FAQ and MCQ on GST by ICAI


Levy and Collection of Tax

FAQ’s
Scope of supply (Section 7)

Section 7 of the Central Goods and Services Tax Act, 2017 (“the CGST Act, 2017” or “the CGST Act”) made applicable to IGST vide Section 20 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act, 2017” or “the IGST Act”) and UTGST vide Section 21 of the Union Territory Goods and Services Tax Act, 2017 (“the UTGST Act, 2017” or “the UGST Act”)

Q1. What is the scope of the term ‘supply’ as defined in the CGST Act, 2017?

Ans. As per Section 7(1) of the CGST Act, 2017, Supply includes:

1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

2. import of services for a consideration whether or not in the course or furtherance of business;

3. the activities specified in Schedule I, made or agreed to be made without a consideration; and

4. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Q2. Is it required to distinguish whether a particular supply involves supply of goods or services or both?

Ans. Yes, the CGST Act, 2017 specifies certain provisions separately for supply of goods and supply of services viz., Section 12 and Section 13 thereof provides for ascertaining time of supply of goods and time of supply of services respectively; similarly, separate provisions have been specified for ascertaining place of supply of goods and place of supply of services. Further, the rate of tax applicable to supply of goods and supply of services are different. Accordingly, it is important to distinguish whether a particular transaction involves supply of goods or supply of services.

Q3. How to distinguish whether a particular supply involves supply of goods or services or both?

Ans. The Schedule II appended to the CGST Act, 2017 enlists the activities which are to be treated as supply of goods or supply of services. One may refer Schedule II with The Institute of Chartered Accountants of India reference to Section 7 to classify whether the transaction involves supply of goods or supply of services.

Q4. Whether supply of goods or services without consideration is liable to tax?

Ans. The activities enumerated in Schedule I will qualify as supply even if made without consideration. Accordingly, such supplies in the absence of consideration are liable to tax.

To illustrate, following are the activities which will qualify as supply in the absence
of consideration and eventually would be liable to tax:

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods -

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Q5. Whether transfer of goods to another branch located outside the State is taxable?

Ans. In terms of Section 25(4) of the CGST Act, 2017, every person who is required to obtain separate registration for every branch located in different state or union territory shall be treated as distinct persons. Accordingly, the supply of goods (stock transfers) to a branch located outside the State would qualify as supply, liable to tax in terms of clause 2 to Schedule I of the CGST Act, 2017. Further, it is important to note that, supply of goods to a branch / unit located within the same State having separate registration would also be liable to tax since both such units (supplying unit and recipient unit) would qualify as distinct person in terms of Section 25(4).

Q6. Whether gifts given by employer to employee will also qualify as supply?

Ans. In terms of Explanation appended to Section 15 it is clarified that employer and employee will be deemed to be related persons. Accordingly, in terms clause 2 of Schedule I, gift exceeding Rs. 50,000/- by an employer to employee will be a supply, when made in the course or furtherance of business and will be liable to tax. As, in terms of proviso to clause 2 of Schedule I, any gifts for a value not exceeding Rs. 50,000/- in a financial year will not qualify as supply and as such will not be liable to tax.

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