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 –

“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. 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.

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