Transfer or disposal of Business assets under GST with analysis of schedule I and II

(a) Permanent transfer or disposal of goods;

Schedule-I; ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION;

Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

Schedule-II; ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES;

where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a Supply of goods by the person;

Combined reading of Schedule I with Schedule II;

(i) Permanent transfer or disposal of business assets where input tax credit has been availed on such assets shall be deemed supply.

(ii) Where goods forming part of the assets of a business are transferred or disposed, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.

(iii) The transfer or disposal can be made to any person including to himself. It may or may not involve a consideration.

(i) Transfer where credit is blocked;

Q. An individual buys a car for personal use and after a year sells it to a car dealer for a consideration. Will the transaction be a supply in terms of GST ACT?

Ans. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

Q. An individual buys a car for Business use and after two year sells it to a car dealer for consideration. Will the transaction be a supply in terms of GST ACT?

Ans.Transfer for a consideration shall be supply of goods, even if credit is not claim.

Q. An individual buys a car for Business use and after a year transfer car for personal consumption at home. Will the transaction be a supply in terms of GST ACT?

Ans. No, because supply is made by the individual in the course or furtherance of business. Further, input tax credit will not be admissible on such car at the time of its acquisition and it is not be a supply under GST as per schedule I.

Q. ABC Ltd., a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture to furnish his bedroom permanently. Will the transaction be a supply in terms of GST ACT?

Ans. No, the transfer of the furniture by the owner without consideration, is not a supply of goods, because credit is blocked in case of personal consumption of business assets under sec 17(5) (g) of CGST Act.

Q. ABC Ltd., is in the business of Hotel. He purchase AC for business purpose and after 2 years, he transfer the AC to director without consideration. Will the transaction be a supply in terms of GST ACT?

Ans. Yes, it shall be a deemed supply as per schedule I and supplier has to pay an amount determined according to sec 18(6).

Sec18 (6) In case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.

(ii) Disposal of Goods;

An insurance company disposes its used computer by giving it to a charitable organization. The disposal of the computer is a supply of goods and subject to GST.

(iii) Transfer for a consideration;

ABC Ltd., a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture to furnish his bedroom permanently. The transfer of the furniture by the owner, for a consideration, is a supply of goods and subject to GST.

(b) Temporary transfer or use of business assets;

Schedule II; ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES;

where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;

Generally, there is no supply when goods acquired by a person are used for business purposes. However, if the goods are:

(i) Put to private or personal use; or

(ii) Made available for another person for use for any purpose other than a purpose of the business of owner.

(i) Private or personal use or Used for the purpose other than business

XYZ Enterprise, a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture to furnish his house’s Delhi temporarily for 3 months. The personal use of the furniture by the owner, whether or not for a consideration, is deemed as a supply of services by the company to him.

(ii) Made available for another person’s use but not done in the course or furtherance of the business of the goods’ owner

ABC Ltd. bought a bulldozer to be used in its own construction business. However, it made the bulldozer available to be used in the construction business of its sister company, XYZ Ltd. In this case, the usage of bulldozer for any purpose other than its own business purpose, whether or not for a consideration, is a supply of services by ABC Ltd.

(C) Ceases to be a Taxable person;

Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—

(i) the business is transferred as a going concern to another person; or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

Mr A is a GST registered sundry store owner. As his business has substantially reduced over the last year, he has decided to close the business and retire. At the time of deregistration he has goods on hand valued at Stock RS 5, 000. Mr. A final GST return will show his supplies made during the last taxable period plus Stock in hand of RS 5,000 during the deregistration.it will be treated as supply.

Mr A is a GST registered person making supply of product which is taxable. But some time latter Government exempt this product from GST.Mr A should have to reverse the credit in his electronic credit ledger according to sec 18 of CGST ACT.

ABC Ltd. bought a car for its business. The input tax on the acquisition of the car will not be allowed because credit is blocked. If the MR A cease his business, then it will not be deemed as a supply.

Conclusion:  GST is destination based consumption tax that means tax has been charge from ultimate consumer of goods or service. In GST in some cases, credit is blocked on the assumption that you are the ultimate consumer of goods and assets has been purchase for used in business, not for sale or further transfer. If you further supply goods, then in such a case credit is not blocked under GST.

Permanent transfer of supply is restricted to goods on which the person has already claimed the input tax and transfer with or without consideration. But in case where consideration charge for supply then it will be liable for GST even if credit is not claim. Example- Supply of car

However, temporary transfer for personal consumption is deemed supply of service as par schedule II. In case of temporary transfer it shall be deemed supply, even if credit is not taken.

Check HSN Code list under GST here