Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Section 7(1)(d)]- Activities to be treated as Supply of Goods or Supply of Services under GST as referred to in Schedule II

In the pre-GST indirect tax regime, there was a dispute as to whether an activity shall be taxed under Central  Excise/ Service Tax or VAT and it was leading to taxability under both the laws. The issue has been settled by  Schedule II by specifying which activities shall be treated as supply of goods or supply of services provided the  rate of tax for goods and services are same.

[Section  7(1)(d)]- Activities to be treated as Supply of Goods or Supply of Services under GST as referred to in Schedule II
[Section 7(1)(d)]- Activities to be treated as Supply of Goods or Supply of Services under GST as referred to in Schedule II
As per Schedule II, the following activities shall be treated as supply of goods or supply of services:

SL No. Transaction Types of Activities Nature of Supply
1. Transfer of (a) title in goods

Example:

R of Delhi deals in Electronic Goods. He transfers  the title of a television set for an agreed consideration to G of  Delhi in August, 2018. In the given case, the transfer of title in  television shall be considered as supply of goods.

Supply of goods

 

(b) right in goods or of undivided share in goods without the  transfer of title thereof

Examples 

(i) R transfers right to use of a generator for a period of 2  months for an agreed consideration to G in August, 2018. The  foregoing transfer of generator without transfer of title in  generator shall be treated as a supply of service.

(ii) R agrees to share use of photocopier machine with his  neighbour G for a period of one month for an agreed consideration. After expiry of period of one month, G shall  have no license to use the said photocopier. The foregoing  license to use said photocopier without transfer of title in goods  shall be considered as a supply of service.

Supply of services
(c) title in goods under an agreement which stipulates that  property in goods shall pass at a future date upon payment of  full consideration as agreed

Supply of goods on hire purchase shall be treated as supply of  goods as there is transfer of title, although at a future date.

Example:

Under a scheme of finance, a supplier of a car gives  the possession of car to the buyer in August 2018. He, agrees to  transfer the ownership of the car to the buyer in August 2020  upon payment of full consideration of Rs. 26,60,000, in  instalments as agreed. The aforesaid transaction shall be  treated as supply of goods.

Supply of goods
2. Land and  Building (a) any lease, tenancy, easement, licence to occupy land

Example:

R, the owner of a specific piece of land in Delhi,  leases the same to G for one year for an agreed consideration in  August, 2018. The aforesaid lease of land shall be treated as a  supply of services.

Supply of services
(b) lease or letting out of the building including a commercial,  industrial or residential complex for business or commerce,  either wholly or partly

Critical appraisal of above reveals that following three  conditions need to be satisfied to be covered in this entry and  therefore to qualify as supply of service:

(i) Any lease or letting out of the building;

(ii) Such building includes not only commercial or  industrial but also residential complex; and

(iii) Such leasing or letting either wholly or partly shall be  for business or commerce.

Supply of services
3. Treatment or  process Applied to another person’s goods

Thus, any job-work carried out by a job-worker on another  person’s goods shall be treated as a supply of services. Further,  it shall be immaterial, whether the job-work is to be carried  out by a job-worker with or without any material.

Example:

R is a manufacturer of goods. He sends his goods for  the purpose of special packaging to G on job work. In the given  case, the activity of special packing by G shall be treated as  supply of services. Further, it shall be immaterial whether G  uses his own packing material or the same is provided by R.

Supply of services
4. Transfer of  business assets (a) 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

Examples 

(i)  R is carrying on the business of consumer durable  products. He disposed of a defective refrigerator for Rs.  50,000 to G whereas its normal price is Rs. 3,50,000.  Aforesaid disposal shall be considered as supply of  goods by R.

(ii)  Assume in the above example, R donated the above refrigerator to an NGO and he has claimed the input tax  credit on such refrigerator at the time of purchase. The  aforesaid donation shall be considered as supply of  goods by R. Valuation of the defective refrigerator for  payment of GST shall be done on fair market value  basis in accordance with CGST Rules, 2017 concerned  with Determination of Value.

Supply of goods
(b) 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

Examples 

(i) R deals in home appliances like washing machines,  refrigerator, etc. He uses computers in his shops for  keeping track of inventory and for other business  purposes. Out of 2 computers, R takes home one  computer to be used by his son for his studies during  the month of August, 2018 and thereafter computer is  brought back to the show room of R. The aforesaid  private use of a computer by R/his son shall be treated  as a ‘supply of services.’

(ii) R gives generator-sets on rental basis to various  customers. He gives a generator-set to his brother-inlaw for a period of one month in September, 2018 on  the occasion of some function in the home of his  brother-in-law and thereafter generator is brought back  to the show room of R. The activity of making  available the said generator for the private use of  brother-in-law of R shall be treated as a ‘supply of  services’.

Supply of services
(c) goods forming part of the assets of any business carried on  by a person 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.

Example 

R has closed down his business but was left with certain capital  goods and inputs forming part of the assets of the business carried on by him. The closure of the business is due to his ill  health. In this case, such goods shall deemed to be supplied by  him in the course of furtherance of his business immediately  before he ceases to be a taxable person. Thus, the capital goods  which have some useful life and such inputs lying with him on  which credit has been availed should be treated as deemed  supply and shall be subject to GST.

However, the above capital goods and inputs shall not be  treated as deemed supply by him in the following two  situations:

(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.

Supply of goods
5. (a) renting of immovable property;

>>  Unlike entry 2 above, renting of immovable property under this entry does  not use the phrase ‘for business or commerce’. This entry covers renting of  all types of immovable properties for any purposes. The said entry  provides that any renting of immovable property shall be considered as a  supply of services and shall be charged to tax under GST as a supply of  service.

However, the Central Government has, vide Notification No. 12/2017  dated 28/06/2017, exempted the supply of services by way of renting of  residential dwelling for use as residence from whole of the tax leviable  thereon.

(b) construction of a complex, building, civil structure or a part thereof, including  a complex or building intended for sale to a buyer, wholly or partly, except where  the entire consideration has been received after issuance of completion  certificate, where required, by the competent authority or after its first  occupation, whichever is earlier.

(c) temporary transfer or permitting the use or enjoyment of any intellectual  property right;

The reading of this clause makes it absolutely clear that sale/permanent  transfer of IPR is not envisaged under the scope of this ‘entry’. Temporary  transfer or permitting the use or enjoyment of any intellectual property right  shall be treated as supply of service, whereas permanent transfer of title in IPR  shall be treated as supply of goods and shall be subject to tax under the Act,  accordingly.

(d) development, design, programming, customisation, adaptation, upgradation,  enhancement, implementation of information technology software;

>>   However, it would not include sale of pre-packaged or canned software as  it is in the nature of supply of goods and not supply of service.

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a  situation, or to do an act.

Example:

R who is interested in taking loan from some bank but does not have  any collateral security, approaches G who agrees to mortgage his property as  collateral security to the bank for advancing loan to ‘R’. G charges some consideration from ‘R’ for providing such collateral security. Consideration  received by G shall be covered under the scope of this entry and shall be subject to  tax as a supply of services.

In case of a non-compete agreement, one party agrees, for consideration, not to  compete with the other in any specified products, services, geographical location  or in any other manner. Such action on the part of one person is also an activity for  consideration and is covered under this entry and liable to tax as a Supply of  Services.

(f) transfer of the right to use any goods for any purpose (whether or not for a  specified period) for cash, deferred payment or other valuable consideration.

Supply of Services
6. Certain  composite  supplies (a) works contract as defined in section 2(119); and

(b) supply, by way of or as part of any service or in any  other manner whatsoever, of goods, being food or any  other article for human consumption or any drink (other  than alcoholic liquor for human consumption), where  such supply or service is for cash, deferred payment or  other valuable consideration.

Supply of services
7. Supply of  Goods by any  unincorporated  association or  body of  persons Supply of goods by any unincorporated association or body  of persons to a member thereof for cash, deferred payment or  other valuable consideration.

This entry deals with the supply of goods only and that too  when made to members of such unincorporated association or  body of persons.

Supply of goods
See also  Bond (Fixed Income) Concepts under Mutual Fund Investment
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