SCHEDULE I - DEEMED SUPPLY WITHOUT CONSIDERATION
Contents
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Para |
Topics |
Relevant Section/Rules/N/C/O |
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Supply includes Deemed Supply without consideration as per Schedule I |
Section 7(1)(c) |
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Permanent transfer or disposal of business assets on which ITC has been availed |
Para 1 of Sch I |
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Supply between related person or branch in course of business |
Para 2 of Sch I |
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Treatment of supply between branches (distinct person) |
NA |
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Intrastate supply between branches having single registration is not supply |
NA |
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Intrastate supply between branches having separate registration is supply |
NA |
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Gift > Rs.50,000 by an Employer to Employee is supply |
Proviso to Para 2 of Sch I |
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Perquisites by employer to employee is not taxable |
NA |
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Supply by employees of a unit to another of a company is taxable |
AAR No.-KAR ADRG 15/2018 |
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Supply of moulds and dies on FOC basis by Original Equipment Manufacturer (OEM) to Component manufacturer (CM) |
Circular No. 47/21/2018-GST |
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Supply of goods between principal and his agent |
Para 3 of Sch I |
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Clarification on Scope of Principal-agent relationship in Sch I |
Circular No. 57/31/2018 GST dt. 04-09-2018 |
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Principal-Agent relationship under schedule 1 in the context of del-credere agent (DCA) |
Circular No. 73/47/2018 GST dt. 05-11-2018 |
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Import of services from a related person or his establishment outside India in the course of business |
Para 4 of Sch I |
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Comparison between import of service defined in Section 7(1)(b) and Para 4 of Sch-I |
NA |
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Misc Question |
NA |
SchI.0 Supply includes Deemed Supply without consideration as per Schedule I
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Section 7(1) For the purposes of this Act, “supply” includes– (c) the activities specified in Schedule I, made or agreed to be made without a consideration; |
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Purpose of Schedule-I In the past regime, in every tax statute, “consideration” played the most important role for levying taxes. For instance, if any service was provided for free to a person, such service was not subject to service tax. However, under GST, the importance of consideration has been diluted in Schedule I. |
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Following are Deemed Supply without consideration under schedule I |
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SchI.1 Permanent transfer or disposal of business assets on which ITC has been availed
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Para 1 of Schedule I Permanent transfer or disposal of business assets where ITC has been availed on such assets. |
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Any kind of disposal or transfer of business assets on permanent basis with or without consideration qualifies as supply. |
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Disposal or transfer must be Permanent Disposal or transfer of business assets should be on permanent basis. Temporary transfer is not covered in Schedule I. |
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ITC must have been availed on such Assets Disposal or transfer of business assets without consideration does not qualifies as supply under Schedule I if ITC has not been availed on such assets.
Disposal or transfer of business assets on which ITC is blocked/not available under GST, is not supply under GST. For ex; Motor Vehicle. |
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Ex |
Dhruv gives old laptops being used in his business to his friend free of cost. This will qualify as supply provided ITC has been availed by Dhruv on such laptops. |
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Ex |
A dealer of AC permanently transfers the motor vehicle free of cost. ITC on said motor vehicle is blocked. The transaction will not constitute a supply as the condition of availment of ITC on the business asset transferred is not fulfilled. |
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Term business assets has not been defined under the GST law. |
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Disposal or transfer of business assets with consideration qualifies as supply u/s 7(1)(a) |
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SchI.2 Supply between related person or branch in course of business
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Para 2 of schedule I Supply made in the course of business between related persons as per explanation to Section 15 or distinct persons as per section 25(4) or (5) |
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Supply between related persons or distinct person without consideration is treated as supply. |
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Above supply should be made in the course of business. |
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For meaning of distinct person, refer para 25.5 of guide on section 25. Distinct person means, branch or head office. |
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For meaning of related person, refer para 15.1.2 of guide on section 15 |
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SchI.2.1 Treatment of supply between branches (distinct person)
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Under gst, supply of goods or services between one branch to another branch is treated as supply as follows. |
SchI.2.1.1 Interstate supply between branches is supply
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Transactions between different locations (with separate GST registrations) of same legal entity (eg., stock transfers or branch transfers) will qualify as ‘supply’ under GST as these are transactions between distinct persons. |
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Ex |
[ICMA-I-Ch2-Ex50] [ICMA-F-Ch2-Ex48] CMA Ram, a Practicing Cost Accountant, has a registered head office in Chennai. He has also obtained registration in the State of Andhra Pradesh in respect of his branch office. CMA Ram shall be treated as distinct persons in respect of registrations in Tamil Nadu and Andhra Pradesh. Transactions between head office and branch office will be considered as supply of service even though there is no consideration. |
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Ex |
Raghubir Fabrics transfers 1000 shirts from his factory located in Lucknow to his retail showroom in Delhi so that the same can be sold from there. The factory and retail showroom of Raghubir Fabrics are registered in the States where they are located. Although no consideration is charged, supply of goods from factory to retail showroom constitutes supply. |
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SchI.2.1.2 Intrastate supply between branches having single registration is not supply
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Transfer between two units of a legal entity under single registration (apparently within same State) will not be considered as supply. |
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Ex |
Raghubir Fabrics transfers 1000 shirts from his factory located in Lucknow to his retail showroom in Kanpur so that the same can be sold from there. It has taken one registration in the State of Uttar Pradesh declaring Lucknow factory as its principal place of business and Kanpur showroom as its additional place of business. Since no consideration is charged, supply of goods from factory to retail showroom in same State under single registration does not constitute supply. |
SchI.2.1.3 Intrastate supply between branches having separate registration is supply
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Ex |
However, in the above example, if Raghubir Fabrics obtains separate registrations for Lucknow factory and Kanpur showroom, stock transfer between the Lucknow factory and Kanpur showroom will constitute supply. |
SchI.2.2 Gift > Rs.50,000 by an Employer to Employee is supply
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Proviso to Para 2 of schedule I Gifts not exceeding Rs.50,000 in value in a FY by an employer to an employee shall not be treated as supply of goods or services or both. |
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Services by an employee to the employer in the course of his employment is not supply as per Para 1 of Schedule III. Employer and employees are treated as related person by explanation to section 15. Gifts of value more than Rs.50,000 made without consideration are supply and are subject to GST, when made in the course or furtherance of business. However, gift not exceeding Rs.50,000 in value in a FY by an employer to employee shall not constitute supply. |
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The term ‘gift’ has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift. |
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Ex |
[ICMA-I-Ch2-Ex53] [ICMA-F-Ch2-Ex51] M/s Guideline Academy Pvt. Ltd., gives Diwali Gifts to each employee worth Rs.75,000/-. Since, an employee and employer are considered to be related persons, such gift treated as supply and would be leviable to GST on the entire value. |
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SchI.2.3 Perquisites by employer to employee is not taxable
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Services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST as per Schedule III. If services such as membership of a club, health and fitness centre etc. are provided free of charge to all the employees by the employer, the same will not be subjected to GST. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to company. |
SchI.2.4 Supply by employees of a unit to another of a company is taxable
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M/s Columbia Asia Hospitals Pvt. Ltd. (AAR No.-KAR ADRG 15/2018) Question: Whether the services provided by the employee of corporate office to the other units of the company is taxable plus charging consideration against allocation of common expenditure of units would tantamount to levy GST or not. The Karnataka AAR held the ruling in favour of revenue
Summary of case Applicant is a private limited company engaged in providing health care services categorizing them as In-patient (IP) and Out-patient (OP) services. The applicant is also engaged in supply of medicines (pharmacy) to in-patients and out-patients. The relevant facts on the basis of which ruling have been sought after are:— As clarified by the applicants through the facts that the person delivering the service are employed by the corporate office & not by the other units of the applicant. Hence there is an employer-employee relationship with corporate office only and no relationship exists with the employees of the corporate office & other units of the applicant. Therefore, the entry no. 1 of schedule III of CGST Act, 2017 would not be applicable. The services provided by such employees to the other units would be treated as the transaction between the corporate office & its units located in other states. Though the corporate office & its units are the distinct person u/s 25 of CGST Act, 2017, the transaction would be covered under the Entry no. 2 of Schedule I of CGST Act, 2017 i.e. “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” & therefore becomes taxable. The valuation of the transaction includes all cost incurred by the corporate office after considering employee cost in the form of salary, incentive & perquisites. Additionally, corporate office raises an invoice for the allocation of the expenses such as rent, travel expense, consultancy, etc. incurred on behalf of other units. Such reimbursement from the other units would be covered under the term ‘TRANSFER’ u/s 7(1)(a) of CGST Act, 2017. Furthermore, the transaction between the distinct person without consideration is covered under the definition of the SUPPLY under Entry No. 2 of Schedule I of CSGT Act, 2017. Hence the reimbursement of the expenditure would be attracting the tax liability. |
SchI.2.5 Supply of moulds and dies on FOC basis by Original Equipment Manufacturer (OEM) to Component manufacturer (CM)
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Sl No-1 of Circular No. 47/21/2018-GST dt. 08-06-2018 |
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Refer para 15.2.2.1 of guide on section 15. |
SchI.3 Supply of goods between principal and his agent
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Para 3 of Schedule I Supply of goods (a) by a principal to his agent where 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. |
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Refer section 2(5) for meaning of agent. |
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Refer section 2(88) for meaning of principal. |
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Only supply of goods and not supply of services is covered here. |
SchI.3.1 Clarification on Scope of Principal-agent relationship in Sch I
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Circular No. 57/31/2018 GST dt. 04-09-2018 |
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2. |
Meaning of Agent under Indian Contract Act, 1872 As per section 182 of the Indian Contract Act, 1872, an “agent” is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the “principal”. As delineated in the definition, an agent can be appointed for performing any act on behalf of the principal which may or may not have the potential for representation on behalf of the principal. So, the crucial element here is the representative character of the agent which enables him to carry out activities on behalf of the principal. |
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Reference of section 2(5) for meaning of agent is given here. |
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The following two key elements emerge from the above definition of agent: a) the term “agent‟ is defined in terms of the various activities being carried out by the person concerned in the principal-agent relationship; and b) the supply or receipt of goods or services has to be undertaken by the agent on behalf of the principal. From this, it can be deduced that the crucial component for covering a person within the ambit of the term “agent” under the CGST Act is corresponding to the representative character identified in the definition of “agent” under the Indian Contract Act, 1872. |
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Reference of Para 3 of Schedule I are given here. |
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6. |
Supply of services between principal and agent and vice versa is not covered here Supply of services between the principal and the agent and vice versa is outside the ambit of the said entry, and would therefore require “consideration” to consider it as supply. |
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Whether Para 3 of Schedule I applies on all Supplies of goods between Principal and Agent It depends on whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent or not. Where the invoice for further supply is being issued by the agent in his name then, any supply of goods from principal to agent would fall in Para 3. in the name of the principal, such agent shall not fall within the ambit of Para 3.
Similarly, where the goods being received by the agent on behalf of the principal are invoiced in the name of the agent then further supply of the said goods by the agent to the principal would be covered. The crucial point is whether or not the agent has the authority to pass or receive the title of the goods on behalf of the principal. |
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Scenario 1 Procurement agent would not fall in Para 3 Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods and issue the invoice directly to Mr. A. In this scenario, Mr. B is only acting as the procurement agent, and has in no way involved himself in the supply or receipt of the goods. Hence, Mr. B is not an agent of Mr. A for supply of goods in terms of Schedule I.
Scenario 2 Only Auctioneering services is out of Para 3 M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods. The auctioneer arranges for the auction and identifies the potential bidders. The highest bid is accepted and the goods are sold to the highest bidder by M/s XYZ. The invoice for the supply of the goods is issued by M/s XYZ to the successful bidder. In this scenario, the auctioneer is merely providing the auctioneering services with no role played in the supply of the goods. Even in this scenario, Mr. B is not an agent of M/s XYZ for the supply of goods in terms of Schedule I.
Scenario 3 Agent issues invoice in his name and he has authority to pass title Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting. M/s B arranges for the auction and identifies the potential bidders. The highest bid is accepted and the painting is sold to the highest bidder. The invoice for the supply of the painting is issued by M/s B on the behalf of Mr. A but in his own name and the painting is delivered to the successful bidder. In this scenario, M/s B is not merely providing auctioneering services, but is also supplying the painting on behalf of Mr. A to the bidder, and has the authority to transfer the title of the painting on behalf of Mr. A. This scenario is covered under Schedule I.
A similar situation can exist in case of supply of goods as well where the C&F agent or commission agent takes possession of the goods from the principal and issues the invoice in his own name. In such cases, the C&F/commission agent is an agent of the principal for the supply of goods in terms of Schedule I. The disclosure or non-disclosure of the name of the principal is immaterial in such situations.
Scenario 4 Commission agent as per APMC Act Mr A sells agricultural produce by utilizing the services of Mr B who is a commission agent as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State. Mr B identifies the buyers and sells the agricultural produce on behalf of Mr. A for which he charges a commission from Mr. A. As per the APMC Act, the commission agent is a person who buys or sells the agricultural produce on behalf of his principal, or facilitates buying and selling of agricultural produce on behalf of his principal and receives, by way of remuneration, a commission or percentage upon the amount involved in such transaction. In cases where the invoice is issued by Mr. B to the buyer, the former is an agent covered under Schedule I. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent (Mr. B) doesn’t fall under the category of agent covered under Schedule I. |
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Registration by Agent In scenario 1 and scenario 2, Mr. B shall not be liable to obtain registration u/s 24(vii). He, however, would be liable for registration if his aggregate turnover of taxable services exceeds the threshold specified in section 22(1). In scenario 3, M/s B shall be liable for compulsory registration u/s 24(vii). In respect of commission agents in Scenario 4, notification No. 12/2017 Central Tax (Rate) dated 24.06.2017 has exempted “services by any APMC or board or services provided by the commission agents for sale or purchase of agricultural produce” from GST. Thus, the services provided by the commission agent for sale or purchase of agricultural produce is exempted. Such commission agents (even when they qualify as agent under Schedule I) are not liable to be registered according to section 23(1)(a), if the supply of the agricultural produce, and /or other goods or services supplied by them are not liable to tax or wholly exempt under GST. However, in cases where the supply of agricultural produce is not exempted and liable to tax, such commission agent shall be liable for compulsory registration u/s 24(vii). |
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SchI.3.2 Principal-Agent relationship under schedule 1 in the context of del-credere agent (DCA)
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Circular No. 73/47/2018 GST dt. 05-11-2018 |
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Meaning of DCA In commercial trade parlance, a DCA is a selling agent who is engaged by a principal to assist in supply of goods or services by contacting potential buyers on behalf of the principal.
DCA guarantees the payment to the supplier but other agents do not guarantee The factor that differentiates a DCA from other agents is that the DCA guarantees the payment to the supplier. In such scenarios where the buyer fails to make payment to the principal by the due date, DCA makes the payment to the principal on behalf of the buyer (effectively providing an insurance against default by the buyer), and for this reason the commission paid to the DCA may be relatively higher than that paid to a normal agent.
DCA may provide loan to the buyer for timely payment to the principle In order to guarantee timely payment to the supplier, the DCA can resort to various methods including extending short-term transaction-based loans to the buyer or paying the supplier himself and recovering the amount from the buyer with some interest at a later date. |
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Whether a DCA falls under the ambit of agent under Para 3 of Schedule I? As already clarified vide circular No. 57/31/2018-GST dt. 04-09-2018, whether or not the DCA will fall under the ambit of agent under Para 3 of Schedule I depends on the following possible scenarios:
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Whether the temporary short-term transaction based loan extended by the DCA to the recipient (buyer), for which interest is charged by the DCA, is to be included in the value of goods being supplied by the principal where DCA is not an agent under Para 3 of Schedule I? In such a scenario following activities are taking place: 1. Supply of goods from supplier (principal) to recipient; 2. Supply of agency services from DCA to the supplier or the recipient or both; 3. Supply of extension of loan services by the DCA to the recipient
Where the DCA is not an agent under Para 3 of Schedule I, the temporary short-term transaction based loan being provided by DCA to the buyer is a supply of service by the DCA to the recipient on Principal to Principal basis and is an independent supply. Therefore, the interest being charged by the DCA would not form part of the value of supply of goods supplied (to the buyer) by the supplier. It may be noted that vide notification No. 12/2017-Central Tax (Rate) dated 28th June, 2017 (S. No. 27), services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) has been exempted. |
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Where DCA is an agent under Para 3 of Schedule I and makes payment to the principal on behalf of the buyer and charges interest to the buyer for delayed payment along with the value of goods being supplied, whether the interest will form a part of the value of supply of goods also or not? In such a scenario following activities are taking place: 1. Supply of goods by the supplier (principal) to the DCA; 2. Further supply of goods by the DCA to the recipient; 3. Supply of agency services by the DCA to the supplier or the recipient or both; 4. Extension of credit by the DCA to the recipient It is clarified that in cases where the DCA is an agent under Para 3 of Schedule I, the temporary short-term transaction based credit being provided by DCA to the buyer no longer retains its character of an independent supply and is subsumed in the supply of the goods by the DCA to the recipient. It is emphasised that the activity of extension of credit by the DCA to the recipient would not be considered as a separate supply as it is in the context of the supply of goods made by the DCA to the recipient. It is further clarified that the value of the interest charged for such credit would be required to be included in the value of supply of goods by DCA to the recipient as per section 15(2)(d). |
SchI.4 Import of services from a related person or his establishment outside India in the course of business
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Para 4 of Schedule I Import of services by a [1][person] from a related person or from any of his other establishments outside India, in the course or furtherance of business. |
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Under para 4, import of service without consideration shall be treated as deemed supply only if following 3 conditions are satisfied a) There should be import of services but not goods. b) Import should be from related person or from his establishment outside India. c) Import should be for business purpose |
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Ex |
Import of service from related person located outside India for business purpose Jhumroo Associates received legal consultancy services from its HO in Malaysia. HO has rendered such services free of cost to its branch office. Since Jhumroo Associates and HO are related persons, services received by Jhumroo Associates will qualify as supply even though the head office has not charged anything from it. |
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Ex |
Import of service from related person located outside India for personal purpose Chakmak, a proprietor registered in Delhi, has sought architect services from his son located in US, with respect to his newly constructed house in Delhi. Although services have been received by Chakmak without consideration from his son - a related person, yet it will not qualify as supply since the same has not been received in course or furtherance of business. |
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SchI.4.1 Comparison between import of service defined in Section 7(1)(b) and Para 4 of Sch-I
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Section |
Nature |
from whom |
Consideration |
Business Test |
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Section 7(1)(b) |
Import of service by a person |
Any one |
Mandatory |
Not mandatory |
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Para 4 of Sch-I |
Import of services by a person
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a related person or any of his other establishments outside India, |
NA |
Mandatory |
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SchI.5 Misc Question
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SchI.0 Supply includes Deemed Supply without consideration as per Schedule I
Question-1 [ICSI-E-D19-56-1]
Section 7 of the CGST Act, 2017 defines the term ‘supply’ which are further being enumerated in the various schedules as specified in that section. The section includes certain transactions which are even without consideration but being construed as supply and also known as deemed supply. Such transactions are being specified in .......... .
(A) Schedule - II (B) Schedule - I (C) Schedule - III (D) Schedule - IV
Question-1A [ICAI-I-Ch2-2]
_____________ specifies the activities to be treated as supply even if made without consideration.
(a) Schedule I of CGST Act
(b) Schedule II of CGST Act
(c) Schedule III of CGST Act
(d) All of the above
SchI.1 Permanent transfer or disposal of business assets on which ITC has been availed
[T-1] [ICSI-P-Ch2-Ex3]
ABC Ltd. a manufacturing company scraps old plant and machinery due to renovation of manufacturing facility. The company has taken input tax credit on plant and machinery so scrapped without consideration. Does it qualify as a supply? Solution:
Answer
As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Permanent transfer or disposal of business assets where input tax credit has been availed shall be treated as supply even made without consideration. Hence scrapping of old plant and machinery without consideration shall qualify as supply since input tax credit has been availed by XYZ & Co.
Question-1 [ICSI-E-J22-80-1] [Conditions of deemed suply]
As per Schedule I of the CGST Act, 2017 any kind of disposal or transfer of business assets made by an entity on permanent basis qualifies as supply, even though it is without consideration. This provision would apply only if :
(A) ITC has been availed on such assets (B) ITC has not been availed on such assets (C) ITC has been availed on other assets (D) No such condition
Transfer of Business Assets without consideration where ITC were taken
Question-2 [ICMA-I-Ch2-Ex38] [ICMA-F-Ch2-Ex36]
M/s Z Ltd., upgrades the computer system. The existing computers and laptops, which do not support the upgraded version, donated to a Trust. This amounts to permanent transfer of business assets. The same will be treated as supply of goods and liable to GST in the hands of Z Ltd., provided if company availed ITC on such computers and laptops.
Question-2A [ICMA-I-Ch2-Ex43] [ICMA-F-Ch2-Ex41]
M/s T 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? NOTE: AC machines on which ITC availed.
Answer: Yes, it shall be a deemed supply (as per schedule I)
Transfer of Business Stock
Question-3 [ICMA-I-D19-6a(i)-4]****
Raja Raja Chola Sales, air-conditioner dealer in Thanjavur, Tamilnadu, needs 4 air-conditioners for his newly constructed house in Gangaikondai Cholapuram Enclave. Therefore, he transfers 4 air-conditioners [on which ITC has already been availed by it] from its stock, for the said purpose. Examine whether the said activity amounts to supply under section 7 of the CGST Act, 2017.
Further, a Thanjavur resident, Vikrama Pandiya, approached Raja Raja Chola Sales. He sold an air-conditioner to Raja Raja Chola Sales for Rs. 5,000. Vikrama Pandiya had bought the said air-conditioner six months before, for his residence. Does sale of the air-conditioner by Vikrama Pandiya to Raja Raja chola Sales amount to supply under Section 7 of the CGST Act, 2017?
Question-3A [ICMA-I-Ch2-Ex39] [ICMA-F-Ch2-Ex37]
M/s Sankar Pvt. Ltd., being a trader in clothes permanently transfers 50% of its stock to a Society free of cost. In this case, transfer of business stock would amount to supply if the company had availed ITC on purchase of clothes.
Transfer of Business Assets without consideration where ITC were not taken
Quesiton-4 [ICMA-I-Ch2-Ex41] [ICMA-F-Ch2-Ex39]
Mr. Rahim purchased a car for Business use and after 2 years transferred car for personal consumption to use at home. Will the transaction be a supply in terms of GST Act? Note: ITC not availed by Mr. Rahim.
Answer: No, because supply is not made by the individual in the course or furtherance of business. Further, ITC 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.
Quesiton-4A [ICMAI-F-D19-2(vii)-2] [ICMA-I-Ch2-Ex42] [ICMA-F-Ch2-Ex40]
M/s M & Co., a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture to furnish his house permanently. Will the transaction be a supply in terms of GST Act?
Note: ITC on such furniture not availed.
Answer: No, the transfer of the furniture by the owner without consideration is not a supply of goods, because credit is not allowed in case of personal consumption of business assets under sec 17(5) (g) of CGST Act.
Question-4B [ICAI-F-Ch2-2]
Sudama Associates, a registered supplier, disposes the computers owned by the business without consideration and it has not claimed input tax credit on such computers.
Examine whether the disposal of computers by Sudama Associates qualifies as deemed supply under Schedule I.
Answer
As per section 7(1)(c) read with Schedule I, permanent transfer or disposal of business assets is treated as supply even though the same is made without consideration. However, this provision would apply only if input tax credit has been availed on such assets. Therefore, the disposal of computers by Sudama Associates is not a supply as the input tax credit has not been availed on the same.
Sale of Personal Assets with consideration
Question-5 [ICMA-I-Ch2-Ex40] [ICMA-F-Ch2-Ex38]
Mr. Das purchased a car for personal use and after a year sold it to a car dealer for Rs.2 lac. Will the transaction be a supply in terms of GST Act?
Answer:
This transaction is not a supply. Moreover, supply is made by the individual is not in the course or furtherance of business. Further, no ITC was admissible on such car at the time of its acquisition as it was meant for non-business use.
Transfer of Business Assets without consideration where ITC were not taken
SchI.2 Supply between related person or branch in course of business
Question-1 [ICSI-P-J21-2d(iv)-1.25] [ICSI-P-Ch2-Ex4] [Supply by person having controlling interest]
Big Ltd. provides management technical services without consideration to Small Ltd. in which Big Ltd. has controlling rights. These technical services have been provided for benefit of entire group. Does it qualify as a supply?
Answer
As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Supply of goods or services between related persons is treated as supply even if it is without consideration. As per Explanation to Section 15 of CGST Act, 2017, persons shall be deemed to be “related persons” if “one of them directly or indirectly controls the other”. Since Big Ltd. has controlling rights of Small Ltd., they will be treated as related person and the said transaction will qualify as supply.
Question-2 [ICAI-F-Ch2-8] [Supply between related persons]
Mokshabhumi Industries has its manufacturing unit in the State of Maharashtra. It stores the finished goods manufactured by it at a depot located in the State of Gujarat. The depot is owned by Punyabhumi Ltd. – a related person of Mokshabhumi Industries. Punyabhumi Ltd. has not charged any consideration from Mokshabhumi Industries for usage of depot for storage purpose. Whether the storage of goods permitted by Punyabhumi Ltd. to Mokshabhumi Industries qualifies as supply under GST?
Answer
As per section 7(1)(c) read with Schedule I, supply of goods or services or both between related persons without consideration when made in the course or furtherance of business qualifies as supply. Thus, the storage services provided by Punyabhumi Ltd. to Mokshabhumi Industries in course or furtherance of business qualify as supply under GST even though no consideration has been charged for the same.
SchI.2.1.1 Interstate supply between branches is supply
Question-1 [ICAI-I-Ch2-2]
Damodar Private Ltd., registered in Delhi, has transferred some goods to its branch, registered in West Bengal, so that the goods can be sold from the branch. The goods have been transferred without any consideration. The company believes that the transaction undertaken by it does not qualify as supply as no consideration is involved. Ascertain whether the transfer of goods by Damodar Private Ltd. to its branch office qualifies as supply.
Answer
As per Schedule I, 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, is deemed as supply even if made without consideration. In the given case, since the Damodar Private Ltd. And its branch located in another State are distinct persons, supply of goods between them qualifies as supply.
Question-1A [CMA-I-Ch2-Ex52] [CMA-F-Ch2-Ex50]
M/s C Ltd. has 3 branches A, B & Z in different states. A in Telangana has run out of stock and B from Andhra Pradesh transfers its excess stock.
Is it supply of goods? GST will be levied?
Answer:
Yes. It is supply of goods and liable to IGST.
Question-1B [ICSI-P-D21-3e-4]
ABC Ltd. Co. registered as Company having under the GST, its head office in Mumbai. It has also obtained registration for its branch situated in Jaipur, Rajasthan. ABC Ltd, had transferred 1000 units of finished goods from Mumbai to Jaipur branch without consideration, as stock transfer. You are required to state in the context of provision of GST whether such transaction qualifies as supply.
Answer
Yes, As per section 7(1)(c) read with Schedule 1 of Central Goods and Services Tax Act, 2017, when a person who has obtained or is required to obtain registration in a State or Union Territory in respect of an establishment in another State or Union Territory, then such establishments shall be treated as establishments of distinct persons.
Transactions between different establishments with separate GST registration, of same legal entity (e.g. Stock transfers or Branch transfers) will quality as ‘supply' under GST.
Accordingly, in view of section 7(1)(c) the stock transfer between Mumbai & Jaipur branch shall be treated as supply under GST.
SchI.2.2 Gift > Rs.50,000 by an Employer to Employee is supply
Question-1 [ICMAI-I-J19-1(d)(ii)-1]
Gifts exceeding __________ in value in a financial year by an employer to employee shall constitute supply of goods or services or both.
Question-1A [ICSI-E-J22-64-1]
When employer gifts goods or services to his employees, it will not be considered as taxable supply for the purpose of GST; if the value of supply to an employee does not exceed
(A) Rs.5,000 (B) Rs.20,000 (C) Rs.50,000 (D) Rs.1,00,000
SchI.3.1 Clarification on Scope of Principal-agent relationship in Sch I
Question-1 [ICSI-E-J22-55-1] [Procurement agent]
Ashoka Enterprises appoints Babulal to procure certain goods for them. Babulal identifies various suppliers who can provide such goods and asks Chetna Enterprises to send the goods and issue the invoice directly to Ashoka Enterprises. Examine and state in the context of CBIC Circular No. 57/31/2018 – GST and provisions of CGST Act, 2017 the act of Babulal in this case be treated as of ........................... .
(A) Middlemen (B) Procurement Agent (C) Pure Agent (D) Broker
Question-2 [ICSI-E-D20-54-1]
Supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal and supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal are even without consideration but are construed as specified in Schedule-I of the CGST Act, 2017 as ------------
(A) supply of goods (B) supply of services (C) supply (D) supply and known as deemed supply
Question-3 [ICMA-F-Ch2-MCQ1]
Mr. JB is a registered person under GST in the State of Maharashtra who sells footwear to his customers locally within the same State. He has been appointed as an agent by M/s TS Ltd., a company registered under GST in the State of Karnataka. During a financial year, M/s TS Ltd., sends taxable goods worth Rs.5.00 cr from its Bengaluru stores to Mr. JB who sells such goods for Rs.5.00 cr by raising invoices using the GSTIN of M/s. TS Ltd. Mr. JB receives a commission of Rs.60.00 lakh from M/s TS Ltd., during the said financial year.
Compute the value of supply of TS Ltd. and Mr. JB for the financial year.
(a) M/s TS Ltd.: Nil and JB Rs.5.60 crore
(b) M/s TS Ltd.: Rs.5 crore and JB Rs.5.60 crore
(c) M/s TS Ltd.: Rs.5 crore and JB: Rs.60 lakh
(d) None of the above
SchI.4 Import of services from a related person or his establishment outside India in the course of business
Question-1 [CMA-I-Ch2-Ex57] [CMA-F-Ch2-Ex55] [Import of service for business purpose]
Apte & Apte Ltd is located in India and holding 51% of shares of Wilson Ltd, a USA based company. Wilson Ltd provides Business Auxiliary Services to Apte & Apte Ltd., will be treated as supply.
Question-1A [CMA-I-Ch2-Ex58] [CMA-F-Ch2-Ex56]
Sparsh Ltd. of Mumbai imports business support services from its head office located in USA. The head office has rendered such services free of cost to its branch office. Services received by Sparsh Ltd. will qualify as supply even though the head office has not charged anything from it.
SchI.4.1 Comparison between import of service defined in Section 7(1)(b) and Para 4 of Sch-I
[T-1] [ICAI-I-N20-8c-5]****
With reference to provisions of the CGST Act, 2017 discuss in brief, when ''Importation of
services" is to be considered as supply and when it is not to be considered as supply.
Answer
Importation of services for a consideration whether or not in the course or furtherance of business is to be considered as supply.
Importation of services by a person without consideration is deemed as supply provided the following two conditions are satisfied:-
(a) such import is from related person or from his establishments located outside India, and
(b) such import is in the course or furtherance of business. In case any or both of the above two conditions is/are not satisfied, the import of services without consideration shall not be deemed as supply.
Question-1 [ICAI-I-M18-O-12b-5]****
Mrs. Pragati received legal advice for her personal problems & paid 1,000 pound as a legal fees to Miss Unnati of U.K. (London).
(i) Explain whether the above activity of import of service would amount to supply u/s 7 of the CGST Act, 2017 ?
(ii) If in above case both of them are real sisters & no consideration is paid then will it change your answer?
(iii) Further in the above case if both of them are real sisters & Mrs. Pragati receives legal advice for her business & she doesn't pay any consideration then what will be your answer?
Answer
(i)
Section 7(1)(b) - Supply includes import of services for a consideration even if it is not in the course or furtherance of business.
Thus, although the import of service for consideration by Mrs. Pragati is not in course or furtherance of business, it would amount to supply.
(ii)
Para 4 of Sch-I - Import of services by a person from a related person or his other establishments outside India, in the course or furtherance of business without consideration is deemed supply
In the given case, import of service without consideration by Mrs. Pragati from her real sister - Miss Unnati [real sister, being member of the same family, is a related person] will not be treated as supply as it is not in course or furtherance of business.
(iii)
However, import of service without consideration by Mrs. Pragati from her sister - Miss Unnati (related person) will be treated as supply if she receives legal advice for her business, i.e. in course or furtherance of business Provisions of scope of supply under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act.
Question-1A [ICAI-I-Ch2-10]
Examine whether the activity of import of service in the following independent cases would amount to supply u/s 7.
(i) Miss Shriniti Kaushik received interior decoration services for her residence located at Bandra, Mumbai from Mr. Racheal of Sydney (Australia). The amount paid for the said service is 5,000 Australian dollar.
(ii) Miss Shriniti Kaushik received interior decoration services for her residence located at Bandra, Mumbai from her brother, Mr. Varun residing in Sydney (Australia) [wholly dependent on Miss Shriniti]. Further, Miss Shriniti did not pay any consideration for the said service.
(iii) Will your answer change if in the above case, if Miss Shriniti has taken interior decoration services with regard to her business premises and not her residence?
SchI.5 Misc Question
[T-1] [ICAI-I-M18-O-8b-5]
List the activities to be treated as supply under CGST Act, 2017 even if made without consideration.
[T-1A] [ICAI-I-Ch2-3]
Prithvi Associates is engaged in supply of taxable goods. It enquires from its tax advisor as to whether any activity can be treated as supply even if made without consideration in accordance with the provisions. You are required to enumerate such activities, if any.
Question-1 [ICSI-E-J21-53-1]
Which of the following shall not be treated as deemed supply under GST ?
(A) Supply of goods of Principal to agent for the purpose of sale of such goods by agent on behalf of principal
(B) Import of service by a person from any of his other establishment outside India
(C) Permanent transfer of business assets where input tax credit has been availed on such assets
(D) Services from employee to employer
Question-2 [ICSI-E-J21-55-1]
Which of the following would be treated as deemed supply of goods or services?
(A) Gift by employer to employee exceeding Rs.50,000
(B) Funeral service
(C) Sale of land
(D) Functions performed by Members of Parliament
Question-3 [ICSI-E-J22-69-1]
Which of the following is not considered as deemed supply under CGST Act, 2017 ?
(A) Permanent transfer or disposal of business assets where ITC has been availed on such assets
(B) Import of services by a person from a related person or from any of his other establishments outside India
(C) Supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal
(D) Supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration
Question-4 [ICAI-I-Ch2-6]****
Examine whether the following activities would amount to supply u/s 7 read with Schedule I:
(a) Sulekha Manufacturers have a factory in Delhi and a depot in Mumbai. Both establishments are registered in respective States. Finished goods are sent from factory in Delhi to the Mumbai depot without consideration so that the same can be sold.
(b) Raman is an architect in Chennai. His brother who is settled in London is a well-known lawyer. Raman has taken legal advice from him free of cost with regard to his family dispute.
(c) Would your answer be different if in the above case, Raman has taken advice in respect of his business unit in Chennai?
Answer
6(a)
Schedule I, inter alia, stipulates that supply of goods or services or both between related persons or between distinct persons as specified in section 25, is supply even without consideration provided it is made in the course or furtherance of business. Further, a person who has obtained more than one registration, whether in one State/Union territory or more than one State/Union territory shall, in respect of each such registration, be treated as distinct persons [Section 25(4)].
In view of the same, factory and depot of Sulekha Manufacturers are distinct persons. Therefore, supply of goods from Delhi factory of Sulekha Manufacturers to Mumbai Depot without consideration, but in course/furtherance of business, is supply under section 7 read with Schedule I.
(b) Schedule I, inter alia, stipulates that import of services by a taxable person from a related person located outside India, without consideration is treated as supply if it is provided in the course or furtherance of business. Explanation to section 15, inter alia, provides that persons shall be deemed to be “related persons” if they are members of the same family. Further, as per 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.
In the given case, Raman has received free of cost legal services from his brother. However, in view of section 2(49)(ii) above, Raman and his brother cannot be considered to be related as Raman’s brother is a well-known lawyer and is not wholly/mainly dependent on Raman. Further, Raman has taken legal advice from him in personal matter and not in course or furtherance of business. Consequently, services provided by
Raman’s brother to him would not be treated as supply under section 7 read with Schedule I.
In the above case, if Raman has taken advice with regard to his business unit, services provided by Raman’s brother to him would still not be treated as supply under section 7 read with Schedule I as although the same are provided in course or furtherance of business, such services have not been received from a related person.
Question-5 [ICSI-E-D19-O-81-1]
Which of the following is liable for GST even though there is no consideration ?
(A) Branch transfer of goods
(B) Services by court or tribunal
(C) Services of funeral
(D) Gift of jewellery
[1] Substituted for word “taxable person” by Section 30 of The CGST(A) Act, 2018 dt. 29-08-2018 and made effective from 01-02-2019 by Notification No. 02/2019-Central Tax dt. 29-01-2019.
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