Goods & Services Tax (GST) in IndiaGST Draft Act,2016 -An Analysis Part – I

Draft of GOODS AND SERVICES TAX ACT, 2016 is finally released and AMLEGALS shall be coming out with various analyses on the same.

We anticipate that almost 90% of the draft act will remain unaltered since the concept and logic of levy will more or less remain the same.

The entire levy of GST shall revolve around “supply” and hence we are proceeding with supply in our first analysis as below:

What is Supply?

Section 2(61) defines supply as

Supply shall have the meaning as assigned to it in section 3 of this Act;

In order to understand supply, one needs to further refer to Section 3 of the Act. For better understanding, Section 3 is analyzed below in various parts;

Section 3 – Meaning and scope of supply

(1) Supply of goods and/or services includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal, and importation of services*, made or agreed to be made for a consideration by a person in the course or furtherance of business and also includes a supply specified in Schedule I, made or agreed to be made without a consideration.

Analysis

Nature of Supply:

1. i) Supply of goods

1. ii) Supply of services

Forms of Supply:

1. i) Sale,

1. ii) Transfer,

iii) Barter,

1. iv) Exchange,

1. v) License,

1. vi) Rental,

vii) Lease or disposal,

viii) and importation of services

Existence of Supply

1. i) supply either already made or

1. ii) supply agreed to be made

Commercial of Supply

1. i) for a consideration by a person in the course or furtherance of business and

1. ii) supply specified in Schedule I, will be treated as supply even if it is made or agreed to be made without a consideration.

SCHEDULE I

MATTERS TO BE TREATED AS SUPPLY WITHOUT CONSIDERATION

1. Permanent transfer/disposal of business assets.

2. Temporary application of business assets to a private or non-business use.

3. Services put to a private or non-business use.

4. Self supply of goods and/or services.

5. Assets retained after deregistration.

sub-section ( 2) of Section 3

(2)Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.

Analysis

Determining and Differentiating Factor

This provision has a determining and differentiating factor in respect of description of only those goods and services which are mentioned under Schedule II as to

What is to be treated as supply of goods

And

What is to be treated as supply of services

SCHEDULE II

MATTERS TO BE TREATED AS SUPPLY OF GOODS OR SERVICES

1. Transfer

(1) Any transfer of the title in goods is a supply of goods.

Analysis

Transfer of Title is a MUST to call a transaction as a supply of goods

(2) Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.

Analysis

Mere Transfer of Goods

Mere Transfer of a Right in Goods

Without any division of share in goods and without Transfer of Title, it will be construed to be a supply of service only.

(3)Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.

Analysis

A transaction with a clause of transfer of title in future, under any agreement, on receipt of full consideration shall be construed as supply of goods

2. Land and Building

(1)Any lease, tenancy, easement, license to occupy land is a supply of services.

(2)Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

Analysis

In absence of transfer of title, licenses, tenancies etc shall be called as supply of services.

3. Treatment or process

Any treatment or process which is being applied to another persons goods is asupply of services.

Analysis

1. i) An activity of carrying out any treatment or process on another person’s goods is a supply of service.

1. ii) Job work whether amounting to manufacture or not shall be considered as supply of service.

iii) There is neither any concept of manufacture nor any definition of manufacture.

4. Transfer of business assets

(1)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, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.

Analysis

A transfer or disposal of business assets, by a person carrying on business i.e. owner of or holding title in goods, with or without consideration will be called as supply of goods .

(2) Where, by or under the directions of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.

Analysis

Allowing a person to use the goods, with or without consideration, for a purpose other than the purpose of business shall be called as supply of service.

(3)Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business.

Analysis

Where a person has been empowered to sell goods of a taxable person in order to recover debts from such taxable person, then such transaction shall be deemed to be supply of goods.

sub-section ( 3) of Section 3

(3)Subject to sub-section(2), the Central or a State Government may, upon recommendations of the Council, specify, by notification, the transactions that are to be treated as

(i)a supply of goods and not as a supply of services; or

(ii)a supply of services and not as a supply of goods; or

(iii)neither a supply of goods nor a supply of services.

Analysis

All goods and services which don’t fall under the ambit of Schedule II shall be notified separately with parameters and conditions for differentiating and determining the following:

Whether it is a supply of goods and not a supply of services

or

Whether it is a supply of services and not a supply of goods

or

Which service and goods supply will neither be a goods nor a service

This provision will be heartily welcomed as it will curtail all the disputes regarding the subject matter of sale of goods and rendering of service in a supply which had been arising since long.

By Anand Mishra, Founder Advocate, AMLEGALS

(The author is a leading advocate handling cases in Tribunals & High Courts of India. He can be contacted on anand@amlegals.com. For more, please refer www.amlegals.com. The copyright of the present work vests with the author. No part of the same can be copied, downloaded and/or reproduced in any manner except written permission of the author)