As per Schedule I of the CGST Act, the following activities are to be treated as supply even if made without consideration:
(1) Permanent Transfer or Disposal of Business Assets where Input Tax Credit has been availed on such Assets under GST:
Any kind of disposal or transfer of business assets made by an entity on permanent basis even though without consideration shall be treated as supply. This clause is wide enough to cover all transfer of business assets for nil consideration whether such transfer is from
— holding to subsidiary company,
— business use to personal use or for the use of any other person.
However, it is important to note that this provision would apply if input tax credit has been availed on such assets.
- The above provision shall not apply if the asset is not permanently transferred.
- Where a business asset, on which ITC is availed, is completely destroyed by fire; it shall also be treated as supply and liable to GST.
(i) A dealer of air-conditioners, who has availed input tax credit on air-conditioners, permanently transfers an air conditioner from his stock-in-trade, for personal use at his residence. Such transaction though without a consideration shall constitute supply and be liable to GST, as it is a permanent transfer of air-conditioner for his personal use.
(ii) R, a supplier of professional services, purchased Desktop Computers of value Rs. 3,00,000 on 1.7.2018 and paid IGST amounting to Rs. 84,000 thereon. He availed ITC of Rs. 84,000 in his books on the same day.
Now, suppose, after 4 years of using the computers, he wants to donate such computers to a nearby Charitable Educational Institution when their fair market value is Rs.50,000. In such case, R shall be liable to pay an amount under GST equivalent to:
(a) the input tax credit availed on the said computers as reduced by the input tax credit attributable to 4 years for which asset has been used in business
|Input credit availed at the time of purchase of computers =||Rs. 84,000|
|Useful life of the computer (See note below)||5 years|
|Unused period||1 years|
|Therefore, GST amount payable (Rs. 84,000 × 1/5)||Rs. 16,800|
(b) the tax payable on the fair market value of such capital goods as determined under section 15, i.e. 50000 × 28% = Rs. 14,000.
whichever is higher.
Thus, R shall be liable to pay GST amounting to Rs. 16,800 on donation of such computers.
Useful life of Capital Goods has been deemed as 5 years by Rule 44 of CGST Rules, 2017 for the purpose of above calculation.
(2) Supply between ‘Related Persons’ or ‘Distinct Persons’ under GST
Supply of goods or services or both—
— between related persons or
— between distinct persons as specified in section 25,
— when made in the course or furtherance of business.
However, gifts not exceeding Rs. 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
Meaning of term ‘Related Persons’ [Clause (a) Explanation to Section 15(5) of the CGST Act, 2017]
|Persons shall be deemed to be “related persons’’ if|
|(i) Such persons are officers or directors of one another’s businesses;||(ii) Such persons are legally recognised partners in business;|
|(iii)Such persons are employer and employee;||(iv) Any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them;|
|(v) One of them directly or indirectly controls the other;||(vi) Both of them are directly or indirectly controlled by a third person;|
|(vii) Together they directly or indirectly control a third person; or;||(viii) They are members of the same family
Meaning of family [Section 2(49)]: “Family” means,—
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly dependent on the said person;
|1. Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. [Clause (b) of the Explanation to Section 15(5) of the CGST Act, 2017]|
Meaning of term Distinct Persons [Section 25(4)]:
A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
Thus, supply of goods or services or both between related person or between distinct persons in the course or furtherance of business shall be treated as supply even if there is no consideration.
Self supplies are also taxable under GST: Inter-state self-supplies such as—
— stock transfers,
— branch transfers or
sales shall be taxable under IGST, even though such transactions may not involve payment of consideration.
Every supplier is liable to register under the GST law in the State or Union territory from where he makes a taxable supply of goods or services or both in terms of section 22 of the CGST Act. However, intrastate self-supplies are not taxable. But, if the registration within the same State is separately taken for each business vertical then stock transfer from one business vertical to another business vertical within the same State shall be taxable under CGST and SGST/UTGST, even though such transfer is without any consideration.
Meaning of “Business Vertical” [Section 2(18)]:
“Business vertical” means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals.
(1) R is engaged in supply of certain goods. He has obtained a Registration in the State of West Bengal in respect of his Head Office. In addition, he has also obtained registration in the State of Delhi where he is engaged in the supply of goods or services or both through his branch. In the above case, in respect of each registration at West Bengal and Delhi, R shall be treated as distinct persons. Thus any supply of goods or services or both between his main office in the State of West Bengal and in the state of Delhi shall be subject to integrated tax in terms of IGST Act, even though such transaction may not involve any payment of consideration.
(2) Employees of a R Ltd., which is a subsidiary of G Limited, sent on deputation basis to its Holding Company namely G Limited shall fall within the ambit of the term ‘supply’ even in the absence of any consideration.
(3) Transfer of goods from a unit located in Delhi to Research & Development unit located in Punjab shall be treated as supply even in the absence of any consideration. Further, stock transfer from one business vertical to another business vertical within the same State shall be taxable under CGST and SGST/UTGST even though it is not for a consideration provided separate registration has been taken for each such business vertical.
(3) Supply of Goods under GST—
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
|1. “Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
2. “Agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.
(i) for 3(a) above
R, the Principal located in Maharashtra supplies certain goods to his agent G, located in Punjab. G undertakes to supply the said goods in Punjab on behalf of R. In this case, supply of goods by R to G shall fall within the ambit of the term ‘supply’ even if made without consideration and shall be liable for integrated tax under IGST Act.
(ii) for 3(b) above
R works as an agent and is located in New Delhi. G is a manufacturer located in Punjab. R agrees to purchase certain goods from New Delhi Market on behalf of G every month and supply the same to G. In the aforesaid case, supply of goods by R to G shall fall within the ambit of term ‘supply’ even if made without consideration. This supply of goods from R to G shall be subject to integrated tax under IGST Act.
(4) Import of Services by a Taxable Person under GST—
— from a related person or
— from any of his other establishments outside India,
in the course or furtherance of business.
|1. Meaning of Taxable Person: “Taxable Person’’ means a person who is registered or liable to be registered under section 22 or section 24 of the CGST Act, 2017.
2. Meaning of related person: See above.
As a general principle, import of services without consideration will not be considered as supply under GST in terms of section 7(1)(b). See para 2.1(B) above.
However, import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business, even without consideration will be treated as supply in terms Sl. No. 4 of Schedule I.
Taxability of Import of Services :
- R Ltd, USA is the holding company of G Ltd., India. G Ltd. imports Business Consultancy Services from R Ltd. in October, 2018 in the course or furtherance of business. The aforesaid importation of services shall fall within the ambit of term “supply” and G Ltd. shall be liable to pay integrated tax under IGST Act, 2017 even if R Ltd. provides consultancy services without any consideration.
- R lives in London. His brother G is carrying on business in India. G imports technical services from R in November, 2018 in the course or furtherance of business. The said importation of service shall fall within the ambit of term “supply” and G shall be liable to pay integrated tax under IGST Act, 2017 even if R provides consultancy services without any consideration.
Thus, under section 7(1)(c), the presence of consideration in respect of the above transactions is not essential whereas in the case of supply falling under section 7(1)(a) and 7(1)(b), the consideration whether in monetary terms or non-monetary terms was essential provided the importation of services is not from any related person or any of his establishment outside India.
|Are the following import of services taxable services or not?||Solutions|
|1. Import of service from unrelated person for personal consumption with consideration||Yes|
|2. Import of service from unrelated person for business with consideration||Yes|
|3. Import of service from unrelated person for personal consumption without consideration||No|
|4. Import of service from unrelated person for business without consideration||No|
|5. Import of service from relative with consideration in the course or furtherance of business||Yes|
|6. Import of service from relative without consideration in the course or furtherance of business||Yes|
|7. Import of service from relative for personal consumption with consideration||Yes|
|8. Import of service from relative for personal consumption without consideration.||No|