Treatment of Supply without consideration under GST

By CA Atul Gupta & CA Rashi Paliwal

The proposed Goods and Services Tax (GST) draft model law has been released by Empowered Committee of State Finance Ministers in June 2016 which proposes to subsume various taxes from the present indirect taxes structure.

Unlike present regime where taxable event for Central Excise is “manufacturing”, for Service Tax is “provision of service” and for Value Added Tax is “Transfer of property”, under the proposed regime, all the taxable events will be replaced with only one incidence which will be known as “Supply”.

Section 3 of the Model GST Law define Supply as -

(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.

Part (c) in above as given in schedule - I have been re-produced below –



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. 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.

Provided that the supply of goods by a registered taxable person to a job-worker in terms of section 43A shall not be treated as supply of goods.”


Herein in this article we will focus on the fifth clause of schedule – I, i.e. Supply of goods/service by a taxable person without consideration.

Let’s start with an example of the same which can be goods as free samples which are supplied in the course or furtherance of business to any person by a taxable person will attract GST under the new regime. Although, normal trade discounts or cash discounts reflected on invoice won’t be covered under such clause.

To understand who is a taxable person, we may refer Section 9 of the Model GST Law which provides that “any person who is doing business in India and liable to be registered as per the provisions is a taxable person”. Although there are some exceptions to this definition which are –

•             An agriculturist;

•             Any person having aggregate turnover less than Rs. 10 lakhs;

•             Any person carrying on business in North Eastern States including Sikkim having aggregate turnover less than Rs. 5 lakhs;

•             Services of employee to employer;

•             Person engaged in supplying goods/services which are not liable to GST; or,

•             Any person liable to pay tax under Reverse Charge who is receiving services in a year for personal use till certain amount.

Prima facie, it can be seen that there are some cases which are not covered under this limb, although they might be covered elsewhere under the Model GST law. Such cases are given as below –

Supply of goods/services by a non-taxable person irrespective of the fact that whether supplied to a taxable person or another non-taxable person; and,

Goods/services are supplied by a taxable person not in the course or furtherance of business, i.e. for personal purposes.


Valuation of goods/services supplied without consideration under present regime vis-à-vis proposed regime

The concept of supply without consideration under GST seems to be a deviation from the existing provisions contained either in Service tax where service without consideration is kept outside the purview or VAT where sale without consideration is also not chargeable to VAT. It seeks to broaden the tax base under the proposed tax structure.

New bone of contention between the centre and a few states under the goods and services tax (GST)

Around 33,000 big service tax assessees are emerging as the new bone of contention between the centre and a few states under the goods and services tax (GST).

There are an estimated 1.1 million service tax assessees, which are entities that collect service tax and are registered with the Central Board of Excise and Customs. Of these, around 3% are estimated to be big assessees who provide annual taxable services of more than Rs1.5 crore.

At the end of the first GST council meeting on 23 September, finance minister Arun Jaitley had said that as part of the agreement between the centre and the states on dual control, states will administer all value-added tax (VAT) dealers up to a revenue threshold of Rs 1.5 crore.

For those above this threshold, a model of cross empowerment will be followed, wherein the control will be divided between the centre and the states. It was also decided that the centre will control all existing registered service tax assessees irrespective of their threshold. 

But in the second meeting of the GST council last week, there was some acrimony on this issue, Mint reported on 30 September. States such as West Bengal and Tamil Nadu opposed the proposal to give the centre full control over all the service tax assessees.

Instead, they sought cross empowerment for the big service tax assessees while agreeing to allow the small ones to continue under the centre’s administrative control, said two people who attended the meeting.

 “What rattled a few states was the line included in the minutes of the GST council meeting that the centre will administer these existing registered service tax dealers for the next three years,” said a state government official who did not wish to be identified. “They have sought cross empowerment for bigger service tax assesses.

But the question remains whether states have the expertise to control such large service tax providers and if they can be entrusted this responsibility,” he said. 

 Another official said the centre’s attempt to pass off some items currently being taxed by the states as services has also upset states. This included assessees like restaurants where both service tax and value-added tax is levied.

 GST will subsume all indirect taxes levied by the central and the state governments including excise duty, service tax, VAT, luxury tax, entry tax and entertainment tax.

 However, the challenge remains to keep the administrative compliance burden on the businesses at a minimum and to ensure that every business, while paying both state GST and central GST, has to deal with only one tax authority.

 “This problem was always going to arise as there are many such services where states also levy VAT like the tax levied on restaurants, copyright, leasing of goods and works contract. 

 Many service tax assessees also sell goods,” said Bipin Sapra, tax partner at audit and consulting firm EY. “However, dual control will not be welcomed by industry.”
SOURCE: MINT: Remya Nair 

For around 11 lakh service tax assessees, a status quo was decided in the first meeting. 

Service tax assessment under GST: Technical committee to iron out differences, hold meetings

The team will then brief their respective state finance ministers, who are scheduled to gather in the national capital for the third GST Council meeting from October 18-21.

After differences cropped up between Centre and states regarding the administrative control of service tax assessees in the second meeting of GST council on Friday, a technical committee of officers will now hold a series of meetings, beginning with one later this week in Ahmedabad to resolve contentious issues. The team will then brief their respective state finance ministers, who are scheduled to gather in the national capital for the third GST Council meeting from October 18-21.

In its first meeting on September 23, the GST Council, which is headed by finance minister Arun Jaitley, had decided to allow states to have administrative control over Value Added Tax (VAT) assessees with annual turnover of less than Rs 1.5 crore and for turnover of over Rs 1.5 crore, a system of cross empowerment between states and Centre was agreed by the Council.

Watch What Else Is Making News

For around 11 lakh service tax assessees, a status quo was decided in the first meeting. The finance minister had conveyed that state government officials will be trained in due course to handle the service tax cases, but till then Centre will have exclusive jurisdictional control. It was also decided that new assessees which would be added to the list would be divided between the Centre and states.

The decision was later opposed by some states in the second meeting last week. Some states in the meeting proposed to have a cross empowerment model for top service tax assessees and exclusive control for Centre for smaller assessees. The top service tax assesees constitute over 30,000 out of total 11 lakh service tax assessees at present. Also, states have asked for more clarity regarding control of service tax assessees in sectors such as construction where both goods and services are involved, a senior government official said. Though the Council could have conducted voting on the issue, it was decided to refrain from going ahead with a vote and instead build a consensus among the states, the official added.

Due to this sticking point of service tax assessment between the Centre and the states, the minutes of meeting of the first GST Council meeting were not approved in the second meeting held on Friday.

“With regard to one item recorded in the minutes with regard to the service tax assessment in the new dispensation, there was a long discussion on the interpretation on the decision taken in the last meeting and that discussion consumed a lot of time today. That discussion was inconclusive and therefore it will continue in the next meeting on 18th (October),” finance minister Arun Jaitley told reporters after the second meeting on September 30.

The GST Council is trying to move swiftly to decide on issues of draft IGST, CGST and SGST laws and rules, GST rate structure and exemption lists by November 22 to meet its intended deadline of April 1, 2017 for the indirect tax regime. With two meetings, the Council has decided on threshold for

GST levy, area-based exemptions and draft rules dealing with registration, rules for payments, return, refund and invoices. The rules will be notified once the Act is passed and accordingly simultaneous changes are being made in model GST law. The GST Council has decided to fix the exemption limit for the indirect tax at Rs 10 lakh for northeastern states and hill states and Rs 20 lakh for other states along with decision to subsume all cesses into GST.

The next meeting of the council on October 18-20 will again take up discussions on service tax assessment and the formula for calculating compensation for states in case of revenue shortfall as a result of implementation of GST regime. The crucial issue of GST rate will also come up for discussion in the three-day meeting apart from selection of a state finance minister as the vice-chairman of the council. 

Source : Financial Express News .

GST will not spare anyone! Prepare or face consequences

Prepare or Face Consequences - GST will not spare anyone!


There was a time when people talk about the historic moments when Mars came closer to the earth and eligible to see from the naked eyes. But nowadays, when it comes to historical moment’s people talk about Goods and Service Tax (GST) in India.

As said, it is a historic time for the whole nation as it will unite the whole country and make it single market. Now we can proudly say,

“Divided by states, united by tax”

It is the biggest reform since independence and hence, the preparation needed for this tax will also be immense. Take my word very seriously because any default in GST regime will end you up paying huge penalties.

Let us understand the difference of GST by way of story:

A Horror Story – Read and learn

“Mr. RAM is a supplier of a particular product which is exempted under GST. Mr.RAM exclusively deals in exempted product and not in any other product. His business was stable, so he thought of expanding it by a marketing technique.

Mr. Ram announces that anybody buying his product will get another product worth Rs.3000 free. This is a common marketing technique people imply in their business.  

As said, this is a very ordinary corporate strategy people involve in their business. Now, we will explain you the implication of this simple marketing technique.

Suppose Product supplied free of cost is also exempted under GST

The transaction is simple, not much implication

Suppose Product supplied free of cost is taxable under GST

Now, this is the thing we are talking about. Mr. Ram cannot imagine under which problem he is into.

As per GST model law, he is not required to register since he was dealing in goods exclusively not liable to tax. However, by introducing the marketing scheme, he becomes a supplier of taxable products also.

Since he is the supplier of the taxable and non-taxable product, he becomes liable to registration, returns and all other compliances like an average taxable person. He will be treated as a defaulter for not taking the registration and not filing the returns.

Penalty for Default

There is a severe penalty for any default under GST. The maximum penalty for non-filing the return is Rs.5000 per return.

As per GST, a minimum of 3 returns per month is required to be filed. i.e. penalty of Rs.15000 per month, Rs.180,000/- per year.

Further, if anybody defaults in the filing of the annual return, then maximum penalty will be 0.25% of the total turnover, which will be huge.

Now you can understand why we called it a horror story. This author can also be reached at

How to prepare it for GST?

Assume it as a sales pitch or whatever you might think, but I would recommend you all to consult a professional for GST and don’t even try to do it yourself. Even, professionals are finding it difficult to implement and learn.

GST is very complex, and it will take years to get shape into more tax friendly. However, till then we have to prepare ourselves so that we don’t end up having unnecessary litigation.

“We cannot change the law, but we can be responsive to change.”

Hence, the following points may be useful to you in the implementation of GST:

1. Explain your business well: Whosoever is your tax consultant, he can advise you well only if you tell the facts right. Remember, it is expert because he has command of the law but for facts he trusts you. So be sharp in explaining the every point about your business so that he will be able to advise you properly.

2. Update your current Invoicing and Accounting System: You got to change your invoicing and accounting software to manage the change as per GST law. People who work in excise law understands that how tax impacts the accounting and invoices process. Further, make sure you create tax invoice as per the rules. You can read the following article to know more about the tax invoice.

Everything about tax invoice under GST invoicing rules

3. Training to Existing Staff: Human resource is the best resource one can count upon. However, there is one problem with the staff that they are rigid and not flexible. Hence, training is the most important part to get ready for GST.

In the end, it is the people who run your company. Get them trained.

4. Understand the concept of Supply: GST is not only a tax reform but also a business reform as well. Under GST, taxes moves along with goods. Hence, now companies will have to maintain central warehouses to avoid being registered under every state. For e.g. Your Company has branches in 5 states, and you supply goods from all five states. Then as per GST law, you will need to take five registration and have to comply every procedural formality for each registration separately like return filing, record keeping.

Hence, tax consultant will also work as a strategist for your company.

5. Understanding the rules and Taxable event:Taxable event means activities which create levy on the enterprise. For e.g. under the Sales tax, sales were the taxable event, under excise law, manufacture was the taxable event.

Similarly, under GST law, the of goods and services is the taxable event.

Hence, understand the taxable event, because you need to complete all the procedural formalities to remove the goods.

You can also read: How to issue tax invoice as per GST Invoicing Rules

In the end – It’s only a beginning

This is not an end but only a beginning. The history is knocking the door, and we need to get prepared for it. If not, then GST will create a problem for all those who have not planned in advance.

Mark my word; the world is changing, don’t just sit up, stand and deliver.

Auditors/Consultants view on GST Regn.

With its eyes firmly set on the GST goal, the Ministry of Finance on Monday released draft rules and formats on payment, registration, and invoice. The rules have been released ahead of the GST Council meet scheduled on September 30. The Ministry has sought feedback on the draft rules by September 28.

After the release of the draft rules, Revenue Secretary Hasmukh Adhia tweeted, “We intend to have these rules approved by GST Council in its meeting on 30th September. So that business systems can be modified by all.”

Here are the quick highlights of the draft rules:

Draft Rules On Registration

Even before applying for registration, Part A of the new form seeks to verify PAN through Income Tax Portal and mobile number and email id through OTP.
Application for registration is to be made online either directly on the GSTN Portal or through Facilitation Centres (these will be notified separately)
26 forms have been floated including forms for showcause notice for cancellation of registration, order for amending registration, application for revocation of cancelled registration etc.
Application seeks details of estimated GST liability – IGST, CGST, SGST.
No fee is payable for filing application for registration.

Draft Rules On Invoice

The draft format for Electronic Reference Number of Invoice has been provided.There’s a 30-day time limit for raising invoice from the date of supply of services but no time limit provided for supply of goods.Bill of Supply will be issued by suppliers when non-taxable goods or services are supplied or by supplies under Composition Scheme.Certain essential details for supplementary invoice, debit note, credit note, ISD invoice are also provided.

Draft Rules On Payment

Electronic Tax Liability Register, E-Register for Cash Payments, E-Register for Credits.Tax can be paid through net banking, credit or debit card, NEFT/RTGS, Over the Counter (only upto Rs. 10,000).Generation of unique ID for every transaction – to be correlated with Tax Liability Register.

Pratik Jain, a partner at PwC said that the speed at which the government has progressed on GST front has caught the industry by surprise and they would now need to step up their pace in terms of preparation.

The good news for the industry is that they can now start preparing a blueprint of the changes required in their IT systems.

Pratik Jain, Partner, PwC

“At a headline level, the rules contemplate more of electronic interactions between the tax authorities and businesses, with only need-based physical intervention (like verification of premises on the application filed for registration).

Further, all the PAN details are to be verified online with the CBDT database, which is not the case currently. Integration of GST and CBDT databases would mean that GST authorities could have access to income tax filings of businesses and vice versa. This should help in minimising the leakage of tax, both income tax and GST.

There is also a provision that the transporter of goods need not carry the copy of the invoice, if an invoice reference number has been obtained by the supplier upon uploading the invoice details on the government portal. This would reduce the paper work for the transporters and help in smooth movement of goods.

There is also a provision that the transporter of goods need not carry the copy of the invoice, if an invoice reference number has been obtained by the supplier upon uploading the invoice details on the government portal. This would reduce the paper work for the transporters and help in smooth movement of goods.”

L Badrinarayanan, partner at Lakshmikumaran & Sreedharan said that the entire process is set on the IT highway right from word ‘go’. It is easy, seamless and minimises human interaction, though digital literacy and connectivity in parts of India will be a drawback, he added.

“There are more than 26 forms prescribed in the draft rules for all sorts of situations such as assessment, notices, etc. There seems to be a move towards an exhaustive GST regime to minimise State intervention that usually distorts uniformity. Today the problem with the state VAT laws is the variation across states, which requires businesses to learn and re-learn constantly. 

The rules requires that a Bill of Supplies be provided if the supplies are non-taxable or under special schemes such as composition levy. This will not have tax implications but is probably important for statistical and internal data purposes.

The rules provide for everything electronic from payments registers, credit registers, etc. This puts a lot of emphasis on digital data and electronic money. It is again a welcome change but may be challenge, given the large population outside the cities and towns that may not have access.”

Divyesh Lapsiwala, partner at EY India said that the release of draft regulations continues the process of sharing detailed operating rules with trade and industry.

The framework seems to be fairly close to the current state VAT regulations. The invoicing and registration related provisions clarify the manner in which key processes will have to be undertaken by a taxpayer. While the window provided to give feedback is only two days, industry bodies are aligning themselves to highlight key aspects that need to be discussed in the context of these documents.

Also Read
Exemption Limits, Service Tax, Cess Addressed By GST Council: What Next?
GST Council’s First Meeting: Several Positives, Minor Hiccups