R.K. Rengaraj, Advocate

Introduction: Today’s hot subject in India among the traders, manufacturers, tax consultants, bureaucrats and politicians next to abolition of Rs. 500 and Rs. 1000 currencies is Goods and Services Act, and its implementation, registration procedures, pros and cons of revenue to the State Government’s kitty, GST rates and its impacts on the industry as a whole.  But in the GST regime, people forget that one very old and important Act viz., the Sale of Goods Act, 1930 will be no more valid to decide a particular transaction is sale or not, to fix the liability of paying tax, as the GST Act has renamed the wordings “Supply of goods and Services” and one has to discharge the same rate of GST whether it is a transaction is sale or transfer, with consideration or without consideration.  So, Sale of Goods Act, 1930 is not to be referred under the GST regime. The very crux of the sale definition under Sale of Goods Act is gone.

Supply of goods and services: In this article let us see the important definitions and explanations for certain words in the GST law from the definition clause and also from the FAQ released by the Government.

The necessary elements that constitute supply under Model GST Law (MGL)?

In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.-

(i) supply of goods and/ or services;

(ii) supply is for a consideration;

(iii) supply is made in the course or furtherance of business;

(iv) supply is made in the taxable territory;

(v) supply is a taxable supply; and

(vi) Supply is made by a taxable person.

FAQ. Can a transaction in which any one or more of the above criteria is not fulfilled, be still considered as supply under GST?

Ans. Yes. Under certain circumstances such as importation of service (Section 3(1) (b)) or supplies made without consideration, specified under Schedule-I of MGL, where one or more ingredients specified in answer to the above question are not satisfied, it shall still be treated as supply under GST Law.

FAQ. What do you mean by “supply made in the course or furtherance of business”?

Ans. No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:

  1. Is the activity, a serious undertaking earnestly pursued?
  2. Is the activity is pursued with reasonable or recognisable continuity?
  3. Is the activity conducted in a regular manner based on sound and recognised business principles?
  4. Is the activity predominantly concerned with the making of taxable supply for consideration/ profit motive?

The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.

So, it is clear that for occasional supplies even if made for consideration GST is not subjected, at the same time even if consideration is not received it shall be treated at supply of goods or services.  Here, the old definition of Sales of Goods Act, 1930 is very important. It states that it is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for price.

In the new definition, the transfer of property in the goods is missing for supply of goods. It indirectly states that for treating the supply  of goods, there is no need that the transfer of property in goods should take place for price from the seller.  The word “seller” or “transferor” is gone and it replaces the word “supplier”.

“continuous supply of goods” means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis.

There is no definition for continuous supply of goods in the VAT Act and only GST, there is separate definition.

consideration” in relation to the supply of goods and/or services to any person, includes (a) 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 said person or by any other person; (b) 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 said 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;

“services’’ means anything other than goods;

Section 2(88) of the Act define “service” to mean anything other than the “goods”. This definition does not define anything and, therefore, one needs to look to various shades, color and dimension of the word “Goods”. Section 2(48) of the GST Act defines “goods” thus:

“Goods” means “every kind of movable property other than actionable claim and money but 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.”

Explanation: For the purpose of this Clause, the term “moveable property” shall not include any intangible property.

At the same time, Section 2(7) of the Sale of Goods Act defines the “goods” as follows :–

“Goods” means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale.

So, under GST regime, instead of contract of sale, the word contract of supply is substituted.

Meaning and scope of supply (1) Supply includes (a) 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 the course or furtherance of business, (b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and Page 24 of 190 (c) a supply specified in Schedule I, made or agreed to be made without a consideration.

(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services. (2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.

(3) Subject to sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as—

(i) a supply of goods and not as a supply of services; or

(ii) a supply of services and not as a supply of goods; or

(iii) neither a supply of goods nor a supply of services.

It can be understood that the Government upon recommendation of the GST Council would specify by notification whether the transaction is supply of good or service or neither.

Conclusion:  In fine, the author would like to state that the concept of sale of goods act and the definition clauses are not the same in the propose GST law and indirectly states that Sale of Goods Act is gone.

(The author is a director in Ms Lore Tax Professionals Private Ltd, Coimbatore and  can be reached at [email protected] or [email protected])

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  1. J.Radhakrishnan says:

    Both Vijayakumar and Badrinath are correct.
    The sale of goods Act won’t become redundant on account of the GST law, as it has never become redundant by the myriad Sales Tax Acts of Various States and the centre.

  2. M K Vijayakumar says:

    The primary purpose of Sale of Goods Act is to determine who is the owner. The Invoice is the document which proves the document of title to a possessed goods. Hence there is no question of end of Sales of Goods Act 1920. It will survive so long trade is there. Taxation is only an incidental event to the primary Sale and the sale should have all the ingredients of absolute transfer of ownership. The GST legislation is meant for collecting Tax Revenue to the Exchequer. It has no role to determine the ownership of goods.

  3. Badrinath Srinivasan says:

    Sir, it is a misconception that Sale of Goods Act, 1930 goes hand in hand in the taxation on sale of goods law (by whatever name called). It is true that several concepts in sale of goods Act have been enriched by the law taxing such transactions but to state that because of the new GST law, it is the end of Sale of Goods Act is an exaggeration. The simple reason is that the purpose of the Sale of Goods Act is to provide default rules relating to sale of goods transactions.

    1. k.rengaraj says:

      Thanks for the 3 comments. As indicated in this article, the author would like to reiterate that only the concepts of Sale of Goods Act have been enriched in the GST law as long as the rate of tax is same for the supplies of goods whether it is transfer or sale with or without consideration. The statutory forms will not be there to decide whether it is transfer or interstate sale under CST Act. In such cases the Sale of Goods Act will not be useful under GST regime. The Sale of Goods Act would survive, there is no doubt. But the concepts of the Sale of Goods Act have gone under GST law.

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February 2021