Certain Activity or Transaction whether it is Supply of Goods or Services- Para 5 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 5 of Schedule II of CGST Act - Supply of services (a). Renting of immovable property - Supply of service Renting in relation to immovable property means allowing, permitting, or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property. Also plant and machinery permanently embedded in the Earth or attached to the building are termed as immovable property. Such assets shall also be covered under this entry. It must be noted that renting out of a religious place owned and managed by a registered charitable or religious Trust for the public shall be exempt from GST . However, such an exemption may not be applicable to cases where: The room rent is Rs. 1000 or more per day, Rent for premises, community hall, open area etc. is Rs. 10,000 or more per day, The rent for shops or commercial spaces is Rs. 10,000 or more per day Example: - Mr. GK gives a parking space on rent of INR 50,000/- per month to M/s ABC. (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 - Supply of Service. 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 ; 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. The expression Construction includes additions, alteration, replacements or remodeling of any existing civil structure. Example A : - Mr. A booked a flat during the under construction of building and give a token money of Rs. 10,000/- to builder for booking a flat, it is deemed to supply of services and liable to GST on entire value of flat even if part of consideration received after receipt of completion certificate. Example B : - Mr. A booked a flat during the under construction of building and does not give any money to builder for booking a flat and take handover of flat after when builder received completion certificate form competent authority, it is deemed to supply of services and not liable to GST. (c). Temporary transfer or permitting the use or enjoyment of any Intellectual Property Rights (IPR) - Supply of service The term Intellectual Property Right (IPR) has not been defined in GST Act. Intellectual Property includes the following: Copyright Patents Trademark Designs Any other similar rights to an intangible property As per the definition given under GST law of Goods and Services, Goods include everything which is movable and movable is not defined under GST law. Goods cover both tangible and intangible. Therefore, IPR would qualify to be goods. Now goods can be transferred by way of sale or licensing i.e. either permanent disposal or temporary disposal. As per schedule II entry no.5(C) of CGST Act temporary or permitting the use of enjoyment of any intellectual property right shall be treated as supply of service. Permanent transfer of IPR is Goods : Intellectual Property Right is a property of a creator and if the creator permanent transfers the right on property, it is considered as a supply of Goods. Temporary transfer of right to use IPR is Services : The creator of IPR temporary transfers the right to use of any Intellectual Property Right (IPR) is a supply of services. He may permit the use or enjoyment of IPR to others for consideration. There is no condition that the intellectual property must be registered in India. Temporary transfer of a patent registered outside India would also be covered under this Entry. However it will become taxable only if the place of provision of service of temporary transfer of intellectual property right is in taxable territory. Transfer of IPR is Taxable under GST: Both the permanent transfer of IPR and temporary transfer are subject to GST. Temporary transfer includes permitting use or enjoyment of IPR. (d). Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software - Supply of service This entry mainly covers the customized software (i.e., uncanned software). However, the law is silent about the canned software, which is generally sold through a medium, such as DVD, pen drive etc. Meaning of the term information technology software as per explanation in clause no. 4 of N. No. 11/2017-CT-(R) dated 28 June 2017 and Education guide released by CBEC 2012 [Para 6.4] information technology software means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment Would sale of pre-packaged or canned software be included in this entry? No. It is a settled position of law that pre-packaged or canned software which is put on a media is in the nature of goods [Supreme Court judgment in case of Tata Consultancy Services vs State of Andhra Pradesh [2002(178) ELT 22(SC) refers]. Sale of pre-packaged or canned software is, therefore, in the nature of sale of goods and is not covered in this entry. Is on site development of software covered under this entry? Yes. On site development of software is covered under the category of development of information technology software Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software shall be treated as supply of services as listed in Sl. No. 5 (2)(d) of Schedule II of the GST law. In case contract is given for customized development of software and the customized software so developed is delivered to the client on media like a CD then would the transaction fall in this declared entry or would it be covered by the TCS Judgement? In such a case although the software is finally delivered in the form of goods, since the contract is essentially for design and development of software it would fall in the declared list entry. Such a transaction would be in the nature of composite transaction involving an element of provision of service, in as much as the contract is for design and development of software and also an element of transfer of title in goods, in as much as the property in CD containing the developed software is transferred to the client. However, the CD remains only a media to transmit or deliver the outcome of which is essentially and pre-dominantly a contract of service. Therefore, such a transaction would not be excluded from the ambit of the definition of service as the transaction does not involve only transfer of title in goods and dominant nature of the transaction is that of provision of service. (e). Agreeing to the obligation to refrain from an act or to tolerate an act or situation or to do an act - supply of service The following activities, if carried out by a person for another for a consideration, would be treated as provision of services when a person agrees to obligation to refrain from an act when a person agrees to obligation to tolerate an act or a situation. when a person agrees to obligation to do an act. A supply of service is said to be made when a person does something, or agrees to do something for a consideration, would be treated as provision of services refrain from doing something or gives up a right for consideration which also includes grant, assignment or surrender of any rights. Under this scope, following activities are included: Demurrage charges for not clearing goods within prescribed period. Cancellation charges charged by Hotel and airlines. Liquidated damages recovered by Builders and Contractors. Non-Compete fees payable for agreeing not to compete for particular period. Forfeiture of deposit or advance as penalty (Like quality, late delivery, violation of any terms of contract) Penalty for breach of contract. Refundable security deposit is not taxable, however if deposit is forfeited then it would be taxable Applicability of GST on payments in the nature of liquidated damage, compensation, penalty, cancellation charges, late payment surcharge etc. arising out of breach of contract or otherwise and scope of the entry at para 5 (e) of Schedule II of CGST Act, 2017 [ Circular No. 178/10/2022-GST dated 03.08.2022 ] (f). Transfer of rights to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration - Supply of service Transfer of right of goods involves transfer of possession and effective control over such goods. But every transfer of goods on lease, license or hiring does not result in transfer of right to use goods. As per Education guide of CBEC 2012 (Services tax regime) 6.6.1 What is the meaning and scope of the phrase transfer of right to use such goods . Transfer of right to use goods is a well-recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. Transfer of right of goods involves transfer of possession and effective control over such goods in terms of the judgment of the Supreme Court in the case of State of Andhra Pradesh vs RashtriyaIspat Nigam Ltd [Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Transfer of custody along with permission to use or enjoy such goods, per se, does not lead to transfer of possession and effective control. The test laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India [ 2006 (3) TMI 1 - SC ] to determine whether a transaction involves transfer of right to use goods, which has been followed by the Supreme Court and various High Courts, is as follows: There must be goods available for delivery, There must be a consensus ad idem as to the identity of the goods, The transferee should have legal right to use the goods consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee, For the period during which the transferee has such legal right, it has to be the exclusion to the transferor this is the necessary concomitant of the plain language of the statute, viz., a transfer of the right to use and not merely a license to use the goods, Having transferred, the owner cannot again transfer the same right to others.