Certain Activity or Transaction whether it is Supply of Goods or Services- Para 2 Schedule II Read with Section 7(1A) - GST Ready Reckoner - GST

Activity or Transaction - Schedule II whether it is Supply of Goods or Services Section 7(1A) , states that; Where certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II . [Note:- Before amendment it was clause (d) of section 7(1)(d) ] Read along with the definition of Goods services, Schedule II provide clarification regarding Which is the goods or services for taxability of GST Certain activity or transaction defined in Schedule II whether it is Supply of Goods or Services - As per para 2 of Schedule II of CGST Act - Transfer of Land Building (a) Transfer of property in goods at a future date - Supply of Goods Here comes the transactions such as Hire Purchase, Operating Lease and Finance Lease where ownership is transferred at a future date upon payment of full consideration. Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration, shall be treated as supply of goods. Hire Purchase- In the hire purchase, hirer has an option or an obligation to purchase goods and after the stipulated period, upon payment of all the instalment ownership is transfer to the hirer. it will be treated as supply of goods. The hire purchase contract, consists of two constituents: A contract of bailment wherein hirer gets the physical possession of the goods but property in the goods is transferred to the hirer on some future date, and An element of sale wherein the hirer gets the option to purchase the goods but the option is to be exercised on some future date. Lease define under Accounting Standard (AS) 19 A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. Risks include the possibilities of losses from idle capacity or technological obsolescence and of variations in return due to changing economic conditions. Rewards may be represented by the expectation of profitable operation over the economic life of the asset and of gain from appreciation in value or realisation of residual value. An operating lease is a lease other than a finance lease. This Standard should be applied in accounting for all leases other than: lease agreements to explore for or use natural resources, such as oil, gas, timber, metals and other mineral rights; and licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights; and lease agreements to use lands. A finance lease or an operating lease depends on the substance of the transaction rather than its form. Examples of situations which would normally lead to a lease being classified as a finance lease are: The lease transfers ownership of the asset to the lessee by the end of the lease term; The lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised; The lease term is for the major part of the economic life of the asset even if title is not transferred; At the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and The leased asset is of a specialised nature such that only the lessee can use it without major modifications being made. Operating Lease: - Normally in an operating lease the lease is for a term shorter than property useful life and the lessor is typically responsible for taxes and other expenses on the property. The lessee does not have an option to purchase the property at the end of lease period. Such arrangement does not qualify as delivery of goods on hire purchase or any system of payment of instalment . Hirer has no option to buy the goods hired and risk and rewards incidental to ownership of goods remain with owner and it may have elements of transfer the goods right to use goods also . its will be treated as supply of services . Finance Lease - it is relatively for a longer period, and substantially all the risks and rewards incident to ownership of an asset.. Such arrangement resemble a hire purchase agreement. The essence of this deemed sale category is that the arrangement under which the goods are delivered should be in the nature of a financing arrangement wherein the lessee pays maintenances costs and taxes and has the option of purchasing the asset so delivered at lease end. If lease agreement stipulates transfer of goods unconditionally - it will be treated supply of goods. If lease agreement does not stipulates transfer of goods unconditionally - it will be treated supply of services. Example:- M/s XYZ sells refrigerator to Mr. A costing INR 50,000/- on hire purchase basis. Mr. A pay INR 10,000/- as down payment and he pays INR 2,000/- per month for the next 30 months. The ownership and title is transferred to Mr. A after full payment. (b) Any Lease, tenancy, easement, license to occupy Land - Supply of service The scope is confined to Land Only. It would cover the leasing of Land to a car showroom for the purpose of parking of car or for dumping of scrap or waste etc. Important Clarification Issue related to taxability of tenancy rights under GST [ Circular No. 44/18/2018-CGST Dated 2nd May, 2018 ] 1. The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST . It is a form of lease or renting of property and such activity is specifically declared to be a service in para 2 of Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services. 2. The contention that stamp duty and registration charges is levied on such transfers of tenancy rights, and such transaction thus should not be subjected to GST , is not relevant. Merely because a transaction or a supply involves execution of documents which may require registration and payment of registration fee and stamp duty, would not preclude them from the scope of supply of goods and services and from payment of GST. 3. Hence, grant of tenancy rights in a residential dwelling for use as residence dwelling against tenancy premium or periodic rent or both is exempt . As regards services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the form of a portion of tenancy premium is liable to GST. (c) Any lease or letting out of the building including a commercial, industrial or residual complex for business or commerce, either wholly or in part - supply of service This clause covers the residential as well as commercial building. Leasing of residential building for use as residence, has been exempt by way of Notification No. 12 / 2017 - CT (Rate) dated 28 June, 2017.