As Goods and Services Tax (“GST”) is going to be levied on supply of goods and/or services, meaning of ‘goods’ and ‘services’ would also play vital role in levy and chargeability of GST after the key term ‘supply’. It has to be clearly identified as to whether the supply constitutes supply of goods or services for leviability of GST. Importance of the terms ‘goods’ and ‘services’ would become all the more important if rates of GST on goods and services are going to be different.
This article attempts to decipher the main terms namely ‘goods’ and ‘services’ in the light of provisions contained in Model GST Law, to provide conceptual clarity as regards the meaning of goods and services in GST along with highlighting the key issues therein.
Meaning of ‘goods’ in GST:
The term ‘goods’ has been defined under Section 2(48) of the Model CGST/SGST Act, 2016 as under:
“goods’’ means every kind of movable property other than actionable claim 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.”
The above definition, defines goods as every kind of movable property which also 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. Further, the definition of goods specifically excludes actionable claim, money and intangible property.
Meaning of ‘services’ in GST:
The term ‘services’ has been defined under Section 2(88) of the Model CGST/SGST Act, as under:
“services’’ means anything other than goods;
Explanation: Services include intangible property and actionable claim but does not include money.”
Apparently, the term ‘service’ has been defined in the widest sense possible as any transaction which is not goods, shall be services except money.
Whether Immovable property is service:
As the definition of the term ‘service’ is wide enough to cover anything other than goods, this would mean that even any rights or usage of immovable property would also constitute services under GST.
Actionable claim is a service:
It may be noted here that unlike the definition of ‘service’ as given under Section 65B(44) of the Finance Act, 1994 (“the Finance Act”), which excludes ‘transaction in money’ and ‘actionable claim’ from the taxable net of Service tax, the proposed definition of ‘service’ under GST only states exclusion of money and specifically includes actionable claim.
Thus, actionable claims would be service and exigible to GST unlike the Finance Act, where the same has been specifically excluded from the taxable net of Service tax.
Basically, actionable claim means the claim which can be enforced by a legal action or a suit. It is a claim for any amount receivable i.e. debts or claim for benefit of any movable property not in possession, for which relief can be claimed in civil court.
Section 2(1) of the Model CGST/SGST Act, states that ‘actionable claim’ shall have the meaning assigned to it under Section 3 of the Transfer of Property Act, 1882, in terms of which, actionable claims means “A claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or; to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.”
Examples of actionable claim:
- Unsecured debts;
- Right to recover insurance money;
- Claim for arrears of rent etc.
Clarity required on exclusion of ‘money’:
As the definition of service only states that ‘money’ is excluded from its ambit, the same needs to be revisited to avoid any confusion as exclusion of money alone does not convey real nature of exclusion.
Examples of transaction in money:
- The principal amount of deposits in or withdrawals from a bank account.
- Advancing or repayment of principal sum on loan to someone, etc.
Whether intangibles are goods or services?
It may be noted here that the definition of ‘goods’ given under Article 366(12) of the Constitution of India is defined in inclusive manner to provide that “goods includes all materials, commodities, and articles”. Further, as per proposed Article 366(26A) “services” means anything other than goods”. Thus, the definition of ‘goods’ and ‘services’ in Model GST Law are different from the definitions given in the Constitution.
Further, from the settings of Article 366(12) of the Constitution, it is apparent that inclusive definition of goods incorporates both tangible as well as intangible goods, which has also been settled through legal jurisprudence. Accordingly, there may be an issue deciding whether intangibles can be considered as services as the definitions given in a delegated legislation of GST suggests, when the Constitution having supremacy over delegated legislation does not allow so.
Whether GST is leviable on securities transaction?
With the definition of goods, specifically including securities in its ambit, the debate has started taking place as to whether capital market transactions would be subject to an additional tax in the form of GST on top of existing levies like securities transaction tax, stamp duty, SEBI turnover charges etc.
A glimpse on existing provisions would reveal that presently, neither Service tax is levied on securities (as trading in goods is covered under the Negative List of services), nor VAT is charged (the definition of goods under maximum State VAT Acts excludes securities). Thus, if no exemption is provided to securities transaction while finalising the Model GST Law, this could prove to be an additional burden, which in turn would blemish the domestic investments in India, as sale of securities outside India would qualify as export and can take over as preferred choice for attracting investments.
At the same time, one may also infer that securities are one of the forms of transaction in money, which are neither goods nor services as per the definitions provided under Model GST Law.
With the definition of goods and services provided under the Model GST Law, placed on public domain on June 14, 2016, it would be important for the Industry to appropriately understand and categorise the different types of the supplies made by them to assess the impact on taxability. However, considering the fact that both these crucial terms have been defined in extensive manner, the corresponding list of exemptions made available on goods and services would also be important. While, the act of putting Model GST law on public domain for seeking suggestions of the Industry is a welcome move, it is evident that a lot of work still needs to be done to remove ambiguities and ensure clarity.