Case Studies on Supply Definition

[Alok Agarwal]

Case Studies on Supply under GST

Question 1

Mr. Happy (an unregistered person) plans to pursue his higher education in UK. He receives career consultancy services from a UK based consultant for ₹ 1, 20,000. Does it qualify as a supply?

Answer:  Yes. Importation of services for a consideration whether or not in the course or furtherance of business is covered under supply. Hence, in the above case it will be treated as supply. The UK based consultant would be required to register as Non Resident Taxable Person and shall discharge GST liability. 

Question 2

Happy Ltd provides management services without charge to Joy Ltd.  Happy Ltd has a 30% shareholding in Joy Ltd. Does it qualify as a supply?

Answer: Supply of goods or services between related persons is treated as supply even if it is without consideration (Schedule 1). However, as per the definition of related person, 2 persons shall be treated as related only if “one of them directly or indirectly controls the other”. As the word control is not specified in the Act, we can say that in common parlance one entity needs to hold more than 51% in another to exercise control. Hence, it will not qualify as supply.

Question 3

A hand phone dealer sells a Blackberry for ₹ 20,800 inclusive of GST. He gives a Blackberry to his longtime customer for free. Is it Supply?

Answer: As per Schedule 1 Clause (1) - Permanent transfer/disposal of business assets where input tax credit has been availed on such assets is treated as supply even if it is without consideration. As per Section 17(5)(h), ITC shall not be available on “goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples”. A combined reading of Clause (1) of Schedule 1 and Section 17(5)(h) means free supplies would not qualify as supply as ITC is not availed.

Question 4

Happy Ltd owns a van which is used to transport its workers to customers’ premises. During one weekend, the van was used by its CFO for his relatives for a family outing. Is it a supply?

Answer: 

Supply of goods or services by employer to employee when made in the course or furtherance of business shall be treated as Supply even if made without consideration. However, if the value of gifts is not exceeding ₹ 50,000 in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

Question 5

Happy Ltd is a man power supply agency. They have supplied man power for cleaning a lake after the Ganesh immersion without charging any consideration. Is it a supply?

Answer: 

A supply without consideration does not fall within the purview of supply unless made to a related person or is covered in any of the clause of Schedule 1.

Question 6

Archean Constructions Ltd (A registered taxable person) receives architectural design supplied by a foreign architect to design a residential house to be built in Hyderabad for a consideration of ₹ 50,00,000

Answer: 

Importation of services for a consideration whether or not in the course or furtherance of business is covered under supply. In the above case it will be treated as supply.

Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory are covered under 100% reverse charge. Therefore, Archean Constructions Ltd shall discharge GST liability on reverse charge.

Question 7

The business assets of a taxable person are taken over by another taxable person due to death or retirement of the transferor

Answer: 

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.

The above condition does not apply in case the assets of business are transferred as a going concern (TAGC).

Question 8

Transfer/Exchange of shares of a company on account of amalgamation/demerger/acquisition/restructuring without change in the legal entity

Answer: 

A transaction in securities is neither supply of goods nor services. Securities are excluded from the definition of both goods as well as services.

Question 9

Mudhra Ltd, an NBFC transfers bad loans (unsecured) to Vsupport Capital Advisors Ltd.

Answer:

Actionable claims are covered in definition of goods. However, Schedule III excludes actionable claims other than lottery, gambling and betting from the scope of supply. Transfer of unsecured loans, therefore, would not amount to supply.

 

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Discussions to this article

[sunil jagtiani]

Q-A No. 4 - A small doubt kindly clarify

Whether facilitate to employee to be consider as gift. Because there is no definition of gift in GST Law. But as per oxford dictionary meaning "A thing given willingly to someone without payment".

[Hitendra Bhandari]

Any advertising Material, Sing Board/ Display Board/ Acrylic Stand, supplied to dealer, will be regarded as Free Supply??

[Alok Agarwal]

Advertising Material, Sign Board/ Display Board/ Acrylic Stand, supplied to dealer are towards expenses incurred for marketing purposes by the supplier. Hence it cannot be treated as supply and GST is applicable. Even otherwise, supply to unrelated dealer without consideration is out of the scope of supply definition

[Alok Agarwal]

Advertising Material, Sign Board/ Display Board/ Acrylic Stand, supplied to dealer are towards expenses incurred for marketing purposes by the supplier. Hence it cannot be treated as supply and GST is *not applicable. Even otherwise, supply to unrelated dealer without consideration is out of the scope of supply definition