Critical study of provisions of CENTRAL GOODS AND SERVICES TAX ACT, 2017–( in short CGST) Section 7 and 8 part of CHAPTER III -LEVY AND COLLECTION OF TAX. – 6 th article in series.

[DEV KUMAR KOTHARI]

Earlier articles in the series can be easily searched with different search criteria. In articles section, search with name of author and / or few words of title of article or series can be used.

Sections 7 and 8 are  part of Chapter III. These  were  downloaded on 30.06.22 then while writing this article these were reviewed on 17.07.22 , and 23.07.22 and found that both remains as they were on 30.06.22 and there is no  further amendment during this period, as seen from notes below section on this website.

Schedules I, II and III which can be considered as part and  are crucial for provisions of S.7 are also reproduced with highlights added by the author.

Amendments in section 7:

We find six amendments in section 7. All amendments are made effectively with retrospective effect from the initial date that is 01.07.2017.

Five amendments were made vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01-07-2017.

In four amendment relating to addition or omission it has  been stated to exist or omitted always.

Whereas in case of one amendment for substitution though it is also  w.e.f 01.07.2017 but it  is not stated that such substitution shall be deemed to always exist.

We need to examine difference, if there is any, between these expressions. Perhaps these will be  clarified ultimately only by the  Supreme  Court and till then confusions and differences shall prevail.

Explanation- we find one explanation in the section and that is right from beginning.

‘Subject to’ - we find one provision that is said to be ‘subject’ to other provisions.

The definition is very comprehensive, still it is said to be an inclusive definition.

In an inclusive definition , exceptions have also been provided and  scope is left for further exclusions.

In overall, the provisions of definition of “supply” are very much complex and confusing. It seems that so many confusions are left that any person will not dare to take risk, and just make compliances , collect and pay tax and get credit by way of ITC wherever possible. Therefore, one will dare to take a risk who has to pay tax ultimately and cannot take a credit for it. That means persons who are ultimate consumer or user of input but ITC is denied or cannot be availed.

It can be said that consumers of goods and services who ultimately bear the levy of GST can in their interest, challenge any levy which is not constitutionally valid or on ground of excessive and unreasonable. Individually people cannot d devote time and bear costs. Therefore, challenges can preferably be made through Consumers Associations.

Imposing GST on essential goods and services can in fact be considered illegal and unconstitutional for various reasons. They are not in any case in public interest, particularly poor  working people who hardly earn daily wages to survive. There must be exemption for essential  supplies and services for some amount. For example, mobile phone and internet services are now being used by laborers,  artisans, and workers  who are self employed. Mobile phone is now must for electrician, plumbers, even domestic helps who are self-employed and work as free launchers. We get their services at a phone call. So there should be an exemption for essential supply of goods and services for such people.

Requirement of so many tax compliances can be considered as unreasonable restrictions on self-employed and small organization because they imposes unreasonable costs and take away lot of time and keep people under pressures and burden of compliances to avoid late fees and penalties some of which may be charged by the system. Furthermore, complexity of provisions, creates harsh contingencies and that can be considered unreasonable restrictions on right to free trade.

Drafting of provisions:

In case of GST provisions we find that draftsman of these provisions are also confused lot of people and have no clarity in minds. That is why in provisions we find a meaning and that is then enlarged by use of words like includes, then there are provisions enabling expansion and also to put restrictions and relaxations etc. This means that drafting of provisions   have been considered as an exercise to take no chance and to play safe by legislature also. However, this is  at cost of lack of clarity and lot of confusions and in many provisions, principal of natural justice have been said a good buy. For these reasons also many provisions can be considered as not valid.

These aspects have been discussed with S.7 and 8 and have relevance for many provisions which we will discuss in subsequent articles.

Coming to provisions, let us study provisions with highlights, catch words for easy understanding.

CENTRAL GOODS AND SERVICES TAX ACT, 2017

CHAPTER III

LEVY AND COLLECTION OF TAX

From provisions with highlights	Further observations
Scope of supply.
7. (1) For the purposes of this Act, the expression “supply” includes––	Inclusive definition
(a) 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;	All type of transaction. For a consideration In the course or furtherance of business.
6[(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.	‘Other than an individual’ –  does it means that  an individual is excluded?
Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]	Provisions of the Constitution of India cannot be by bypassed or ignored by language used in this explanation. As an individual is excluded, therefore his activity or transaction   with his association will  be  excluded.
(b) import of services for a consideration whether or not in the course or furtherance of businesss 1[and];	Import of services without consideration is not covered. May be it is covered in some other provision. Import of service for consideration can be for any purpose and not necessarily in furtherance of business.
(c) the activities specified in Schedule I, made or agreed to be made without a consideration 2[****];	SCh I is about  activities without consideration.
4[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]	Schedule II is about ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES
(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or	Schedule III is about ‘neither supply not service’
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.	First includes everything and then make exclusions or first make exemption and then includes is typical way of drafting of GST provisions.
(3) Subject to the provisions of 5[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.

Tax liability on composite and mixed supplies.
8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-	Very complex provisions.
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

 

SCHEDULE I

 [See Section 7]

ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

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 ¹[person] from a related person or from any of his other establishments outside India, in the course or furtherance of business.

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Notes

1. Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01-02-2019 before it was read as "taxable person"

Statutory Provisions

CENTRAL GOODS AND SERVICES TAX ACT, 2017

SCHEDULE II

[See Section 7]

ACTIVITIES ¹[OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. Transfer

(a) any transfer of the title in goods is a supply of goods;

(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;

(c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

2. Land and Building

(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

3. Treatment or process

Any treatment or process which is applied to another person's goods is a supply of services.

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, ²[****] such transfer or disposal is a supply of goods by the person;

(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, ²[****] the usage or making available of such goods is a supply of services;

(c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless-

(i) the business is transferred as a going concern to another person; or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

5. Supply of services

The following shall be treated as supply of services, namely:-

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Explanation.-For the purposes of this clause-

(1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 1972.) or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure;

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and

(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:-

(a) works contract as defined in clause (119) of section 2; and

(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

³[****]

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Notes

1. Inserted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01-07-2017

2. Substituted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 1.7.2017  (Amendment came into force w.e.f. 01-01-2021) before it was read as "whether or not for a consideration,"

3. Omitted vide THE FINANCE ACT, 2021 dated 28-03-2021 w.e.f. 01-07-2017 (Amendment came into force w.e.f. 01-01-2022)before it was read as

"7. Supply of Goods

The following shall be treated as supply of goods, namely:-

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration."

Statutory Provisions

CENTRAL GOODS AND SERVICES TAX ACT, 2017

SCHEDULE III

[See Section 7]

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.

2. Services by any court or Tribunal established under any law for the time being in force.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. Actionable claims, other than lottery, betting and gambling.

¹[7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.

8. (a) Supply of warehoused goods to any person before clearance for home consumption;

(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.]

Explanation ²[1].-For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court.

Explanation 2.––For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.]

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Notes

1. Inserted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01-02-2019

2. Numbered vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f 01-02-2019