SCHEDULE II - ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SERVICES
Contents
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Para |
Topics |
Relevant Section/Rules/N/C/O |
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Purpose of schedule II |
NA |
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Transfer of title or rights etc in goods |
NA |
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Transfer of the title in goods [Sale of goods] |
Para 1(a) of Sch II |
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Transfer of rights or undivided share in goods without the transfer of title of goods (Rent/ Lease) |
Para 1(b) of Sch II |
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Transfer of title in goods in future date [Hire ourchase] |
Para 1(3) of Sch II |
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Land & Building |
NA |
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Lease, tenancy, easement, licence to occupy land |
Para 2(a) of Sch II |
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Lease or letting out of building for business purpose |
Para 2(b) of Sch II |
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Transfer of tenancy rights against tenancy premium is supply |
Circular No. 44/18/2018-CGST dt. 02-05-2018 |
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Treatment of Process [Job work] |
Para 3 of Sch II |
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Transfer or disposal of business assets |
NA |
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Transfer or disposal of Parts of Business Assets by person carrying on business |
Para 4(a) of Sch II |
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Business Assets used for non-business purpose |
Para 4(b) of Sch II |
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Deemed supply of goods on cessation of business |
Para 4(c) of Sch II |
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Supply of services |
NA |
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Renting of immovable property |
Para 5(a) of Sch II |
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Construction of a complex, building, civil structure etc |
Para 5(b) of Sch II |
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Temporary transfer or permitting the use of IPR |
Para 5(c) of Sch II |
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Development, design, customisation, upgradation, implementation of IT software |
Para 5(d) of Sch II |
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Obligation to tolerate or refrain from an act |
Para 5(e) of Sch II |
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Applicability of GST on delayed payment charges in case of late payment of EMI |
Circular No. 102/21/2019-GST dt. 28-06-2019 |
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Transfer of the right to use any goods for any purpose |
Para 5(e) of Sch II |
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Composite Supply |
NA |
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Works Contract supply |
Para 6(a) of Sch II |
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Supply of food in restaurant |
Para 6(b) of Sch II |
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Trading of PSLC on e-Kuber Portal is supply of goods |
Circular No. 62/36/2018-GST dt. 12-09-2018 and 93/12/2019 - GST dated 08-03-2019 |
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Misc Question |
NA |
SchII.0 Purpose of schedule II
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Section 7(1A) where certain activities or transactions constitute a supply as per section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II] |
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Purpose of Schedule-II In case of some supplies, like work contract, restaurant services etc, there is doubt that whether such supply would be supply of goods or supply of services. Schedule II has clarified the same for following activities whether to be treated as supply of goods or supply of services. |
SchII.1 Transfer of title or rights etc in goods
SchII.1.1 Transfer of the title in goods [Sale of goods]
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Para 1 of Schedule II (a) any transfer of the title in goods is a supply of goods |
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“Sale” involves transfer of property in goods from one person to another person for consideration. Hence sale of goods shall be treated as supply of goods. On transfer of the title in goods, ownership gets transferred to the buyer. |
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Ex |
Mr A sells ready-made garments to its customers |
SchII.1.2 Transfer of rights or undivided share in goods without the transfer of title of goods (Rent/ Lease)
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Para 1 of Schedule II (b) Any transfer of right in goods undivided share in goods without the transfer of title thereof is supply of services |
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Transfer of rights or undivided share in goods without the transfer of title of goods is not sale of goods but it may be renting/ leasing which gives rights to use such goods. |
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Ex |
X Ltd. gives a machinery on rent to Y Ltd. |
SchII.1.3 Transfer of title in goods in future date [Hire purchase]
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Para 1(c) of Schedule II Any transfer of 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 is supply of goods |
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In hire purchase, property in goods transferred on final payment. |
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Ex |
[ICMAI-F-Ch2-58] [ICMAI-I-Ch2-60] [Transfer of title in future] Mr. A provides machine to Mr. B and he permits Mr. B to use the machine, provided Mr. B pays for the machine after two months, when the property of goods will be transferred to Mr. B. it is a supply of goods. |
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SchII.2 Land & Building
SchII.2.1 Lease, tenancy, easement, licence to occupy land
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Para 2 of Schedule II (b) Any lease, tenancy, easement, licence to occupy land is is supply of services |
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In hire purchase, property in goods transferred on final payment. |
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Ex |
Lease agreement for land |
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SchII.2.2 Lease or letting out of building for business purpose
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Para 2 of Schedule II (a) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly is supply of services |
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In hire purchase, property in goods transferred on final payment. |
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Ex |
let out of shop, office etc. |
SchII.2.3 Transfer of tenancy rights against tenancy premium is supply
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Circular No. 44/18/2018-CGST dt. 02-05-2018 |
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2. |
Meaning of Transfer of tenancy rights against tenancy premium = Pagadi System In this system the tenant acquires tenancy rights in the property against payment of tenancy premium (pagadi). The landlord may be owner of the property but the possession of the same lies with the tenant. The tenant pays periodic rent to the landlord as long as he occupies the property. The tenant also usually has the option to sell the tenancy right of the said property and in such a case he has to share a percentage of the proceed with owner of land, as laid down in their tenancy agreement. Alternatively, the landlord pays to tenant the prevailing tenancy premium to get the property vacated. Such properties in Maharashtra are governed by Maharashtra Rent Control Act, 1999. |
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3. |
Transfer of tenancy rights against tenancy premium is supply of services The scope of supply includes all forms of supply of goods and services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business and also includes the activities specified in Schedule II. The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST. It is a form of lease or renting of property and such activity is specifically declared to be a service in para 2 of Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services |
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4. |
Even if stamp duty and registration charges paid on such transfer, it shall be treated as supply The contention that stamp duty and registration charges is levied on such transfers of tenancy rights, and such transaction thus should not be subjected to GST, is not relevant. Merely because a transaction or a supply involves execution of documents which may require registration and payment of registration fee and stamp duty, would not preclude them from the scope of supply of goods and services and from payment of GST. The transfer of tenancy rights cannot be treated as sale of land or building declared as neither a supply of goods nor of services in para 5 of Schedule III. Thus a consideration for the said activity shall attract levy of GST. |
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5. |
Conclusion To sum up, the activity of transfer of ‘tenancy rights’ is squarely covered under the scope of supply and taxable per-se. Transfer of tenancy rights to a new tenant against consideration in the form of tenancy premium is taxable. However, renting of residential dwelling for use as a residence is exempt [Sl. No. 12 of notification No. 12/2017-Central Tax(Rate)]. Hence, grant of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt. As regards services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the form of a portion of tenancy premium is liable to GST. |
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SchII.3 Treatment of Process [Job work]
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Para 3 of Schedule II Any treatment or process applied to another person's goods is supply of services |
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Ex |
[ICMAI-F-Ch2-60] [ICMAI-I-Ch2-63] Any activity carried out on the product whether for bringing change in the product or not will be considered as processing of the product. Job-work performed by a job worker like cleaning and painting. Job-work performed by a job worker like converting raw material into finished goods. |
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SchII.4 Transfer or disposal of business assets
SchII.4.1 Transfer or disposal of Parts of Business Assets by person carrying on business
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Para 4(a) of Schedule II (a) where 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 such transfer or disposal is a supply of goods by the person; |
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Ex |
Sale of office computers or furniture is supply of goods. |
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SchII.4.2 Business Assets used for non-business purpose
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Para 4(b) of Schedule II where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or used, or made available to any person for use, for any purpose other than a purpose of the business, the usage or making available of such goods is a supply of services; |
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Ex |
Mr X, a sole proprietor, owns a laptop used for making office presentations. He transfers said laptop to his son for making school projects. |
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SchII.4.3 Deemed supply of goods on cessation of business
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Para 4(c) of Schedule II where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him 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. |
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On cessation of business, all business assets or stock shall be deemed to be supply of goods just before cessation. However if business is transferred as going concern or it is carried on by a personal representative, then there shall be no deemed supply. |
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Ex |
Mr X, a trader, is winding up his business. Any goods left in stock shall be deemed to be supplied by him. Say a person runs a shop of refrigerators. On a particular day, he decides to shut his shop permanently. On such day, he is having a stock of refrigerators. In such situation, it shall be deemed that he has disposed of such stock of refrigerators immediately before shutting down his shop and such disposal shall be considered as supply of goods. |
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SchII.5 Supply of services
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Ex |
Following supply shall be treated as supply of services |
SchII.5.1 Renting of immovable property
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Para 5(a) of Schedule II Renting of immovable property |
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Ex |
Renting of commercial complex, precincts of a religious complex etc. |
SchII.5.2 Construction of a complex, building, civil structure etc
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Para 5(b) of Schedule II 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. Explanation.—For the purposes of this clause— (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:— (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers (India); or (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority; (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; |
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Ex |
Mr X Builders has constructed individual residential units for agreed consideration of Rs.1.2 crore per unit. Rs.90 lakh per unit were received before issuance of completion certificate by the competent authority and balance after completion.
Real estate companies generally open booking of flats even before the construction is started and allow customers to pay the price in instalments spread over a number of years until the possession of flat is granted. Such modality of selling flats is considered as supply of service even though the underlying property being transferred is made up of goods. |
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SchII.5.3 Temporary transfer or permitting the use of IPR
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Para 5(c) of Schedule II Temporary transfer or permitting the use or enjoyment of any intellectual property right |
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Ex |
Permitting the use of patent, copyright, trademark shall amount to supply of service. |
SchII.5.4 Development, design, customisation, upgradation, implementation of IT software
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Para 5(d) of Schedule II development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; |
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Ex |
Mr X develops an accounting software for a business. |
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SchII.5.5 Obligation to tolerate or refrain from an act
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Para 5(e) of Schedule II agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and |
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Ex |
Obligation to tolerate an act or a situation Notice pay recovered from employee for leaving the job before agreed period of notice for leaving a job. Late delivery charges recovered from supplier for non-fulfilment of contract within stipulated time. |
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Ex |
Obligation to refrain from an act Refrain means restricting oneself to do or not to do one act: Mr. Ram request to Mr. Shyam not to teach a particular subject in particular area for 5 years. Shyam agrees with the terms and condition against a consideration of Rs.5,00,000. The same would amount to supply of service by Shyam and would attract GST. Cable operator – Mr X has entered into an agreement with Cable operator – Mr Y that Mr X will not provide cable connections in the specified areas where Mr Y is providing the connections. Non-compete agreements constitute supply of service. |
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Tolerate an act or a situation with government Services provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract is exempted from GST. |
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SchII.5.5.1 Applicability of GST on delayed payment charges in case of late payment of EMI
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Circular No. 102/21/2019-GST dt. 28-06-2019 |
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2 |
Whether it would be exempt from GST under Sl. No. 27 of notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 or such penal interest would be treated as consideration for liquidated damages [amounting to a separate taxable supply of services under GST covered under entry 5(e) of Schedule II i.e. “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”]. |
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3 |
Generally, following two transaction options involving EMI are prevalent in the trade:
Case – 1 [Hire Purchase basis]: X sells a mobile phone to Y. The cost of mobile phone is Rs 40,000/-. However, X gives Y an option to pay in installments, Rs 11,000/- every month before 10th day of the following month, over next four months (Rs 11,000/- *4 = Rs. 44,000/- ). Further, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional / penal interest amounting to Rs. 500/- per month for the delay. In some instances, X is charging Y Rs. 40,000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional / penal interest amounting to Rs. 500/- per month for each delay in payment. Case – 2 [Financing]: X sells a mobile phone to Y. The cost of mobile phone is Rs 40,000/-. Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any delay in payment. |
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4 |
Provision under GST As per section 15(2)(d) of the CGST Act, the value of supply shall include “interest or late fee or penalty for delayed payment of any consideration for any supply”. Further in terms of Sl. No. 27 of notification No. 12/2017- Central Tax (Rate) dated the 28.06.2017 “services by way of (a) 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)”is exempted. Further, as per clause 2 (zk) of the notification No. 12/2017-Central Tax (Rate) dated the 28th June, 2017, “‘interest’ means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;”. |
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5 |
Accordingly, based on the above provisions, the applicability of GST in both cases listed in para 3 above would be as follows: Under hire purchase, penal interest is includible in value of supply Case 1: As per section 15(2)(d), the amount of penal interest is to be included in the value of supply. The transaction between X and Y is for supply of taxable goods i.e. mobile phone. Accordingly, the penal interest would be taxable as it would be included in the value of the mobile, irrespective of the manner of invoicing.
Under financing, additional interest is exempt Case 2: The additional / penal interest is charged for a transaction between Y and M/s ABC Ltd., and the same is getting covered under Sl. No. 27 of notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. Accordingly, in this case the 'penal interest' charged thereon on a transaction between Y and M/s ABC Ltd. would not be subject to GST. The value of supply of mobile by X to Y would be Rs. 40,000/- for the purpose of levy of GST. |
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6 |
Under financing, additional interest does not fall in entry 5(e) of Sch-II. It is further clarified that the transaction of levy of additional / penal interest does not fall within the ambit of entry 5(e) of Schedule II i.e. “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”, as this levy of additional / penal interest satisfies the definition of “interest” as contained in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. Any service charge etc for extending deposits is supply and it is not exempt It is further clarified that any service fee/charge or any other charges that are levied by M/s ABC Ltd. in respect of the transaction related to extending deposits, loans or advances does not qualify to be interest as defined in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, and accordingly will not be exempt. |
SchII.5.6 Transfer of the right to use any goods for any purpose
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Para 5(f) of Schedule II 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 |
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Ex |
[ICMAI-F-Ch2-81] [ICMAI-I-Ch2-84] Ram has given his tempos on hire to Gupta Brothers for transportation of foodstuff for Rs.40,00,000. He has also transferred the right to use such tempos to Gupta Brothers. Discuss whether Ram is liable to pay GST on the said transaction. Answer: It is treated as supply of service. Ram is liable to pay GST. |
SchII.6 Composite Supply
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Following composite supplies shall be treated as a supply of services |
SchII.6.1 Works Contract supply
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Para 6(a) of Schedule II works contract as defined in clause (119) of section 2 |
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Refer section 2(119) for meaning of works contract |
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Ex |
[ICAI-F-Ch2-82] [ICAI-I-Ch2-85] S Pvt. Ltd. was awarded a contract in July 2017 for providing flooring and wall tiling services in respect of a building located in Delhi by N Ltd. As per the terms of contract, S Pvt. Ltd. was to provide all the required material for execution of the contract. However, N Ltd also provided a portion of the material. Whether the services provided by S Pvt. Ltd. are subject to GST? Answer Works contract is treated as supply of service |
SchII.6.2 Supply of food in restaurant is supply of services
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Para 6(b) of Schedule II Supply of any service or 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. |
SchII.7 Trading of PSLC on e-Kuber Portal is supply of goods
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Circular No. 62/36/2018-GST dt. 12-09-2018 and Circular no 93/12/2019 - GST dated 08-03-2019 |
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1. |
Whether GST is payable for trading of PSLC by the banks on e-Kuber portal of RBI. |
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2. |
In is stated that Circular No. 62/36/2018-GST dt. 12.09.2018 was issued clarifying that GST on PSLCs for the period 1.7.2017 to 27.05.2018 will be paid by the seller bank on forward charge basis and GST rate of 12% will be applicable on the supply. Further, Notification No. 11/2018-Central Tax (Rate) dated 28.05.2018 was issued levying GST on PSLC trading on reverse charge basis from 28.05.2018 onwards to be paid by the buyer bank. |
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3. |
It is further clarified that nature of supply of PSLC between banks may be treated as a supply of goods in the course of inter-State trade or commerce. Accordingly, IGST shall be payable on the supply of PSLC traded over e-Kuber portal of RBI for both periods i.e 01.07.2017 to 27.05.2018 and from 28.05.2018 onwards. However, where the bank liable to pay GST has already paid CGST/SGST or CGST/UTGST as the case may be, such banks for payment already made, shall not be required to pay IGST towards such supply. |
SchII.8 Misc Question
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SchII.1.3 Transfer of title in goods in future date [Hire ourchase]
Question-1 [ICAI-F-Ch2-7] [ICAI-I-Ch2-13]
Whether goods supplied on hire purchase basis will be treated as supply of goods or supply of services? Give reason. [Ans: Supply of Goods]
Question-2 [ICAI-I-Ch2-6]
Which of the following activities is a supply of services?
(a) Transfer of right in goods/ undivided share in goods without transfer of title in goods
(b) Transfer of title in goods
(c) Transfer of title in goods under an agreement which stipulates that property shall pass at a future date.
(d) All of the above
[Ans-(a)]
Question-3 [ICAI-F-Ch2-3] [ICAI-I-Ch2-9]
Whether transfer of title and/or possession is necessary for a transaction to constitute supply of goods?
Ans
Title as well as possession both have to be transferred for a transaction to be considered as a supply of goods. In case title is not transferred, the transaction would be treated as supply of service in terms of Schedule II(1)(b)of the CGST Act. In some cases, possession may be transferred immediately but title may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.
SchII.2.1 Lease, tenancy, easement, licence to occupy land
Question-1 [ICMAI-I-D18-1(d)(ii)-1]
License to occupy land is treated as ---------- (supply of services/not supply of services).
Quesiton-1A [ICMAI-F-D19-2(iv)-2]
Renting of vacant land to a stud farm for Rs.1,50,000. Is it supply of services. Wll GST be leviable.
SchII.2.3 Transfer of tenancy rights against tenancy premium is supply
Question-1 [ICMAI-I-Ch2-Ex62]
You are required to answer the following:
(i) Whether transfer of tenancy rights to an incoming tenant, consideration for which is in form of tenancy premium, shall attract GST when stamp duty and registration charges is levied on the said premium, if yes what would be the applicable rate?
(ii) Further, in case of transfer of tenancy rights, a part of the consideration for such transfer accrues to the outgoing tenant, whether such supplies will also attract GST?
Answer
(i) The activity of transfer of ‘tenancy rights’ is squarely covered under the scope of supply and taxable per-se. Transfer of tenancy rights to a new tenant against consideration in the form of tenancy premium is taxable.
However, renting of residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt.
(ii) As regards services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the form of a portion of tenancy premium is liable to GST.
Note: The applicable rate of GST 18%.
Question-2 [ICAI-F-Ch2-12]
Mr. Happy has a huge residential property located at a prime location in Mumbai, Maharashtra. He has let out the 1st and 2nd floor to Mr. Peace for residential purposes in April. Mr. Peace surrenders his tenancy rights to Mr. Serene for a tenancy premium of Rs.10,00,000 on 1st June. Mr. Serene has also paid the applicable stamp duty and registration charges on transfer of tenancy rights. Moreover, Mr. Serene has agreed to pay a monthly rent of Rs.1,00,000 to Mr. Happy from June.
Determine the taxability of the transaction(s) involved in the given case, for the month of June.
Answer
Circular No. 44/2018 CT dated 02.05.2018 clarifies that the activity of transfer of tenancy right against consideration [i.e. tenancy premium] is squarely covered under supply of service liable to GST. It is a form of lease or renting of property and such activity is specifically declared to be a service in Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services.
Although stamp duty and registration charges have been levied on such transfer of tenancy rights, it shall be still subject to GST. Merely because a transaction/supply involves execution of documents which may require registration and payment of registration fee and stamp duty, would not preclude them from the ‘scope of supply’ and from payment of GST.
The transfer of tenancy rights cannot be treated as sale of land/ building in Schedule III. Thus, it is not a non-supply under GST and consequently, a consideration for the said activity shall attract levy of GST. Services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the form of a portion of tenancy premium is liable to GST. Hence, in the given case, the tenancy premium of Rs.10,00,000 received by Mr. Peace for surrendering his tenancy rights to Mr. Serene is liable to GST.
The circular further clarifies that since renting of residential dwelling for use as a residence is exempt [Entry 12 of Notification No. 12/2017 CT (R) dated 28.06.201736], of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt. Consequently, monthly rent Rs.1,00,000 received by Mr. Happy from Mr. Serene is exempt.
SchII.3 Treatment of Process [Job work]
Questio-1 [ICMAI-F-Ch2-Ex61] [ICMAI-I-Ch2-Ex64]
Mr. A a trader of steel articles purchases steel bars of 10 meters for Rs.1,00,000. He gave these steel bars to Mr. B (job worker) for cutting the bars. Mr. B charged Rs.20,000 as his job work charges. Mr. B seeks clarification whether he will be liable to pay GST on the cut bars and if so, find the value?
Answer:
Mr. B being a job worker is liable to pay GST. Value of job work charges is Rs.20,000. It is called as supply of service.
Question-2 [ICAI-F-Ch2-7] [Job worker uses his material for job work]
Nandeeshwar Manufacturers, a registered person, sends certain category of yarn for processing to the job worker. The job worker undertakes the processing work on the yarn as per the requirement of Nandeeshwar Manufacturers. During the process, the job worker uses his own material also. The processed yarn is sold by Nandeeshwar Manufacturers directly from the job worker premises. Balance quantity of yarn and waste material is sent back by the job worker to Nandeeshwar Manufacturers. The job worker is of the opinion that he is using his own material also in the processing and hence the supply to Nandeeshwar Manufacturers is in the nature of supply of goods as well as services. Do you agree with the opinion of job worker?
Answer
No, the opinion of the job worker is not fully correct. Section 7(1A) provides that when certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as a supply of goods or supply of services as referred to in Schedule II.
Any processing activity carried on any other person’s goods is treated as supply of service in terms of Schedule II.
The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work. These goods are not supply per se, but are being used in the processing activity carried out by it.
Thus, the activity undertaken by the job worker, in the given case, squarely falls within the purview of Schedule II and shall be considered as supply of service by the job worker to Nandeeshwar Manufacturers.
Circular No. 38/12/2018 GST dated 26.03.2018 has also clarified that the job worker, in
addition to the goods received from the principal, can use his own goods for providing the
services of job work.
Question-3 [ICMAI-F-Ch2-Ex62] [ICMAI-I-Ch2-Ex65]
Crown Beers India Pvt Ltd., supplies raw material to a job worker Kareena Ltd. for manufacture of alcoholic liquor for human consumption. After completing the job-work, the finished product of 5,000 beer bottles are returned to Crown Beers India Pvt Ltd., putting the retail sale price as Rs.200 on each bottle (inclusive of duties and taxes). Kareena Ltd., charged Rs.100 per bottle as job work charges of carrying out of intermediate production process of alcoholic liquor for human consumption from Crown Beers India Pvt. Ltd.
Find the GST liability if rate is 18% (CGST 9% and SGST 9%) any in the hands of Kareena Ltd.
Answer:
Carrying out of intermediate production process of alcoholic liquor for human consumption on job work basis attract GST.
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Taxable value of supply of job work |
= 5,000*100 |
Rs.5,00,000 |
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CGST @ 9% |
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Rs.45,000 |
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SGST @ 9% |
|
Rs.45,000 |
Note: GST not attract on manufacture of alcoholic liquor. Since, it is the State subject, which will attract State Excise Duty.
SchII.4.1 Transfer or disposal of Parts of Business Assets by person carrying on business
Question-1 [ICMAI-F-Ch2-Ex65] [ICMAI-I-Ch2-Ex68]
Mr. Raj purchased a car for Business use and after one year sold it to a car dealer for Rs.2 lac. Will the transaction be a supply in terms of GST Act?
Answer:
Transfer for a consideration shall be supply of goods, even if credit is not claim (as per Schedule II).
Question-2 [ICSI-E-D19-57-1]
Permanent transfer or disposal of goods forming part of business asset by or under the directions of the person carrying on the business whether or not for consideration as well as transfer of title in goods under an agreement where property in goods passes at a future date on payment of full consideration as per Schedule - II of the CGST Act, 2017 to be treated as ........ .
(A) Supply of Goods (B) Supply of Services (C) Deemed supply (D) Both, supply and deemed supply
SchII.4.2 Business Assets used for non-business purpose
[Business assets used for non business purpose without consideration]
Question-1 [ICMAI-F-Ch2-Ex66] [ICMAI-I-Ch2-Ex69]
Mr. A is engaged in the business of transportation of passengers. He provides vehicle for the marriage of his Accounts Manager free of cost. It is supply of service, but no GST is payable (provided business not claiming Input Tax Credit).
If Mr. A charged Rs.2,500 it will be subject to GST.
Question-1A [ICMAI-F-Ch2-Ex67] [ICMAI-I-Ch2-Ex70]
Mr. X is engaged in the business of selling furniture. He organizes function in his house. As a result he used business furniture for the function. It is supply of service. Since, there is no consideration and hence no GST will be levied provided business not claiming ITC.
Quesiton-1B [ICAI-F-Ch2-Ex70] [ICAI-I-Ch2-Ex73]
A director uses the company’s car for his family outing.
It is supply of service.
The company was not entitled to claim the input tax incurred on the purchase of the car as it is disallowed.
The company does not need to account for GST on the private use of the car as no input tax was claimed.
Quesiton-1C [ICAI-F-Ch2-Ex71] [ICAI-I-Ch2-Ex74]
X Ltd. and Y Ltd. are related companies. Y Ltd. uses X Ltd. business asset namely large format printer to print high-resolution architectural plans for its client.
GST is accountable on the use of the printer based on its cost.
However, if X Ltd. chose not to claim input tax on the asset purchased, the use of this asset by another person will not attract GST.
[Business assets used for non business purpose with consideration]
Question-2 [ICMAI-F-Ch2-Ex68] [ICMAI-I-Ch2-Ex71]
M/s X Ltd. provided car to one of its director for his personal purposes and charge fee Rs.30,000 per month. It is supply of service and the same is taxable under GST.
SchII.4.3 Deemed supply of goods on cessation of business
Question-1 [ICMAI-F-Ch2-Ex73] [ICMAI-I-Ch2-Ex76]
Mr. Raj being a owner of shop is a registered person under GST. He has decided to close the business. At the time of deregistration he has closing stock of Rs.15,00,000. Mr. Raj final GST return will show his supplies made during the last taxable period plus Stock in hand of Rs.15,00,000 during the deregistration. Find the amount of supply. Is it supply of goods or services?
Answer:
Amount to supply = Rs.15,00,000
It is treated as supply of goods.
Note:
(1) Mr. Raj has to pay GST on Rs.15 lac.
(2) However, Mr. Raj is not required to pay to GST on closing stock of Rs.15 lac, provided ITC not availed on such stock.
SchII.5.2 Construction of a complex, building, civil structure etc
Question-1 [ICSI-E-J18-O-78-1] [ICSI-E-D19-58-1]
Construction of a complex, building, civil structure or the 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 a competent authority or after its first occupation, whichever is earlier for the purpose of taxability under the CGST Act, 2017 shall be treated as supply of:
(A) Goods (B) Both goods and services (C) Services (D) Contract work
Question-2 [ICMAI-F-Ch2-Ex76] [ICMAI-I-Ch2-Ex79]
A builder has entered into agreement to sale a flat (carpet area 1900 sq ft) to customer. The additional information is as follows:
(a) Price of flat (including apportioned value of cost of land): Rs.42,00,000 (includes Prime Location Charges namely charges for getting sea view Rs.2,00,000).
(b) Charges for providing space for covered parking: Rs.1,25,000.
The builder received part payment before construction was completed and balance amount was received after obtaining completion certificate from the Corporation. Find the GST liability (CGST 6% and SGST 6%)?
Answer:
It is supply of service. Builder is liable to pay GST.
CGST = (42,00,000+1,25,000)*6% = 2,59,500
SGST = (42,00,000+1,25,000)*6% = 2,59,500
SchII.5.4 Development, design, customisation, upgradation, implementation of IT software
Question-1 [ICMAI-F-Ch2-Ex77] [ICMAI-I-Ch2-Ex80]
M/s. ABC Ltd. provides the following relating to information technology software. Compute the value of taxable service and GST liability (Rate of CGST 9% and SGST 9%)?
(a) Development and Design of information technology software: Rs.15 lakhs;
(b) Sale of pre-packaged software, which is put on media: Rs.52 lakhs.
Answer:
(a) and (b) both are treated as supply of Service.
Value of Taxable supply of service is Rs.67 Lakhs [i.e. Rs.15 Lakhs + 52 Lakhs]
CGST is Rs.6.03 lakhs [i.e. Rs.67 Lakhs x 9%].
SGST is Rs.6.03 lakhs [i.e. Rs.67 Lakhs x 9%].
SchII.5.5 Obligation to tolerate or refrain from an act
[T-1] [ICAI-IM19-O-10a-4]
Explain the services provided by way of tolerating non-performance of a contract and its chargeability under the provisions of the CGST Act, 2017.
Answer
Non-performance of a contract is the failure to fulfill the obligations under a contract. It is generally one of the conditions stipulated in any contract for supply of goods/services. The agreement entered into between the parties stipulates that both the service provider and service recipient abide by the terms and conditions of the contract. In case any of the parties breach the contract for any reason including non-performance of the contract, then such person is liable to pay damages in the form of fines or penalty to the other party. Tolerating non-performance of a contract in lieu of damages or fines is a supply in terms of section 7 of the CGST Act, 2017 as it is made for a consideration by a person in the course or furtherance of business. Further, tolerating non-performance of a contract is treated as a supply of service in terms of section 7 read with Schedule II of CGST Act, 2017. However, in case of supplies to Government, non-performance of contract by the supplier of service for which consideration in the form of fines or liquidated damages is payable is exempt from GST.
Quesiton-1 [ICMAI-F-Ch2-Ex78] [ICMAI-I-Ch2-Ex81]
M/s X Ltd. paid penalty u/s 49 of the CGST Act, 2017, Rs.2,00,000 to the Department in the month of October 2018. Is it taxable under the GST law?
Answer:
It is not a supply of service. The fine or penalty chargeable by Government or local authority imposed for violation of statute, bye-laws, rules or regulations are not leviable to GST. Such fines or penalty are not recovered for tolerating non-performance of a contract.
Question-2 [ICMAI-F-Ch2-Ex79] [ICMAI-I-Ch2-Ex82]
Mr. C is a Practicing Cost Accountant given appointment to a client Mr. B representing the company for 10 AM on Tuesday. Mr. B cancel the appoinment at 9AM on Tuesday (i.e. one hour before appointment time). Advance paid by Mr. B for seeking the appointment is forfeited by Mr. C for cancelling the appointment.
In the given case Mr. C, refraining from entering any other person at the given appointment time. This is called as supply of service. Therefore, forfieted amount is leviable to GST.
Question-3 [ICMAI-F-Ch2-Ex80] [ICMAI-I-Ch2-Ex83]
A contract awarded by Bombay Municipal Corporation (BMC) for repair of a particular road to M/s B Ltd., with terms and conditions that the entire work should be completed within 30 days. However, there is a delay of 10 days to complete the work. BMC charged liquidated damages of Rs.1,20,000 and the same recovered from M/s B Ltd. Applicable rate of CGST 9% and SGST 9%. Previous year turnover of M/s B Ltd. Rs.2 crores.
Find the following:
(a) who is liable to pay GST on what amount?
(b) total tax liability if any?
Answer:
(a) It is supply of service.
(b) M/s B Ltd. being recipient of service is liable to pay GST on Rs.1,20,000 (i.e Reverse Charge applicable). Since, the contractor has performed the contract, but there is a delay of 10 days.
Note:
(i) It appears the liquidated damages recovered by local authority for delay in performance in contract will not be covered under exemption list of GST. The contract has been performed in such cases, GST will be payable on the same.
(ii) Services provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract; is exempted from GST.
Question-4 [ICAI-F-Ch2-3]
Ajatasatru Industries enters into a contract with an actor – Chandragupta – to act as a brand ambassador of products manufactured by Ajatasatru Industries. The duration of the contract is 5 years and the contract fee payable to Chandragupta for being a brand ambassador is Rs.50 lakh per annum. As per the terms of the contract, in case the contract is terminated by Chandragupta before the end of the contract period, Chandragupta will have to repay to Ajatasatru Industries, 50% of the contract fee received by him till the time of termination of contract.
At the end of 3rd year, Chandragupta terminates the contract with Ajatasatru Industries. Chandragupta has received the contract fee for 3 years at the time of termination of contract. He abides by the terms of the contract.
You are required to determine whether the given transaction(s) qualifies(y) as supply(ies).
Answer
As per section 7(1)(a), supply includes all forms of supply of goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business. In the given case, Chandragupta has agreed to provide his services as a brand ambassador of the products by Ajatasatru Industries at an agreed annual consideration. Thus, his services fall within the purview of the term “supply” under GST where the consideration charged for such supply is Rs.50 lakh per annum.
Further, section 7(1A) provides that when certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as a supply of goods or supply of services as referred to in Schedule II.
Tolerating non-performance of a contract is an activity or transaction which is treated as a supply of service as per Schedule II and the person is deemed to have received the consideration in the form of fines or penalty and is, accordingly, required to pay tax on such amount.
In the given case, since Ajatasatru Industries is tolerating the act of Chandragupta of terminating the contract before the expiry of its contract period, 50% of contract fee for 3 years amounting to Rs.75 lakh is being received by it as a penalty for the same. The act of tolerating the non- performance of a contract by Chandragupta by Ajatasatru Industries is a supply of service where the consideration charged for such supply is Rs.75 lakh [50% of (Rs.50 Lakh × 3 years)].
SchII.8 Misc Question
Question-1 [ICAI-F-Ch2-5] [ICAI-I-Ch2-11].
State whether the following supplies would be treated as supply of goods or supply of services as per Schedule II of the CGST Act:
(a) Renting of immovable property.
(b) Goods forming part of business assets are transferred or disposed of by/under directions of person carrying on the business, whether or not for consideration.
(c) Transfer of right in goods without transfer of title in goods.
(d) Transfer of title in goods under an agreement which stipulates that property shall pass at a future date.
(e) Any treatment or process which is applied to another person’s goods.
(f) Transfer of title in goods.
Question-1A [ICAI-I-N18-O-12c-5]
State whether the following supplies would be treated as supply of goods or supply of services as per Schedule II of CGST Act:
(i) Renting of immovable property
(ii) Transfer of right in goods without transfer of title in goods.
(iii) Works contract services
(iv) Temporary transfer of permitting use or enjoyment of any intellectual property right
(v) Sale of personal car to dealer.
Solution
(i) Renting of immovable property would be treated as supply of servicesin terms of Schedule-II of CGST Act, 2017.
(ii) As per Schedule-II of CGST Act, 2017, transfer of right in goods without transfer of title in goods would be treated as supply of services.
(iii) As per Schedule-II of CGST Act, 2017, works contract services would be treated as supply of services.
(iv) As per Schedule-II of CGST Act, 2017, temporary transfer of permitting use or enjoyment of any intellectual property right would be treated as supply of services.
(v) As per Schedule-II of CGST Act, 2017, sale of personal car to dealer would be treated as supply of goodsas any transfer of the title in goods is a supply of goods.However,it is also possible to take view that sale of personal car to dealer is not a supply per se as supply is not made by the individual in the course or furtherance of business–in terms of CBIC FAQs [Q. 10 of Chapter 4 -Meaning and scope of supply]. Note: The questionmay be answered on the basis of eitherofthe two views.
Question-1B [ICSI-E-D20-O-78-1]
Scope of supply has been given under section 7 of the CGST Act, 2017 and schedules I, II and III list various activities to be treated as supply or otherwise.
Find from the following activities which is not being covered in Schedule - II of the CGST Act, 2017
(A) Permanent transfer or disposal of goods forming part of business assets by or under the direction of the person carrying on the business whether or not for consideration
(B) Supply by unincorporated association to a member thereof for cash
(C) Supply of goods between principal to his agent and vice versa
(D) Development, design, programming, customization, up-gradation, enhancement, implementation of information technology software
Question-2 [ICSI-E-D18-5a-3]
State with brief reasons whether the following are to be treated as supply of goods/services, as per GST law :
(i) Transfer of business as a going concern. (ii) Renting of immovable property. (iii) Permitting use of intellectual property right.
Question-3 [ICSI-E-J21-54-1]
Which of the following will not fall in the category of ‘supply of service’ ?
(A) Renting of immovable property
(B) Permitting temporary use of intellectual property right
(C) Services of High Court
(D) Licence to occupy vacant land
Question-4 [ICSI-E-D21-60-1]
Schedule –II of the CGST Act, 2017 lists various activities or transactions which are to be treated as supply of goods or supply of services. Find and state which out of the following activities, is a supply of services.
(A) Transfer of rights in goods or undivided share in goods without transfer of title
(B) Transfer of title in goods
(C) Transfer of title in goods under an agreement where property in goods passes at a future date on payment of full consideration
(D) Permanent transfer or disposal of goods forming part of business assets by or under the directions of the person carrying on the business whether or not for consideration
Question-5 [ICSI-P-D19-2c-5]
State whether the following are supply of goods/services, as per GST law, with brief reasons :
(i) Mr. X availed the architectural services of his son living in France (free of cost) for designing his residential building and factory layout.
(ii) Scrap of machinery destroyed by fire handed over to insurance company for settlement of claim.
(iii) Lease of land for two wheeler parking stand.
(iv) Permitting use of registered patent for annual fee.
(v) Transfer of tenancy right by executing and registering a document.
Question-6 [ICSI-P-D21-1c-5]
‘‘Diligent Force’’ a professional training institute gets its training material of ‘‘Aptitute Quotient’’ printed from ‘‘Durga Printing House’’ a printing press. The content of the material is provided by the ‘‘Diligent Force’’ who owns the usage rights of the same while the physical inputs including paper used for printing belong to the ‘‘Durga Printing House’’. Justify, in the context of provisions of CGST Act, 2017 whether supply of training material by ‘‘Durga Printing House’’ constitutes supply of goods or supply of services.
Question-7 [ICSI-P-D20-O-4A(i)-5]
Modern Art & Printers Pvt. Ltd., was incorporated on 12th January, 2020, having main object of the business of supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. These would be printed with design, logo, name, address or other contents supplied by the recipient of such goods/ materials as per their orders and requirements.
Modern Art & Printers Pvt. Ltd. is desirous of knowing in the context of the provisions under the CGST Act, 2017 whether these would constitute supply of goods and/or supply of services falling under heading 9989 of the scheme of classification of services annexed to Notification No. 11/2017-CT(R) issued under CGST Act, 2017 and/or falling under Chapter–48 or 49 of the First Schedule to the Customers Tariff Act, 1975. You are required to give suitable advice in the context of provisions contained under the Act, to Modern Art & Printers Pvt Ltd.
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