Introduction
Goods and Services Tax (“GST”) is a Consumption based tax, whereby the tax is levied on the taxable event SUPPLY,
Goods and Services Tax (“GST”) is a Consumption based tax, whereby the tax is levied on the taxable event SUPPLY,
As per the Article 366 (12A) of the
Constitution of India “GST means any tax on SUPPLY of goods or services or both
except taxes on supply of the alcoholic liquor for human consumption”, Supply (under
the provisions of Section 7) is in itself a BROAD TERM, which has taken
everything under its purview
Section 7, i.e. Scope of Supply, defines what
comes under supply; the definition is inclusive, thus making it more vast,
Summary Diagram of Supply
·
Sections
7(1)(a), 7(1)(b), and 7(1)(c) are for Determination of Supply, and
·
7(1)(d)
and 7(3) are for the Classification of Supply i.e. what constitutes Supply of
Goods and what constitutes as Supply of Services , whereas
·
The
Section 7(2) determines the negative list of GST
Analysis of Section 7 (1) (a)
This is a general definition of Supply, which
states that all forms of supply shall be treated as “SUPPLY” and shall be
subject to GST, only when
·
Consideration
is involved and
·
It
is for the purpose and furtherance of business
If the above stated conditions are not
satisfied then, the same will not be regarded as supply under this sub clause,
If we are doing something for personal motive
then the same can be subject to GST under section 7 (1) (b), which states that
Analysis of Section 7 (1) (b)
Thus not all cases ,
but only Import of Service if done for Personal purpose or Business purpose, and
for consideration shall be treated as supply under section 7 (1) (b)
Query:
XYZ Private Limited is a company registered under Companies Act 2013. XYZ Pte
Ltd is a Singapore based company. The ultimate beneficiary in XYZ Private
Limited and XYZ Pte Ltd is ABC (Foreign Individual). Now, XYZ Pte Ltd provides
consulting services to Individuals in India. However, just for ease of
transaction, the clients of XYZ Pte Ltd made the payment against those services
in Indian Bank Account of XYZ Private Limited. XYZ Private Limited has GSTIN in
Delhi. Now, question is mere deposit from Indian Subsidiary company calls for
payment of GST by XYZ Private Limited. However, we keep in mind that XYZ
Private Limited never discharge/ supply services to those clients.
Answer: Under
7(1)(b), we are required to check the “SUPPLY” from the recipient point of view
and not from Suppliers Point of view
In the query, the Supplier is the XYZ Pte Ltd., and the Recipient is the Clients of XYZ Pte Ltd,
and this is the case of reverse charge mechanism (“RCM”)
Our Conditions to
qualify the case as supply and Implication of GST on the receipient, are
present, i.e.,
·
Presence
of Consideration,
·
Import
of service for Business Purpose
Thus in this case, GST, will be paid by the Clients of XYZ
Pte Ltd. on reverse charge basis.
The Client depositing
the Consideration in the bank account of XYZ Private Limited (Indian
Subsidiary), which is the related party XYZ Pte Ltd, will make no change to the
above implication
Thus, the Client (service receiver) is required to Pay GST
on reverse charge basis to the Govt.
Now the question
arises, whether anything done without consideration , shall be treated as
supply or not??
Answer to this is –
Section 7 (1) (c), read with Schedule I of the Act, which states the matters,
if done without consideration shall be treated as SUPPLY under GST
Analysis of Section 7 (1) (c) read with Schedule I
This section/schedule clearly states the
activities that shall be treated as Supply even after absence of Consideration
There are 4 transactions stated below;
1.
Permanent
transfer or disposal of business assets where input tax credit has been availed
on such assets
2.
Supply
of goods or services or both between
Ø
Related
persons or
Ø
Distinct
persons, made in the course or furtherance of business
3.
Supply
of goods by
Ø
Principal
to Agent (Selling Agent) and
Ø
Agent
to Principal (Buying Agent)
4.
Import
of services by a taxable person from
Ø A related person or
Ø
Any
of his other establishment outside India in the course or furtherance of
business
Once the Activities are covered under the
SUPPLY under section 7 (1) (a)/(b)/(c), its time to decide whether the activity
is Supply of Goods or Supply of Services,
We need to classify them as Goods and Services
are taxed under different rates and the rules for valuation, are different as
well.
The classification can be made under Section 7
(1) (d), under Section 8 of the CGST Act (Composite Supply and Mixed Supply),
and if still the classification is not found, the same will be notified by the
GSTC under Section 7 (3)
Analysis of Section 7 (1) (d) read with Schedule II
Here we will discuss
about the transactions to be treated as Supply of Goods or Supply of Services
ü
There
are total 18 Entries discussed under this sub clause
ü
Out
of which 13 Entries are for Supply of Services , and
ü
The
remaining 5 Entries are for Supply of Goods
Supply of Services
I.
Transfer
of RIGHT IN GOODS or of Undivided Share in goods
without transfer of title
II.
Lease,
tenancy, easement, license to occupy Land
III.
Lease,
or letting of Building, including commercial, industrial or residential complex
IV.
Any
treatment or process applied to another person goods like Job work
V.
Transfer
of business asset where the goods are used for personal purpose or are made
available to any other person for personal use
VI.
Renting
of Immovable property (other than Land and Building)
VII.
Construction
of a complex, building, civil structure or part thereof, except where entire
consideration is received after issuance of Completion Certificate or after its
first Occupation
VIII.
Temporary
transfer of Intellectual Property Right
IX.
Development,
designing, programming, implementation of Information Technology Software
X.
Agreeing
to Do, not to Do, or tolerate the act
XI.
Transfer
of RIGHT TO USE any goods for any purpose
XII.
Work
Contract
XIII.
Restaurant
Services
The difference between
the two highlighted above i.e. Right in Goods and Right to Use can be well understood with the following example
Suppose you provide
your class notes to your friend, with a condition to not overwrite it, i.e. he
is only allowed to read your notes, then the situation is called Right
in Goods (i.e. Possession only).
And further if he is
allowed to write on the notes, then we are giving him the Right to Use (i.e. Possession
+ Control) such notes.
This the only difference between the two is
w.r.t. the Control
Supply of Goods
XIV.
Transfer
of Title in Goods
XV.
Transfer
of Title in Goods at a FUTURE DATE
XVI.
Transfer
of Business Asset by way of disposal or transfer under the direction of the
persons carrying on the business
XVII.
Transfer
of Business Asset where person ceases to be a taxable person, unless the
business transferred as a going concern or the business is carried on by a
personal representative shall be treated as supply of goods
XVIII.
Supply
of goods by unincorporated association or body of person to a member for cash,
deferred payment or other valuable considerations
This is how transactions can be classified as
Supply of Goods or Supply of Services,
Lets
have quick look to Section 8 of the CGST Act, 2017 i.e. Composite Supply and
Mixed Supply
Composite
Supply in simple words is the
Combination of Goods, Services or Both which are naturally bundled, like
v
Laptop
+ Laptop Bag
v
AC +
AC installation
Here GST is levied on the basis of rate of
Principal Supply i.e. Laptop and AC
Mixed
Supply, however is the
Combination of Goods, Services or Both which are not naturally bundled, like
v
A
gift pack consisting of Chocolates, Drinks, Fruits, etc which is not commonly
seen
Here GST shall be levied on the Highest rated
Good/Service example if Chocolate is taxed @ 28% and other all items
are taxed @ 5%, then the whole gift pack shall be taxed @ 28% only
Now moving forward to the last schedule of the
GST ACT, i.e. Schedule III (Negative List) under section 7(2), lets see what
all is not covered under GST.
Section 7(2) i.e. Schedule III :- Negative List of GST
The below mentioned transaction are out of the
purview of GST, i.e. no GST levied
I.
Services
provided by the Employee to Employer
II.
Services
provided by Court or Tribunal established under law to General Public
III.
The
functions performed by MP/MLA/MC/IAS/CAG etc
IV.
Services
of Funeral, Burial, Crematorium, Mortuary including Transportation of the
Deceased
V.
Sale
of Land and Building
VI.
Actionable
claim other than betting, gambling, and lottery.
This is how we can check if the transaction
done comes under supply and subject to GST,
If it comes under the purview of SUPPLY, GST
shall be levied subject to that the same is not covered under Negative list or
100% Exemption list.
This article has been prepared to brief you up
regarding the GST’s most important part “SUPPLY”
To know more, please contact CS Neha Seth at 9540074449
To know more, please contact CS Neha Seth at 9540074449
