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 âmanufactureâ, for VAT/CST is âsaleâ, for service tax is âProvision of serviceâ, etc. Under GST all the taxable events will be replaced with only one event which is âSupplyâ and hence the term supply will be the backbone of the GST Act. The sub committee report on Model GST Law  (Model GST Lawâ or âReportâ) which was released in the public domain recently, has given a glimpse of the scope of the term âsupplyâ. 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 âSupplyâ has been explained as follows:
â(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 âSupply without Considerationâ.
âCONSIDERATIONâ vis-a-vis âCURRENT PROVISIONSâ
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 âThe Actâ) defines service as âan activity carried out for another for consideration..â, but what constituted the term âconsiderationâ was not elaborately defined in the Act. Meaning of the term âconsiderationâ was provided in Explanation (a) to Section 67 of the act which stated that:
âConsideration includes any amount that is payable for the services provided or to be providedâ.
Since this definition is inclusive it will not be out of place to refer the definition of âconsiderationâ 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 âconsiderationâ 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:
âConsideration 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;â
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 âmonetary value of forbearanceâ and therefore could be considered as consideration.
So far, it can be seen that the definition of the term âconsiderationâ provided under the Model GST law bears some resemblance with the meaning of âconsiderationâ under the current regime. However, the similarities end here and now the Model GST Law has proposed to introduce a concept of âsupply without considerationâ.
SUPPLY WITHOUT CONSIDERATION:
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 âsupply without considerationâ are different. For the purpose of understanding the above concept, the transactions pertaining to âSupply without Considerationâ under Schedule 1 are reproduced as follows:
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 âsupplyâ, 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:
Thus much clarity is awaited relating to critical aspects of matters relating to âsupply without considerationâ. 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 âSupplyâ. 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 nationâs 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.)
 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