Identification of Supply of Goods or Services under GST. Definition of ‘goods’ and ‘services’: The tax is on supply of either goods or services. In case the supply is neither of goods nor of services then no tax shall be leviable on such supplies. Hence, the first step for classification under GST starts with determining whether any item which is supplied is either goods or services or none. read more
The terms ‘goods’ and ‘services’ have been well defined under Section 2 of the respective laws. According to Section 2(52) of the CGST Act 2017, the term goods is defined as under:
(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;
The definition is indeed a wide one and encompasses almost everything having some value in the commercial sense and which has the attributes of goods like possession, transferability, etc. It may be noted that the definition is exhaustive and only those items which would fit into the definition would be covered. Of course the definition is contextual in nature and has to be interpreted so as to suit the situation or context.
The term ‘services’ has been defined under Section 2(102) of the CGST Act 2017 thus:
(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
One way of interpreting the definition of service is that it encompasses everything which is left in the universe which does not constitute goods. However, the said interpretation leads to some vague conclusions. This forces one to believe that immovable property would also constitute service. However it an understanding amongst the lawmakers and taxpayers that immovable property has been as of now kept outside the purview of GST. Due to lack of clear cut provisions in the law, the possibility of classification of immovable property as services arises which is absurd.
Another way of interpreting the definition of service is that all such articles which are excluded by the definition of goods but have features of movability are treated as services. The way the given law has been developed, the latter interpretation is more practical and confirms the intention of law makers.
Identification of Supply of Goods or Services
However, in the days to come disputes are bound to arise from the determination as to whether an activity is supply of goods or services, especially considering the fact that rules differ for fixation of place of supply, time of supply and valuation under GST for Goods and Services.
Schedule-II – Classification of activities as Supply of Goods or Supply of Services
Drawing power from Section 7(1)(d) of the CGST Act, 2017, certain activities have been treated as supply of Goods or Supply of Services under Schedule –II appended to the Acts. It is interesting that activities in Schedule-II do not classify any article as goods or services. Rather, it consists of certain activities which can be either treated as supply of goods or supply of services. There can be a situation where, an item might neither be goods nor services but its supply is treated as supply of service by virtue of Schedule-II (Example Transactions in Land and Building). Hence Schedule-II should be read in isolation since it is qua activity but not qua the item which is subject matter of tax.
Various activities which have been treated as Supply of Goods under Schedule-II are as under:
- Any transfer of title in Goods
- 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
- Goods forming part of the assets of a business 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, whether or not for a consideration.
- When 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: (a) the business is transferred as a going concern to another person; or (b) the business is carried on by a personal representative who is deemed to be taxable
- Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
Various activities which have been treated as Supply of Services under Schedule-II are as under:
- Any transfer of right in goods or of undivided share in goods without the transfer of title thereof
- Any lease, tenancy, easement, licence to occupy land
- Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly
- Any treatment or process which is applied to another person’s goods
- Transfer of business assets 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, whether or not for a consideration, the usage or making available of such goods
- Renting of immovable property
- 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.
- Temporary transfer or permitting the use or enjoyment of any intellectual property right
- Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
- Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
- 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.
- Composite supply of works contract as defined in clause (119) of section 2
- Composite 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
On perusal of the above list some interesting facts can be observed:
A. All the activities in relation to Goods which are constituted within the definition of supply cannot be classified as supply of goods always. In some cases, activities in relation to goods can be treated as supply of services also.
Transfer of Right in Goods without transfer of Title of such goods is a supply of service, whereas, simple transfer of title in goods is treated as supply of goods. For example if a company sells heavy machinery then it shall be treated as supply of goods but if the same machinery is given on lease then it shall be treated as supply of service only. Hence the subject matter of tax i.e. machinery does not change but since the activity undertaken in relation to the same changes, its classification as supply of goods or supply of service also changes.
B. Activities in relation to neither goods nor services can be still be treated as supply of services.
In case of lease, tenancy, license to occupy land or renting of immovable property etc, the activities are carried out on immovable property. Immovable property is neither classifiable as goods nor as services. But given activities in relation to them are classifiable as supply of service. Hence it means that since GST is on activity of supply, few activities relating to immovable properties partake the character of supply of service liable to GST even if the subject matter whose supply takes place is neither goods nor services.
C. Deemed Supply of ‘Goods’ or ‘Services’
Under the given Schedule there are certain activities which do not fall within the ambit of supply. In fact in some cases no activity is undertaken at all. However, with deeming fiction of law, certain transactions have been characterized as either supply of services or supply of goods. In cases, unlike the example mentioned in para B above, the subject matter of tax is either goods or services but the activity or no activity is still a supply. For example, when a person carrying goods as business assets, ceases to be a taxable person then the activity of ceasing as taxable person is deemed to be a taxable supply of goods. Hence even change in status of a person from taxable to non-taxable person shall be treated as a taxable supply of goods.
D. Composite Supply and its treatment
Schedule-II recognizes two supplies as composite supplies i.e. Works Contract and Supply of Food as part of a service contract. In given supplies, the supply of goods and supply of services are intermingled. Since for levy of tax it is mandatory that a particular supply is either treated as supply of goods or supply of service, it is required that such composite supplies are ultimately classified as a single supply of either goods or services. The concept of Composite supply in itself has its set of principles which are useful for classification of such supplies as supply of goods or supply of services, but in case of given two supplies, Schedule-II through the wisdom of lawmakers defines it as supply of services.
E. Declared Supplies influenced from erstwhile Service Tax provisions
Under the erstwhile provisions of Chapter V of Finance Act 1994, under Section 66E, a list of activities were declared as services for the levy of Service Tax. ScheduleII of the CGST Act 2017 and other respective State GST Acts are based on the concepts arising from such list and hence many activities which were covered by list of services under Section 66E of the said Act have been treated as supply of service under the GST Acts also.