Definition Of Goods-Issues and comparision

[parth sharma]

Definition of Goods in Model GST law is seeing various complications which needs clarification. Comparison of definition of goods with previous laws is as under:-

Model GST Law (48) “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.

Section 2(48) Finance Act 1994.  “goods” means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

Explanation to Section 2(c) of Central Excise Act Explanation.-For the purposes of this clause, “goods” includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable

Section 2(15) of Raj VAT (15) “goods” means all kinds of movable property, whether tangible or intangible, other than newspapers, money, actionable claims, stocks, shares and securities, and includes materials, articles and commodities used in any form in the execution of works contract, livestock and all other things attached to or forming part of the land which is agreed to be severed before sale or under the contract of sale;

Discussion 1.-Scrap

The definition was originally borrowed from Sales of Goods Act,1932.

Though the definition speaks that all movable property is goods but it has been held by judiciary that “Goods should have a commercial aspect of capable of being purchased and sold and served as a result of such sale. Goods in order to be called as goods should satisfy the test of marketability i.e. they should be something which can be ordinarily come to the market to be bought and sold. It must be something which is known to the customers and the commercial community.”

In CEA, there arose a dispute regarding taxability of scrap calling it non marketable and thus non taxable. To end that dispute explanation was added to make any material capable of being bought and sold for a consideration would be deemed to be marketable. The same is not clarified in the given law which would mean that scrap & wastes are outside taxability criteria. This matter should be dealt in final law.

Discussion 2.-Software

There was a huge complexity over taxability of intangible property.

RajVat includes all intangible items & transfer of right to use goods will be chargeable to Vat. Exclusive licensing of s/w will be liable to Vat. Right to use will be judged by 5 principles led down in landmark case law of BSNL. Canned software will be leviable to Vat as per Case of TCS. Moreover, SC was silent on chargeability of uncanned software and said that it may be goods. However, even uncanned software is intangible property (goods) and transfer of right to use will be chargeable to VAT.

In service tax law, temporary transfer of IPR will be liable to service tax. Non exclusive licensing will be liable to service tax. Development of software (uncanned software) will be chargeable to service tax vide sec 66E(d).

Conclusion is that in case of software which are developed and put on a media disk, both Vat and service tax is being charged which led to double taxation.

To end this double taxation, a explanation is added to make intangibles as service and would be taxed as service.

Discussion 3.-Electricity

Electricity is an intangible good. A separate entry no 53 is provided in state list which taxes electricity. No amendments have been made in this entry by constitutional amendment bill. Moreover GOI while expressing its views on select committee report stated that inclusion of electricity has not been envisaged since the first discussion paper.

Earlier, electricity was nil rated good in Excise and some exemptions were given in negative list to services related to electricity.

Now, electricity is included in definition of service. Thus, exemption of electricity shall be dealt in future.   

Discussion 4.-Securities

Definition of goods in Service tax included securities. Exemption to sale & purchase of securities were exempt by negative list.

Definition of goods in RajVat excluded securities thus not liable to Vat.

Now definition of goods includes securities which mean that it will be liable to GST. This is not at all intent of lawmaker which needs correction.