FAQ on Scope of supply under GST

FAQ on Scope of supply under GST, Various Question and Answers on Scope of supply under CGST Act 2017: Section 7 of the Central Goods and Services Tax Act, 2017 made applicable to IGST vide Section 20 of the Integrated Goods and Services Tax Act, 2017 and UTGST vide Section 21 of the Union Territory Goods and Services Tax Act, 2017. now check various FAQ's on Scope of supply under GST...

FAQ on Scope of supply under GST

Q1. What is the scope of the term ‘supply’ as defined in the CGST Act, 2017?

Ans. As per Section 7(1) of the CGST Act, 2017, Supply includes:

  1. all forms of supply of goods or 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;
  2. import of services for a consideration whether or not in the course or furtherance of business;
  3. the activities specified in Schedule I, made or agreed to be made without a consideration; and
  4. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Q2. Is it required to distinguish whether a particular supply involves supply of goods or services or both?

Ans. Yes, the CGST Act, 2017 specifies certain provisions separately for supply of goods and supply of services viz., Section 12 and Section 13 thereof provides for ascertaining time of supply of goods and time of supply of services respectively; similarly, separate provisions have been specified for ascertaining place of supply of goods and place of supply of services. Further, the rate of tax applicable to supply of goods and supply of services are different. Accordingly, it is important to distinguish whether a particular transaction involves supply of goods or supply of services.

Q3. How to distinguish whether a particular supply involves supply of goods or services or both?

Ans. The Schedule II appended to the CGST Act, 2017 enlists the activities which are to be treated as supply of goods or supply of services. One may refer Schedule II with reference to Section 7 to classify whether the transaction involves supply of goods or supply of services.

Q4. Whether supply of goods or services without consideration is liable to tax?

Ans. The activities enumerated in Schedule I will qualify as supply even if made without consideration. Accordingly, such supplies in the absence of consideration are liable to tax. To illustrate, following are the activities which will qualify as supply in the absence of consideration and eventually would be liable to tax:

  1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
  2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
    1. Provided that gifts not exceeding fifty thousand rupees in value in a financial year
      by an employer to an employee shall not be treated as supply of goods or
      services or both.
  3. Supply of goods—
    1. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
    2. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
  4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Q5. Whether transfer of goods to another branch located outside the State is taxable?

Ans. In terms of Section 25(4) of the CGST Act, 2017, every person who is required to obtain separate registration for every branch located in different state or union territory shall be treated as distinct persons. Accordingly, the supply of goods (stock transfers) to a branch located outside the State would qualify as supply, liable to tax in terms of clause 2 to Schedule I of the CGST Act, 2017. Further, it is important to note that, supply of goods to a branch / unit located within the same State having separate registration would also be liable to tax since both such units (supplying unit and recipient unit) would qualify as distinct person in terms of Section 25(4).

Q6. Whether gifts given by employer to employee will also qualify as supply?

Ans. In terms of Explanation appended to Section 15 it is clarified that employer and employee will be deemed to be related persons. Accordingly, in terms clause 2 of Schedule I, gift exceeding ` 50,000/- by an employer to employee will be a supply, when made in the course or furtherance of business and will be liable to tax. As, in terms of proviso to clause 2 of Schedule I, any gifts for a value not exceeding ` 50,000/- in a financial year will not qualify as supply and as such will not be liable to tax.

Further, as per press release dated 10th July, 2017, if services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The relevant extract aforesaid press release is as under:

“Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17(5)(b)(ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. 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 (C2C).”

Q7. Whether supply of goods by principal to his agent or by agent to his principal is taxable in the absence of consideration?

Ans. In terms of Section 7 read with Schedule I, following would qualify as supply:

  1. Supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
  2. Supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

Q8. Whether import of services will be liable to tax under GST regime?

Ans. The following import of service will qualify as supply under the CGST Act, 2017:

  1. As per Section 7, import of service for a consideration whether or not in the course or furtherance of business is a supply;
  2. As per Schedule I, import of service by a taxable person, even if made without consideration, from a related person or from any of his other establishments outside India, in the course or furtherance of business.

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