Definition of Consideration

GST Update 21.06.2016

GST DAILY DOSE OF UPDATION:-

Definition of Consideration:-

Section 2(28) of draft GST Act, 2016 defines the term “consideration” as follows:-

(28) “consideration” in relation to the supply of goods and/or services to any person, includes
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person;

(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person:

Provided that a deposit, whether refundable or not, given in respect of the supply of
goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;

As GST is to be levied on the “consideration” received in return of the supply, the definition of this term will play a vital role. The proposed definition is inclusive in nature and seeks to include every payment received or receivable in response to supply of goods/services. Whether the consideration is given by the person receiving the supply or by any other person on his behalf, the same will get covered in the definition of supply. The consideration will include the monetary value of any act or forbearance to do any act; i.e. to say even non-monetary consideration will be leviable to GST unless otherwise exempted. Further, according to proviso inserted in the definition, the deposit given in respect of supply will not be included within the meaning of ‘consideration’ unless the same is appropriated as consideration.

The analysis of this definition makes it clear that the concept of ‘consideration’ has been kept at par with that applicable to the provision of ‘services’ under present negative list regime. It is worthwhile to mention here that as per Explanation (a) to section 67 of the Act “consideration” includes any amount that is payable for the taxable services provided or to be provided. Since the definition provided here is also inclusive, in order to ascertain what all is included in this term, often reference is made to the definition of ‘consideration’ as given in section 2 (d) of the Indian Contract Act, 1872. This reference is being made view of clarifications given in education guide issued at the time the negative list regime was brought in force. This definition in contract act states that “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. A comparision of this definition with that proposed in the GST bill will make it clear that the proposed definition can be said to be adapted from Contract Act in true sense. Also, with the negative list regime, the service tax is leviable even on activity of forbearance to do any act. This concept is proposed to be carried forward in GST regime too.

Recalling the proposed definition of ‘consideration’ as discussed above; it excludes the security deposit unless appropriated towards consideration, however, it does not speak about the notional interest on the same. There have been cases under Central Excise as well as under Service tax wherein demands have been raised by the department by alleging that the value of notional interest earned on said security deposits is includible in the assessable value of goods/services. At the same time there are decisions which state that the notional interest cannot be included in assessable value unless the department proves that it has influenced the price of goods/services. As the proposed definition does not speak about the notional interest on security deposit, there are fair chances of carry forward of this litigation too.

Comments

GST Update 21.06.2016

Post a Comment

Query