SECTION 3 MEANING AND SCOPE OF SUPPLY

GST Update 24.08.2016

GST DAILY DOSE OF UPDATION:-

SECTION 3 MEANING AND SCOPE OF SUPPLY:- The definition of supply that is proposed in the Model GST Law is inclusive thereby meaning that the scope of supply is very wide. Supply includes 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. It is observed that even the transaction of barter or exchange is covered within the ambit of supply. Say for example, if Mr. A provides dry cleaning services to Mr. B (being dealer of mobiles) and in return, Mr. B gives mobile to Mr. A. This kind of transaction will also be considered as supply and will be leviable to GST. However, the valuation of the transaction, both from the point of view of Mr. A and Mr. B will be covered in the valuation update. Similarly, supply of license will also be treated as supply ad will be leviable to GST. However, licenses are also granted by the government as a part of statutory obligations and administration. In such a case, whether GST will be payable is not clearly mentioned.

Secondly, importation of service, whether or not for a consideration and whether or not in the course or furtherance of business is considered as supply. The phrase “whether or not in the course or furtherance of business” will have the far reaching effect of levying GST even if services are imported for personal use. Say for example, if any game is downloaded online, GST will be payable under reverse charge mechanism.

Furthermore, certain supply specified in Schedule I, made or agreed to be made without a consideration will also be treated as supply. The supply specified in Schedule I is listed as follows:-

(1)             Permanent transfer/disposal of business assets- This will lead to levy of GST on sale of all business assets. Presently, higher of duty on transaction value or credit reversal on depreciated value is payable on sale of used capital goods. This provision is imported in GST regime but along with it there is requirement to pay GST even on other business assets. Whether immovable property will also get covered under business assets will be a matter of concern.

(2)             Temporary application of business assets to a private or non-business use:- GST will be payable even if business assets are given on rent or lease to third parties. Even the personal use of telephone or motor car by employees will be covered under the same.

(3)             Service put to a private or non-business use:- Chartered Accountant giving free services to friends will be treated as supply. The valuation of free services will be determined by valuation rules.

(4)             Assets retained after deregistration.

(5)             Supply of goods and /or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business:- Gift items provided with products will also be leviable to GST.

Moreover, transactions between principal and agent for an agreed commission or brokerage shall be deemed to be a supply and leviable to GST. Apart from the above, the Central or a State Government may, upon recommendation of the GST 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.

Finally, we can say that the remote control regarding what is to be treated as goods and what is to be treated as services also rests with the government and it has the power to notify what all are to be treated as supply of goods, supply of services or neither of them. This indicates that there might be certain supplies that will be leviable to service tax irrespective of their nature and certain supplies that will not be leviable to tax at all.

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GST Update 24.08.2016

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