets or on opportunity cost lost on account of diversion of such assets to personal use?
  • Further, the provisions relating to place and time of supply do not contain any provision for determining the taxable event of such transactions. The Model GST law is completely silent on this critical aspect, which would be absolutely essential in determining the applicability of CGST/SGST/IGST on these transactions.
  • Matters to be treated as supply without consideration also include Self supply of goods, which if brought to tax, would give rise to issues under valuation.
  • There appears to be an overlap between the items mentioned at Points 2, 3 and Point 4 of Schedule 1. It is very difficult to bifurcate between services put to personal use and self supply of goods and services.
  • By treating assets retained after deregistration as ‚Äúsupply without consideration‚ÄĚ is the legislature intending to levy a tax on closure of business?

Thus much clarity is awaited relating to critical aspects of matters relating to ‚Äúsupply without consideration‚ÄĚ. Without such clarity, it is highly debateable as to what the legislature is intending to do by making provisions for levy of CGST/SGST/IGST, without providing valuation mechanisms relating to such levy.

The aforementioned deliberations suggest that the lawmakers intend to encompass almost every transaction within its tax base barring a few. This is all the more evident from the fact that the policymakers want to broaden the scope of the term ‚ÄúSupply‚ÄĚ. However what should not be forgotten are the additional hassles that the departments will have to deal with in terms of administration, regulations, litigation etc. Moreover, the vague provisions, if any will only consume more time and finances of the Government and the stakeholders, decelerating the nation‚Äôs growth in the long run.

(The Report of Sub-Committee released in the public domain outlines the various facets of the Model GST Law. Though recently the Ministry of Finance confirmed that the said report is not the Draft GST law and Draft GST law may take one more month before it is released on public domain. The said report acts as a base document from which a cue can be taken about ideology of the Indian Government in formulation of the framework of the GST Law. Considering the same we have expressed views in this article on the report / draft available on public domain.)

[1] Based on documents available in the public domain on 4 December 2015 which were circulated by an official government website and thereafter by some private tax portals

(Authored by Farhad Dalal‚Äď Manager, and Jinesh Shah‚Äď Executive at SKP Business Consulting LLP, Mumbai)

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October 2020