By
Pradeep K. Mittal
B.Com, LLB, FCS
Advocate, PKMG Law Chambers
Past Central Council Member,
The Institute of Company Secretaries of India, New Delhi
e-mail id: [email protected]
Contact Nos. +91-9811044365, +91-9911044365
CENTRAL TAXES TO BE SUBSUMED IN GST
The following Central Taxes should be, to begin with, subsumed
under the Goods and Services Tax:
 Central Excise Duty (CENVAT);
 Additional Excise Duties;
 The Excise Duty levied under the Medicinal and Toiletries
Preparations (Excise Duties) Act 1955;
 Service Tax;
 Additional
Customs
Duty,
commonly
known
as
Countervailing Duty (CVD);
 Special Additional Duty of Customs – 4% (SAD);
 Surcharges and Cases levied by Centre are also likely to be
subsumed wherever they are in the nature of taxes on goods
or services. This may include cess on rubber, tea, coffee,
national calamity contingent duty etc;
 Central Sales Tax to be phased out.
STATE TAXES TO BE SUBSUMED IN GST
The following State taxes and levies would be, to begin with,
subsumed under GST:
 VAT/Sales tax
 Entertainment tax (unless it is levied by the local bodies)
 Luxury Tax
 Taxes on lottery, betting and gambling
 State Cesses and Surcharges in so far as they relate to
supply of goods
 Octroi and Entry Tax
 Purchase Tax
TAXES WHICH ARE NOT TO BE SUBSUMED
GST may not subsume the following taxes within its ambit:
 Basic Customs Duty: These are protective duties levied at
the time of Import of goods into India.
 Exports Duty: This duty is imposed at the time of export of
certain goods which are not available in India in abundance.
 Road & Passenger Tax: These are in the nature of
fees and not in the nature of taxes on goods and
services.
 Toll Tax: These are in the nature of user fees and in
the nature of taxes on goods and services.
 Property Tax
 Stamp Duty
 Electricity Duty
GOODS AND SERVICE TAX
Scope of the word “Goods” &
“Services”
MEANING OF THE WORD “GOODS”
 Section 2(48) of CGST/SGST Act, 2016, gives an inclusive definition
of the word “Goods” which states as under:
 "Goods" means every kind of moveable property other than
actionable claims and money; but includes securities, growing
crops, grass and things attached to or forming part of the land which
are agreed to be severed before supply or under the contract of
supply.”
 Explanation: For the purpose of this clause, the term ‘moveable
property’ shall not include any intangible property.
“What is said to be Goods?”
 Software as goods: In TATA Consultancy Services Vs. State of
Andhra Pradesh,MANU/SC/0950/2004 , it was held:
“that software which is incorporated on a media would be
goods, and therefore, liable to sales tax. Following discussion in
this behalf is required to be noted:-"In our view, the term
"goods" as used in Article 366(12) of the Constitution of India
and as defined under the said Act are very wide and include all
types of movable properties, whether those properties be
tangible or intangible.”
 Electricity as goods: The Supreme Court in the case of
CST, MP. Vs. MPEB MANU/SC/0156/1968 : AIR 1970 SC
732, was required to consider whether "electricity"
would be goods and after careful analysis, the Supreme
Court has held that the "electricity" would be goods.
What is moveable/ immoveable property?
 The Supreme Court in the case of H Anraj Vs. Government of
Tamil Nadu MANU/SC/0318/1985 has defined the “goods” in the
following words:Section 2(7) of the Sale of Goods Act defines 'goods' as meaning
"every kind of movable property other than actionable claims and
money". Clearly, the expression 'movable property' is used in
contradistinctions with 'immovable property'.
"Movable property" shall mean property of every description,
except immovable property. (Section 3(36) of General Clauses Act.
What is an Intangible property?
 Intangible property, also known as incorporeal property,
describes something which a person or corporation can have
ownership of and can transfer ownership to another person or
corporation, but has no physical substance, for example corporate
intellectual property rights, goodwill, brand identity or knowledge,
internet domain names, motion pictures and TV programmes,
patented technology, computer software, trade secrets (such as
secret formulas or secret recipies).
GOODS AND SERVICE TAX
REGISTRATION PROVISIONS
Registration – Section 19
 In any tax system, this is the most fundamental requirement for
identification of the business for tax purposes and for having any
compliance verification mechanism.
 Legal Requirement: Section 19 provides for registration of every
person who is liable to be registered under Schedule III .
Registration of a business with tax authorities implies obtaining a
Unique Identity Number from the concerned tax authorities so that
all the operations and data relating to the business can be
agglomerated and correlated.
 Registration Limit: Registration is required if his
aggregate turnover in a financial year exceeds Rupees
Nine Lakhs. This threshold limit will be Rupees Four
Lakhs if a taxable person conducts his business in any of
the North Eastern States including Sikkim.
 Time limit for making Registration: The application
for registration shall be made within 30 days from the
date when he becomes liable for registration.
Categories of persons required to be compulsorily registered
irrespective of the threshold:
 Persons making any inter-State taxable supply;
 Casual taxable persons;
 Persons who are required to pay tax under reverse charge;
 Non-resident taxable persons;
 Persons required to deduct tax under Section 37 (TDS);
 Persons who supply goods/ services on behalf of other
registered taxable persons whether as an agent or otherwise;
 Input service distributor;
 Persons who supply goods/ services other than branded
services, through electronic commerce operator;
 Every electronic commerce operator;
 An aggregator who supplies services under his brand
name or trade name;
 Such other person or class of persons as may be notified by
the Central Government or State Government on the
recommendations of the Council.
 Registration in case of multiple business: A person having the
multiple business verticals (as defined in AS 17) in one state may
obtain separate registrations for each of the business vertical,
subject to prescribed conditions.
 Registration on own volition: A person, though not liable to be
registered under Schedule III, may get himself registered
voluntarily, and once registered all provisions of this Act, shall
apply to such person.
 Requirement of PAN (Permanent Account Number): Every
person who is liable to take a registration or wants to get
voluntary registration, shall have a PAN. A non-resident
taxable person can obtain registration on the basis of any
other document as may be prescribed. Registration No. will
consist of 15 digits, wherein the first 2 digits represents State
Code, next 10 digits represent PAN no., next two Entity code of
the Applicant and remaining left blank intentionally for future
use.
 Online Registration: Registration application is to be filed online at
GSTN (site under development), wherein a person has to mention
and attach all the required details. If the person is having business
in 10 states, then he has to mention addresses of 10 states in same
application. Application if complete in all respects, will be approved
online by concerned officer and User Name along with Password is
sent to applicant for further download of Certificate online.
 Issuance of Registration Certificate by Proper Officer: The
registration or Unique Identity Number, is granted and issued
with effective dates. The registration or Unique Identity
Number is granted or rejected after due verification and
within the time prescribed. The registration shall be deemed
to have been granted after the period prescribed if no
deficiency has been communicated to the applicant within
that period.
 Rejection of Application for Registration: The proper
officer shall not reject the application without giving a notice
to show cause and without giving a person reasonable
opportunity of being heard. This means an application can be
rejected only after the principles of natural justice has been
observed and a process is completed after the issuance of an
order.
Payment of Tax, Interest, Penalty and other Amounts Section 35
Kinds of Ledger to be maintained by Taxable Person
This Section 35 prescribes for three kinds of ledgers to be
maintained by the taxable person.
 Electronic Cash Ledger
 Electronic Input Tax Credit Ledger or Electronic Ledger
 Electronic Tax Liability Ledger
MAINTENANCE OF RECORDS
A taxpayer or exporter shall be required to maintain
separate details in books of account for availment,
utilization or refund of Input Tax credit of CGST, SGST and
IGST. There is no particular form prescribed for this as yet
as presently, no particulars forms set or type of records are
prescribed.
PERIODICAL RETURNS
The taxpayer shall be required to file periodical returns, in
common format, as far as possible, to the respective
authorities for the Central GST State GST. All returns shall
be filed electronically.
ZERO RATING OF EXPORTS
It has been suggested that the exports would be zerorates. Similar benefits may be given to supplies made to
Special Economic Zones (SEZs). However, such benefits
will only be allowed to the processing zones of the SEZs.
No benefit to the sales from an SEZ to Domestic Tariff
Areas (DTA) i.e. domestic sales in India will be allowed.
GST ON IMPORTS
The imports from outside India within India will be brought
under the scope of GST. They will be treated at par with InterState Transactions and Integrated Goods and Service Tax
(IGST) will be levied on imports. The incidence of tax will
follow the destination principle and the tax revenue will
accrue to the State where the imported goods and services are
consumed. Full and complete set-off will be available on the
IGST paid on import on goods and services.
ADMINISTRATION OF GST
The administration of the Central GST to the Centre and for
State GST to the respective States would be given. This
implies that the Centre and the States will have concurrent
jurisdiction on the entire value chain and on all taxpayers
on the basis of thresholds limits prescribed for goods and
services for the States and the Centre.
As per the recommendations of Task Force Report on
GST, the Central Board of Excise and Customs (CBEC)
shall be responsible for implementation of CGST and
respective authorities of States will be separately
responsible for implementation for SGST.
GST- COMPOSITION SCHEME
BOON FOR SMALL TAXABLE PERSONS
INTRODUCTION
In order to relieve small,
medium small traders and
businessmen of the need to keep the detailed records, the
law makes provision for simpler, easy and convenient
method of accounting, calculation and payment of tax to the
Government.
The Composition Scheme is the scheme to facilitate small
dealers (whose annual turnover does not exceed Rs. 50
lakhs) to pay GST at a flat rate of 1% without claiming Input
Tax Credit. The objective of all such composition schemes is
not to burden small dealers by the provisions of record
keeping.
Therefore, such schemes will generally contain the following
features:
(i) small amount of tax shall be payable;
(ii) there shall be no requirement to calculate taxable turnover;
(iii) a simple return form to cover longer return period shall be
sufficient.
“The scheme will be administered by the states for collecting
Central GST (CGST) as well as State GST (SGST). Dealers
involved in inter-state purchases will not be eligible for it.”
Composition Scheme is an option:
Tax payment under this scheme is an option available to
the registered taxable person. This scheme would be
applicable only to taxable person whose supplies are
restricted to a particular state. In other words, a person
opting effecting Inter-State supplies cannot opt for this
scheme.
The taxable person should make an application exercising
his option to pay tax under this scheme. Once an
application is granted, the eligibility would be valid unless
his permission is cancelled under law or he becomes
ineligible.
Applicable to both goods and services:
Composition scheme may be opted for by taxable persons,
for supply of goods and / or services. It must be noted that
a taxable person cannot opt for payment of taxes under
composition scheme say for supply of goods and opt for
regular scheme of payment of taxes for supply of services.
It is important to note that for any tax payable under
reverse charge mechanism, the option of payment under
this scheme will not be available.
Eligibility to pay tax under Composition Scheme:
Only taxable persons whose ‘aggregate turnover’ does not
exceed Rs.50 lakhs in a financial year will be eligible to opt
for payment of tax under the composition scheme.
In terms of Section 2(6) of the CGST/ SGST Act, 2016
“aggregate turnover” means Value of all (taxable and nontaxable supplies + Exempt Supplies + Exports) – Taxes +
Value of Inward supplies + Value of supplies taxable under
reverse charge) of a person having the same PAN. It is
expected that this threshold of turnover would be for the
relevant financial year.
The threshold of Rs. 50 lacs would be applicable to a
person having the same PAN and can be understood as
follows:
 Taxable person covered by the same PAN shall be under
composition across India;
 Value of supplies in all forms- goods and/ or services;
 Value of supplies of all business verticals.
CONDITIONS:
(i) Restricted from effecting Inter-State supplies:
The taxable person should not effect any inter-State
supplies of goods and / or services. A plain reading of the
proviso to Section 8(1) would imply that the restriction on
supplies would be applicable only to sales/ dispatches
(outward supplies). Where a taxable person effects InterState barter transaction (supply) or Inter-State warranty
contract (supply), he will not be eligible to opt for
composition scheme.
(ii) Composition Scheme would be applicable for all
transactions under the same PAN.
Composition scheme would become applicable for all
business verticals/ registrations which are separately held
by the person with the same PAN. To clarify further, if a
taxable person has multiple business verticals, and if he has
opted for separate registrations for each such vertical,
composition scheme would become applicable for all the
business verticals and it cannot be applied for select
verticals only.
(iii) Shall not collect tax:
Taxable person opting to pay tax under the composition
scheme is prohibited from collecting tax.
(iv) Not entitled to input tax credit:
Taxable person opting to pay tax under the composition
scheme will not be eligible for any input tax credit.
However, if the taxable person becomes ineligible to remain
under the composition scheme, the taxable person will
become entitled to take input tax in respect of inputs held in
stock (as inputs contained in semi-finished or finished
goods) held on the day immediately preceding the date from
which he becomes liable to pay tax under Section 7.
Rate of Tax
The rate of tax would be as notified by the Government
after recommendation of the GST Council. However, the law
provides that such rate cannot be less than 1% of the
turnover in the State. The word “turnover” to be read as
defined in Section 2(104) of the Act.
“Turnover in a State” means the aggregate value of all
taxable and non-taxable supplies, including exempt
supplies and export of goods and / or services made within
a State by a taxable person and inter-state supplies of goods
and/ or services made from the State by the said taxable
person excluding taxes, if any charged under the CGST Act,
SGST Act and the IGST Act, as the case may be.
Cancellation of permission
Where the proper officer has the reason to believe that the
taxable person was not eligible to the composition scheme
or if the permission granted earlier was incorrectly granted,
the proper officer may cancel the permission and demand
the following:
 Differential tax- viz., tax payable under the other provisions
of the Act
 Penalty equivalent to the tax.
Conclusionary Points:
 A composition scheme would become applicable for all business
verticals/ registrations which are separately held by the person
with the same PAN.
 A composition scheme is applicable subject to the condition that
the taxable person does not effect inter-state supplies.
 A taxable person under the composition scheme is not eligible to
claim input tax credit.
 A customer who buys goods from taxable person who is
under composition scheme is not eligible to claim
composition tax as input tax credit.
 A taxable person under the shelter of composition scheme is
restricted from collecting tax.
 The threshold for composition scheme is Rs. 50 lacs of
aggregate turnover in a financial year.
 The minimum composition tax rate prescribed under the Act
is 1% of the turnover in the State.
The finance ministry has suggested simplified procedures
for dealers under the compounding scheme, such as
registration by single agency for both SGST and CGST
without manual interface, no physical verification of
premises and no pre-deposit of security, simplified return
format, longer frequency for return filing, electronic return
filing through certified service centres or chartered
accountants, audit in 1-2 per cent cases based on risk
parameters, and lenient penal provisions.
GST – REGISTRATION
PROVISIONS AND PROCEDURES
Section 19 of the Central/ State Goods and Service Tax
Act, 2016
Registration:
Every person, who is liable to be registered under
Schedule III, shall apply for registration within a period of
thirty days in every state in which he is liable to be
registered. If a person is registered under the existing law,
such person need not apply afresh.
If a person/assessee after the commencement or start up of
his business activities, apply for fresh registration at the time
of expiry of thirty days and the Department takes time to
grant in granting such registration, if such person had either
received supply of goods or services and wishes to take Input
Tax Credit (hereinafter called ITC), the Department may disallow such ITC on the grounds that such person/assessee has
not obtained registration.
The Larger Bench of the Tribunal in the case of Balmer &
Lawrie & Co Ltd Vs. CCE MANU/CE/00230/2000 has held
that in case Dealer is not registered, then Cenavt Credit shall
not be permissible on the invoices so issued by such
unregistered dealer. The above judgment has been followed in
the case of CCE Vs. Precision Pipes Industries Vs. CCE
MANU/CK/7001/2006.
The dealer will not be able to avail ITC and at the same
time, if the invoices have been issued (during the time he
remained unregistered), the buyer of such dealer shall
also not be entitled to avail ITC. In addition to the disallowance of ITC, such person shall also be saddled with
penalty for non-obtaining registration.
The following categories of persons compulsorily
required to be registered as per Schedule-III under GST
laws
Notwithstanding the provisions of paragraph 1 and 2 of Schedule-III
attached to the GST Act, 2016, the following categories of persons
are required to be compulsorily registered irrespective of their turn
over and minimum conditions laid down for seeking registration –
i.
Persons making any inter-state taxable supply, irrespective of
the threshold specified under paragraph 1;
ii. Casual taxable persons, irrespective of the threshold specified
under paragraph 1;
iii. Persons who are required to pay tax under reverse
charge, irrespective of the threshold specified under
paragraph 1;
iv. Non-resident taxable persons, irrespective of the
threshold specified under paragraph 1; NRI could
be granted registration even without PAN No.
v.
Persons who are required to deduct tax under
section 37;
vi.
Persons who supply goods and/or services on
behalf of other registered taxable persons whether
as an agent or otherwise, irrespective of the
threshold specified under paragraph 1;
vii. Input service distributor;
viii. Persons who supply goods and/or services, other
than
branded
services,
through
electronic
commerce operator, irrespective of the threshold
specified in paragraph 1;
ix.
Every electronic commerce operator, irrespective
of the threshold specified in paragraph 1;
x.
An aggregator who supplies services under his
brand name or his trade name, irrespective of the
threshold specified in paragraph 1; and
xi. Such other person or class or persons as may be
notified by the Central Government or a State
Government on the recommendation of the Council.
Section 19 (6) of CGST/SGST Act, 2016 provides that any
specialized agencies of UNO or any Multilateral Financial
Institutions and Organization notified under the United Nations
(Privileges and Immunities) Act, 1947, Consulate, or Embassy of
Foreign Countries and any other person or class of persons as
may be notified by the Board/Commissioner, shall obtain a
Unique Identity Number, in the manner prescribed, for the
purpose(s) notified, including refund of taxes on the notified
supplies of goods/services received by them. In other words, for
the purpose of seeking refund of taxes paid, the above said class
of tax payer shall have to obtain Unique Identity Number.
REGISTRATION:
The proposed GST law intends to grant registration
through automatic route, with least interaction with the
tax authorities. The process also provides for grant of
automatic registration in
the event of no query or
question from tax authorities within the stipulated time.
The following are the proposed provisions relating to
registration.
Existing Registered Units under Central Excise,
Service Tax, VAT Laws And Other Related Laws.
It is proposed that the existing registered units under
VAT, Central Excise and Service Tax laws would be
automatically registered and the concerned unit would
be informed by E-mail/SMS. However, the existing units
would be required to provide the additional information
whichever is required upon registration.
The Registration is On-line without any manual inter-
action or inter-face with any individual thus avoiding
undesirable practices. Each person is required to obtain
separate registration in each of the State, online and the
registration is valid for Central Goods & Service Tax
(CGST), Inter-State Goods & Service Tax (IGST), State
Goods & Service Tax(SGST) and Additional Tax.
Time limit for making application for Registration
The application for registration is required to be made
within 30 days of the liability. However, registration
would be granted from the date of application which
means that for any transaction prior to the date of
application, tax would be payable but at the same time
ITC credit might not be allowed.
There is also a provision in MVAT in condoning the
delay and allowing such credit upon making the
application for condoning the delay and seeking grant of
credit. The recommendation has been sent by ICSI for
making a provision for seeking condonation of delay in
registration so that genuine ITC credit is denied by the
Adjudicating Authorities.
Online application on GST portal
The application for registration could always be made
manually and at the same time, on line application on
GST portal could be done and the application is required
to be signed by using the digital signature. If one does
not have the digital signature, there is also a provision to
submit the signed copies duly scanned through online.
Processing of application for registration
In case the application has been submitted, the same would be
processed within 3 working days by both CGST and SCGST
Authorities and such authorities may raise any queries within a
period of 7 days. If no queries have been raised by the authorities,
then the registration is deemed to have been granted. If queries are
raised by the authorities, those queries are required to be replied
within 7 days’ time. Once the registration is granted with queries
or no queries, the authorities would inform the GSTN number by
sending E-mail or SMS.
Amendment of Registration:
Section 20 of the Act provides for amendment of registration.
Whenever there is any change in information so submitted or
otherwise any new information is sought to be furnished for
any reason, the assessee may apply for amendment. In case,
the authorities wishes to reject the application for
amendment, they must issue a Show Cause Notice giving an
opportunity to the assessee to file a reply and thereafter an
opportunity of personal hearing has to be granted.
Cancellation of registration
Section 21 of Act provides for procedure to be followed for cancellation
of registration. Before cancelling the registration, the department is duty
bound to issue Show Cause Notice giving the assessee an opportunity of
filing its reply to the SCN. In Sahara India (Firm) v. Commissioner of
Income Tax, 2008 (226) E.L.T. 22(SC), the Supreme Court observed:“Unless statutory provisions specifically or by necessary
implications excludes the application of principles of natural
justice, hearing has to be provided to the assesse before passing the
order. Principles of natural justice evolved to check to check
arbitrary excise of power by the functionaries of the state.”
After giving an opportunity of personal hearing to the
assessee, if the Department is not satisfied with the
explanation submitted,
the
registration could
be
cancelled by the authorities. Any order passed by the
authorities is subject to appeal before the Appellate
Tribunal. However, there is no specific provision for an
appeal before Customs Excise and Service Appellate
Tribunal.
However, the CESTAT has exercised jurisdiction and entertained
an appeal against any order passed by the Commissioner
affecting adversely the assessee.
However, the order could also
be challenged by way of a Writ Petition under Article 226 of the
Constitution of India before the High Court. At the same time, law
also calls upon any authority exercising quasi-judicial powers to
give reasoned orders as has been held by the Division Bench of
the Gujarat High Court in the case of Shangrila Latex Industries
Ltd Vs. Union of India MANU/GJ/1671/2016.
Login ID / password
The Departmental Authorities would also provide the
login id and the temporary password upon GST registration
to the authorized signatory. The temporary password could
then be changed /modified by the authorized signatory.
Requirement of displaying the registration
certificate
The law requires display of the GST registration certificate at
a prominent place at the principal place of business of the
taxpayer.
Rejection of registration
The rejection of registration application by either by the
Central or by the State shall be deemed to be rejection by
the other authority (ies) as well.
Returns and Payments of Business Process Report
The Model law has prescribed various forms of return / payment ledger
as reflected in the following Table:
Sr No.
1.
Return
ledger
GSTR-1
Return
Cut off date
Outward
10th of the
supplies
next month
made
by
taxpayer
(other than
compoundi
ng taxpayer
& ISD)
Remarks / comments
If any supplies are under
reported to the extent of
5% then such tax payer
will be exposed for black
listing. Any amendment
thereto not under GSTR1 but under separate
columns provided in
GSTR-3
2.
GSTR-2
Inward supplies 15th
of It will be auto populated based on
received by a tax the next the suppliers GSTR-1. However,
payer
(other month
additional entries also can be
than
a
uploaded. Any mis-match to be
compounding
reconciled with 2 days i.e. by 17th
tax payer & ISD)
or alternatively within 2 months;
if not reconciled within 2 months
then ITC will have be reversed
along with interest and such
amount will be credited and
interest will be refunded after
matching the transactions after 2
months but prior to annual return
i.e. before filing GSTR-8
3.
GSTR-3
Monthly return (other 20th of the TR-3 will be auto populated
than a compounding next month from details of GSTR-1 and
tax payer & ISD)
GSTR-2
4.
GSTR-4
Quarterly return for 18th of the This return needs to be filed by
compounding
next month compounding tax payer till the
taxpayer
time such dealer opts for normal
tax payer or crosses the
specified limit
5.
GSTR-5
Periodic return by 7 days after Registration will be granted for
nonresident
foreign the date of specified period and after such
taxpayer
expiry
of specified period is over
registration;
if the period
is for more
than
one
month,
6.
GSTR-6
monthly
returns would
be filed and
thereafter
return for the
remaining
period would
be filed within
a period of 7
days
the return has to be filed
within 7 days of such
period. However if such
specified period is more
than 1 month, the return
has to be filed on or before
20th of the subsequent
month
Return
for 15th of the
input
service next month
distributor
(ISD)
This return will be in line
with the present ISD
return.
However
GST
invoice will be issued for
transferring the ITC
7.
GSTR-7
Return for
deducted
source
8.
GSTR-8
Annual return
tax Tax will have to be
at deducted
on
works
contract
and supplies to
specified agencies
including
government
agencies
Tax will have to be
deducted
on
works
contract and supplies to
specified
agencies
including
government
agencies
By 31st December Annual;
also
auto
of next FY
populated where the
summary of GSTR-3 of all
the months will be auto
populated and necessary
corrections will be made
after reconciling books of
account. This report will
be certified by CA/CMA
9.
Ledger-1
ITC ledger of Continuous
tax payer
This register will be
maintained by the GSTN
on real time basis
10.
Ledger-2
Cash ledger of Continuous
tax payer
This register will be
maintained by the GSTN
on real time basis
11.
Ledger-3
Tax ledger for Continuous
tax payer
This register will be
maintained by the GSTN
on real time basis
GOODS AND SERVICE TAX
PROVISIONS OF SUPPLY
Section 3
Meaning and Scope of Supply
Section 3 of the Central/ State Goods and Service Tax Act, 2016
provides for the meaning and scope of the supply which is
reproduced as under:
(1) “Supply includes
(a) all forms of supply of goods and/ or services such as
sale, transfer, barter, exchange, license, rental, lease or
disposal made or agreed to be made for a consideration
by a person in the course or furtherance of business,
(b) importation of service, whether or not for a
consideration and whether or not in the course or
furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be
made without a consideration.
(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.
(2A) Where a person acting as an agent who, for an agreed
commission or brokerage, either supplies or receives any goods
and/ or services on behalf of any principal, the transaction between
such principal and agent shall be deemed to be a supply.
(3) Subject to sub-section (2), the Central or State Government may,
upon recommendation of the Council, specify, by notification, the
transactions that are to be treated asi.
a supply of goods and not as supply of services; or
ii. a supply of services and as supply of goods; or
iii. neither a supply of goods nor a supply of services.”
(4) Notwithstanding anything contained in sub section (1), the
supply of any branded service by an aggregator, as defined in
Section 43B, under a brand name or trade name owned by him
shall be deemed to be a supply of the said services by the said
aggregator.
Section 3 of Goods and Service Tax, 2016 speaks of “Supply” of
both (a) Goods and (b) Services.
encompasses
Section 3(1)(a)
“Supply”
all forms of supply such as (i) sale (ii) transfer
(iii) barter (iv) exchange (v) license (vi) rental (vii) lease (viii)
disposal made for consideration in the course of or in
furtherance of business
The break up of Section 3(1) is as under:Conditions for charging GST on any transaction:

Supply of Goods and/or Services;

Supply will include sale, transfer, barter, exchange,
license, rental, lease or disposal;

Made or agreed to be made;

For a consideration;

By a person;

In the course or furtherance of business;
 In the definition of “Supply”, the first two words which emerge
is “Sale” and “Transfer” and one needs to understand the
meaning of word
“Sale” and “Transfer” – Section 54 of
Transfer of Property Act, define sale as-
“Sale” is a transfer of ownership in exchange for a price
paid or promised or part paid and part promised.”
 The Supreme Court in the case of K Perusal Mal Vs.
Rajagopal MANU/SC/0421/2009 has defined the terms
“Sale” in the following words:-
“Sale is defined as being a transfer of ownership for a
price. In a sale there is an absolute transfer of all rights in
the properties sold. No rights are left in the transferor.
Price is the essence of a contract of sale.”
 The word “Transfer” has been defined in Section 63 of Income
Tax Act, 1961 and is, inter-alia, reads as under:-
63."Transfer" and "revocable transfer" defined". -
for the
purposes of ss. 60, 61 and 62 and of this section –
(1)…………………...
(i) …………………..
(ii)……………………
(b) "transfer" include any settlement, trust, covenant, agreement
or arrangement".
LEASE AND LICENSE
In Section 3(1)(a), after the words, sale, transfer, ,( barter exchange two words are self-explanatory), the words lease
and license appears.
The Supreme Court in the case
of Bharat Petroleum Corporation Ltd. v. Chembur Service
Station : MANU/SC/0166/2011 has held:
Section 3(1)(b): Importation of service, whether or
not for a consideration and whether or not in the
course or furtherance of business;
The word supply would include “importation of service whether
with or without consideration – whether or not in the course or
furtherance of business. The import of service even for personal use
shall be subject to tax as long as the “transaction value” is above the
threshold limit. The tax would be payable under the “reverse
charge mechanism basis”. Though the import of goods and service
is subject to payment of Integrated Goods and Service Tax since the
importation of service is not intra-state transaction.
Section 3(1)(c) : Supply specified in Schedule-I,
made or agreed to be made without consideration.
Transactions without consideration: The law provides that in
certain cases, even though, there is no consideration, the same
would be treated as ‘supply’. Such cases are listed in Schedule I
and would be liable to tax in case the value of transaction is
above the threshold limits. Such cases are dealt with hereunder:-
Clause 1 of Sch.-I: Permanent transfer/disposal of
business assets:
The word ‘transfer’ suggests that there should be another
person who would receive the business assets at the other
end not for temporary period but on permanent basis. The use
of the words ‘permanent transfer’ signify that the goods so
transferred do not intend to be received back.
Where the goods are sent on job work or goods sent for “testing”
or goods sent for “certification”, it would not be treated as
“supply’ since these goods will come after the “process”, “test” or
“certification”. This would cover following transactionsa) The goods sent on consignment transfers/ for display in
showrooms.
b) Donation of X Ray Machine or Sophisticated equipments to a
hospital run by a Charitable Trust near the factory for
predominant use by employees.
c) Building given by a car manufacturer for use by visitors of
ancillary units who have formed association;
d) Bus given to employee welfare trust for carriage of employees
from township to factory;
e) Building given for use as Employee Welfare Trust for use as a
Club or for running any other activities;
f) Cars given to officers/ employees for use by them so long as they
are employees of the company for minimum period of ten years.
g) A Ltd is disposing off his Aero-planes for school run by trust.
Clause 2- Sch-I: Temporary application of business
assets to private use:
Where any business assets (fixed assets, stock in trade, office
equipment, motor vehicle etc.) are put to use by the
management or the employees for any personal use (nonbusiness use), the same would be ‘supply’ and would,
therefore, be liable to tax, though there is no consideration.
Few examples would be :-
Examples:
a) The company has given “laptop or car or vehicle” for
personal use of employee’s family;
b) The company own banquet hall which has been let to
officer for marriage of his daughter;
c) The company own helicopter which has been given to
senior management for private medical emergency ;
d) The company has godown which has been given for storage
of goods by Employee Credit & Thrift Society or Welfare
Organization.
e) The company engaged in leasing of motor vehicles – and such
vehicles are used on the occasion of a marriage in the family
- it would be treated as supply and, therefore, taxable.
Clause 3 of Sch-I: Services put to a personal or nonbusiness use:
Where any services are provided by the taxable person in the
course of his business and if such services are at any time put
to use by the management or the employees for any personal
use (non-business usage), the same would qualify as ‘supply’
though without consideration.
a) An architect who is partner of architect firm designing the
house for himself or building complex for his own use would
qualify as ‘supply’.
b) A practicing chartered accountant is providing the services to
his father in filing his Income Tax Return.
c) A Husband running Gym Service and his wife is also one of
the client and availing the services of Gym.
d) A person running Motor Garage and his brother in law is
availing facilities existing there;
e) A person is running a AC Restaurant in CP and his family has
availed the courtesy of Dinner.
f) In a professional and vocation college run by the father, son
and daughter getting vocation training;
Clause 4 of Sch. I: Assets retained after deregistration:
Where a taxable person deregisters himself under this Act, the
assets which are retained by the entity after such
deregistration would qualify as supply. Person, at the time of
acquiring has availed Input Tax Credit and, therefore, once deregistered, he must pay tax on the value of assets – as he is no
longer doing any business – since de-registered.
Clause 5 of Sch.- I : Supply of goods and/or services
by one taxable person to another taxable person or
non-taxable person in the course or furtherance of
business:
Any supply of goods and/or services in the course of business
or furtherance of business by taxable person to any other
person (whether or not a taxable person) even without
consideration would qualify as ‘supply’.
a) A CA varying out valuation report of assets for another CA for
inclusion in the Project Report;
b) An Interior Designer is designing the Office of his CA;
c) An Architect is preparing a Site Plan of the Residence-cum-Office
of his CA.
d) CA is carrying out statutory audit of Mandir Trust or Charitable
Organization;
e) A pharmaceutical manufacturer is clearing the finished goods
to Doctors;
f) A pharma manufacturers is distributing free torches to the
doctors
g) M/s Haldiram Ltd is distributing Sweet /Namkin Packets to
employee on the eve of Diwali;
h) Free medical camp organized by Hospital/Doctor.
ANALYSIS OF SCHEDULE-II.
The provisions of this Schedule-II are some-what self
explanatory – however, for better understanding and clarity,
each and every situation has been explained in greater detail.
1.Transfer
1(1) Any transfer of the title in goods is a supply of goods
(a): Honda City, a car manufacturer delivered one car to Mr. A
and the car was registered in the name of Mr A. This means
title of car has been transferred in favour of Mr A. Hence, it will
constitute supply of goods. 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.
(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.
Honda, a car manufacturer, delivered 20 cars to a public
sector company, without transferring the title of car, for being
used by the Officers. This is the supply of services as the title
in car has not been transferred to Government but the right
has been given to use the car and would, therefore, constitute
supply of services and not goods.
(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.
Honda, a car manufacturer, delivered 10 cars to Government
of India Undertaking, keeping the title of car to itself.
However, the title will pass to that public sector company after
10 years on payment of all installments and consequently, it
would be a supply of goods.
(2) Land and Building
(1) Any lease, tenancy, easement, license to occupy land is a
supply of services.
 A real estate developer gives on lease its vacant land for the
purpose of setting up an Trade Fair or Sport Match or
Exhibition and, therefore, it would be a case of supply of
service.
 Parking rights given to Parking Contractor
 To given Vending machines at the Cinema Hall, Malls, Airport,
Hospitals, Public places.
(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.
Read with Clause 5 –”RENTING OF IMMOVEABBLE PROPERTY”
 A real estate developer leased out its commercial office to LG or
Samsung for opening a showroom for consumable durables – it will
be a case of supply of service.
 A manufacturing unit for manufacture of edible oil, in an industrial
area has been leased out for a period of 10 years.
 Premises let out in Residential Complex for Opening Branch of “Big
Bazar”, Reliance Fresh.
(3) : Treatment or process
Any treatment or process which is being applied to
another person’s goods is a supply of services.
For Example: Jute Cloth bags have been supplied by M/s ABC
Ltd to Mr X to undertake a process of “printing” and then
return a bag. This will be treated as supply of services.
(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.
For example: KKG & Associates a firm of professionals, sells old
and obsolete air-conditioner under instruction of a partner,
transfer of obsolete air-conditioners are supply of goods.
(2)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 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.
For example: KKG & Associates, a firm of professionals,
provides laptop an article for his personal use then such
transaction is a 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.
For example: KKG & Associates, a firm of professionals, firm
owes Rs.10,000 to an ex-employee. Instead of paying his
amount, the firm provides him a laptop as a final settlement.
This will be treated as supply of goods.
(4) 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—
(a) the business is transferred as a going concern to
another person; or (Slump sale)
(b) the
business
is
carried
on
by
a
personal
representative who is deemed to be a taxable person
 For Example: KKG & Associates,
a firm of
professionals, transfers its business as going
concern to a new partnership firm. Any goods
forming part of its business will not be treated as
supply of goods.
(5) The following shall be treated as “supply of service”(a) Renting of immoveable property for business or commerce.
However, in this case, it speaks of renting of immoveable
property for any purpose .
(b) 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 before its first
occupation, whichever is earlier.
Explanation.- For the purposes of this clause-
the
expression
"competent
authority"
means
the
Government or any authority authorized 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:-
 an architect registered with the Council of Architecture
constituted under the Architects Act, 1972; or
 a chartered engineer registered with the Institution of
Engineers (India); or
 a licensed surveyor of the respective local body of the
city or town or village or development or planning
authority;
 the expression "construction" includes additions, alterations,
replacements or remodeling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any
intellectual property right;
(d) development, design, programming, customization, adaptation,
upgradation, enhancement, implementation of information
technology software;
(e) agreeing to the obligation to refrain from an act, or to
tolerate an act or a situation, or to do an act;
(f) works contract including transfer of property in goods
(whether as goods or in some other form) involved in the
execution of a works contract;(photographer making photo,
motor garage, construction of house/ building)
(g) 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; and (cycle, car, motor cycle).
(h) supply, by way of or as part of any service or in any other manner
whatsoever, 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.
6. The following shall be treated as supply of goods
(a) supply of goods by any unincorporated association or body
of persons to a member I thereof for cash, deferred payment or
other valuable consideration. (outdoor caterer, Restaurant
service).
You can access the Presentations
& Articles at our website
@pkmgcorporatelaws.com
THANK YOU
PKMG LAW CHAMBERS