ICAI release Practical FAQ’s under GST

The Institute of Chartered Accountants of India

Supply and Levy

Supply

Q1. Whether development of land under Joint Development Agreement (JDA) constitutes a supply under GST?

Ans. Development of Land: Land development is the act of altering the landscape in many ways from natural or semi-natural state for a purpose such as agriculture or construction including subdividing it into plots, typically for the purpose of building homes or commercial complex.

Land Development in JDA: In the event of Joint Development, an agreement will be executed between the land owner and the builder. The rights for development will be given by the land owner and development will be carried out by the builder. As consideration for the development undertaken, the builder will be paid in the form of portion of the said developed land.

In order to determine whether a transaction will constitute a supply under GST, the said transaction has to satisfy the rudiments of the definition under Section 7(1) (a) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

An excerpt from the definition is reproduced below:

“7 (1) For the purposes of this Act, the expression “supply” includes—

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”

The terms that are relevant for our consideration are “supply of service”, “made for a consideration” “by a person” and “in the course or furtherance of business”

• “Supply of service”: Anything other than goods is regarded as service as per the definition of the term ‘service’ under the GST law. Hence, the activity of development of land will be considered as service and when it is carried out for other, it becomes supply of service.
• “Made for a consideration”: Consideration for developing the land is obtained or normally agreed between the supplier and recipient as a portion or percentage of the developed land as per the agreement.
• “By a person” – the definition of the term “person” is exhaustive and it includes anybody covered within the definition.
• “In the course or furtherance of business” – the activity carried out is obviously in the course of business or furtherance of business.

It is clear from the above that the activity of “development of land” is satisfying the rudiments of the term “supply” under the CGST Act. Hence, development of land under Joint Development Agreement will constitute a supply under GST.

Q2. (a) Would the act of Practicing Chartered Accountant who delivers guest lectures at various Institutes or organizations fall under the scope of supply?

(b) If yes, would any sum received as honorarium and reimbursement of local transport expenses at fixed rate will also have to be added as “consideration”?

Ans. (a) Delivering guest lectures by Practicing Chartered Accountant at various Institutes or organizations for a consideration (contractual basis) falls under the scope of supply under section 7(1) (a) of the CGST Act.

(b) As per section 2(31) of the CGST Act, consideration includes any payment made or to be made, whether in money or otherwise or the monetary value of any act or forbearance in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person.

The sums received as honorarium and reimbursement of local transport expenses at a fixed rate shall be treated as consideration for supply under section 7(1) (a) of the CGST Act.

Q3. What do you understand by the term “in the course of business and furtherance of business”? What is the tax treatment of the same under GST?

Ans. In GST the two basic elements are supply and ITC. The definition of ‘supply’ as given in Section 7(1)(a) of the CGST Act includes-

“all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”

Hence, “in the course of and in furtherance of business” is the primary requirement for supply in GST and supply is the primary and necessary element for levying of GST. The term ‘further’ enables the entity to supply and receive supplies where the act is towards achieving the goals of the business.

Further, the condition mandated for availing ITC as mentioned in Section 16(1) of the CGST Act is:

“Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”

‘In the course or furtherance’ is not defined under GST Act, but is broad enough to cover any supplies made in connection with the business. The phrase widens the scope of the definition of ‘Business’ to bring more activities within its ambit. The phrase “course or furtherance” further extends to “course or furtherance of business”. Hence, it is important to understand the meaning of business which is defined in Section 2(17) of the CGST Act as under:

“business” includes —

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

The literal meaning of the said phrase ‘in the course of or furtherance of’ is ‘during the act of or in continuation of carrying out such act in future’. Thus, in the course or furtherance of business means either of following:

– anything done in relation to business, while carrying out business or

– simply a revenue-generating ordinary activity of that organisation/concern.

Considering the definition of business, the sale of goods or service even as a vocation is a supply under GST.

However, there is one exception to this ‘course or furtherance of business’ rule i.e., import of services for a consideration. Import of services for consideration, even if not in the course -or furtherance of business are liable to GST. No GST on supply not in the course or furtherance of business As elaborated above, supplies in the course or furtherance of business qualify as supply under GST. Hence, supplies made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business as defined in the Act. It has been clarified vide C.B.E.&C. Press Release No. 78/2017, dated 13.7.2017 that sale of old gold jewellery by an individual to a jeweller will not constitute supply as the same cannot be said to be in the course of furtherance of business of the individual.

Q4. Whether developmental rights in land given by a land owner to a developer (in case of an agreement for area sharing or revenue sharing between the two) are to be considered as supply by the land owner in the course or furtherance of business?

Ans. The moot question is whether the transfer of development rights (TDR) being a “benefit arising out of land” can be deemed to be a supply under GST based on the judicial precedents given under the erstwhile indirect tax regime. However, Notification No. 4/2018 Central Tax (Rate) dated 25.01.2018 was issued notifying the applicability of GST on TDR. This notification deemed that the transfer of TDR will be a supply and liable under GST. Thus, the transfer of development rights by landowner to developer is treated as supply in which development rights are transferred in return for consideration that involves in kind, wholly or partly, in the form of construction service of complex, building or civil structure. Developmental rights in land given by a land owner to a promoter (in case of an agreement for area sharing or revenue sharing between the two) are to be considered as supply by the land owner in the course or furtherance of business. Further, Notification No. 05/2019- Central Tax (Rate) dated 29.03.2019 [“NN 5/2019-CTR“] was issued notifying that the services supplied by any person by way of transfer of development rights or floor space index (FSI) (including additional FSI) for construction of a project by a promoter would be chargeable to GST under RCM as per section 9(3) of the CGST Act, w.e.f. 1st April, 2020.

Q5. Group insurance and LIC premium collected from employees salary by employer contains GST. The amount along with GST is remitted to the concerned insurance company. Is this supply for employer?

Ans. In order to constitute a ‘supply’, the following elements are required to be satisfied:

(i) there should be supply of “goods” and / or services”;
(ii) supply is for a “consideration”;
(iii) supply is made “in the course or furtherance of business”:

• From the above, it is clear that any activity done against consideration is treated as supply; however, such an act ivity must be in the course of business or for the furtherance of business.
• The term “in the course of business” or “furtherance of business” is not defined under the CGST Act. However, the term “business” has been defined in section 2(17) of the CGST Act [Please refer Q3 for term “business”]. The term “business” broadly means any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Any activity ancillary or incidental to these activities is also covered as business. It has also been provided that any activity or transaction falling in above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions.
• In the instant case, Group insurance and LIC premium are collected from employees by the employer who is not engaged in the business of providing insurance services. The service of insurance is actually provided by the insurance company for which the insurance company is charging GST. The employer is just paying the insurance premium amount to the insurance company and recovering premium amount from the employees.
• Thus, it is clear that the employer is not in the business of providing insurance services. Therefore, activity of recovery of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business.
• Accordingly. based on the reading of sections 7 and 2(17) of the CGST Act, providing insurance service and recovery of premium amount is not in the course or furtherance of business and hence cannot be considered as “supply of service” .

Q6. If a person gives his property on rent for commercial purpose and the property has been purchased for investment, whether the same shall be considered as supply being in the course of business and hence taxable?

Ans. There are 3 questions in the above query:

1. Whether the above transaction shall be considered as supply being in the course of business?

2. If yes, whether the same is taxable?

3. Will it make any difference if the commercial property is shown as investment and not as business asset in the books of accounts?

Section 7 of the CGST Act, outlines the scope of ‘supply’. The expression ‘supply’ includes – all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Renting of immovable property is covered in the first part of the definition. Further such transaction should be in the course or furtherance of business to be treated as supply.

To decide whether a transaction is in the course or furtherance of business, we have to refer to definition of the term ‘business’ which is given in Section 2(17) of the CGST Act.

The definition of ‘business’ starts with the words “it includes“. While interpreting the words “it includes” whatever is clearly mentioned as business shall be considered, and any activity similar in nature even though not mentioned will be covered by the word “it includes“. The definition further covers any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity.

The definition of ‘business’ specifically mentions “similar activities”. Hence it appears that intention of legislature is that any activity which generates revenue/income is business activity.

Therefore, the above transaction is supply in the course of business.

Now the second question is, whether the same is taxable. There is no specific exemption to renting of commercial premises and hence the same will be taxable.

Coming to the last question, whether it will make any difference by giving different accounting treatment? Since the activity is supply as per provisions of Section 7 of the CGST Act, it will not make any difference whether the commercial premises is shown as business asset or investment in the books of accounts.

In the service tax regime, renting of immovable property was taxable. GST is continuation of earlier laws in a consolidated form.

Q7. Is there a supply between member of an AOP and the AOP?

Ans. As per Section 2(17)(e) of the CGST Act, the term “business” includes provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.

As per Entry No. 7 of Schedule II of the CGST Act, supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods.

Circular No. 35/9/2018 -GST dated 5.03.2018, provides that supply of services by an unincorporated association or body of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration, shall be treated as supply of services.

On the basis of the above, supply of goods / services between AOP and its members would be treated as supply and liable to GST.

Q8. Whether transfer of business assets including stock from proprietary concern which is converted into private limited company/ partnership firm constitutes supply under GST? Will it have any effect if the proprietary is/ is not a partner in the new firm?

Ans. The definition of ‘business’ is given in Section 2(17) of the CGST Act. Sub-clause (d) of Section 2(17) of the CGST Act provides that-

“business includes —

(a) ………………………….………………….

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;………”

Thus, transfer of business assets to another entity due to closure of business will be treated as a supply. In the instant case, when the proprietary concern is converted into a private limited company/firm, the proprietary concern ceases to exist and the transfer of business assets will be treated as a supply. The transfer of all business assets including stock to the newly formed entity, by virtue of Schedule II of the CGST Act, is deemed to be treated as a supply of services even though the assets (goods) are being transferred. However, if the business is transferred as a going concern (i.e.) lock, stock and barrel] and the business of the proprietary concern is carried out by the new entity, then such transfer of business as a going concern is exempt from tax vide Sl.No. 2 in Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 [“NN 12/2017-CTR”]/ Notification No. 9/2017- Integrated Tax (Rate) dated 28.06.2017 [“NN 9/2017-ITR”], which is reproduced as under:

The point to be noted is that the business of the ceased entity should be carried on as a going concern by the new entity. It is irrelevant if the proprietor is part of the new entity or not.

Q9. Whether distribution of Head Office expenses to Branch Office would constitute supply?

Ans. The concept of distinct persons has been introduced in GST. In terms of Section 25(5) of CGST Act, Head Office and Branch Office shall be treated as distinct entities and any service provided by Head Office to Branch Office shall be regarded as supply under GST law and shall attract GST.

• However, mere allocation or distribution of costs/expenses is different from supply of service from Head Office to Branch Office.
• Therefore, cost allocation/distribution activity per se shall not be construed as supply of service from Head Office to Branch Office and GST shall not be leviable on such cost allocation, unless there exists an element of supply.
• But in all those cases where a Head Office is giving any kind of service(s) to its Branches (which would be a taxable supply), then certainly these expenses would play an important role while calculating the value of supply of services under cross charge.

Q10. Can subsidy received under Credit Linked Subsidy Scheme (CLSS) be treated as supply under GST?

Ans. The Pradhan Mantri Awas Yojana – Credit Linked Subsidy Scheme was implemented to help the urban poor population by increasing the institutional credit flow to meet their housing needs.

• Section 7 of the CGST Act provides that the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
• In terms of Section 2(31) of the CGST Act, any subsidy given by the Central Government or a State Government shall not be included in consideration.

Further, as per Section 15 of the CGST Act, subsidies provided by the Central Government and State Governments shall not be included in the value of supply.

• In view of the above, subsidy received under CLSS from Central Government shall not fall under the scope of supply.

Q11. What do you understand by – exempted supply/nil rated supply, non-taxable supply / non-GST supply, no supply and zero-rated supply? Explain with examples.

Ans. Exempt Supplies / Nil rated supplies

• As per Section 2(47) of the CGST Act: “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;
• Exempt supplies mean-

─ Supplies which attract nil rate of tax as per the tariff itself

─ Supplies which are exempt under Section 11 of the CGST Act or Section 6 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”). These sections grant power to the Government to exempt generally, either absolutely or subject to such conditions as may be specified therein, supply of goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification and

─ Includes non-taxable supplies.

Non-Taxable Supplies / Non-GST Supplies

• As per Section 2(78) of the CGST Act: “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
• Supplies which are excluded from the charging section (i.e.) Section 9(1) and section 9(2) of the CGST Act, are to be considered as non-taxable supplies as they are not leviable to tax under this the said Act. Supply of alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel as stipulated in Section 9(2) of CGST Act have been excluded from the scope of the levy and thus, will be considered as non-taxable supplies.

No Supply

• A transaction or activity must fall under the ambit of ‘supply’ as defined under the GST law, to qualify as a non-taxable supply under the GST law. Supplies which are not leviable to tax are known as non-taxable supplies.
• Therefore, transactions specified in Schedule III which are treated neither as supply of goods nor as supply of services, would be considered as “no supply” for the purpose of GST law and qualify as non-taxable supplies for the purposes of calculating the threshold limit for registration.

Zero-rated supply

• As per Section 2(23) of the IGST Act, “zero-rated supply” shall have the meaning assigned to it in section 16 of the IGST Act.
• Under Section 16(1) of the IGST Act, following are treated as zero-rated supplies:

1. Export of goods or services or both
2. Supply of goods or services to Special Economic Zone developer or a Special Economic Zone unit.

• Zero-rated supply does not mean that the goods or services are nil rated or are taxed at 0 % tax. In respect of such zero-rated supplies, there are options to neutralize the incidence of GST, by allowing ITC on inward supplies to such suppliers and by allowing refund of unutilised credits.

Examples

• A2Z Beverages India Private Limited is engaged in the following businesses:
  • Supply of alcohol for human consumption – Non-taxable supplies as they are currently outside the purview of GST.
  • Supply of non-alcoholic toddy – Exempt supply by virtue of Exemption Notification.
  • Supply of concentrated juice essence from a company in Spain to a company in Germany – is not a supply. No supply by virtue of Schedule III to the CGST Act.
  • Supply of sweetened aerated drinks from its factory at Chennai to a customer in Indonesia – Zero-rated supplies (Exports).

Q12. What is the concept of deemed supply under GST law?

Ans. Section 7 of the CGST Act prescribes that ‘supply’ includes all forms of supply of goods and /or services for consideration. However, there are certain activities which are to be treated as ‘supply’ under GST even though they are without consideration. Such activities are deemed to be ‘supply’ under GST law i.e. even though there is no consideration payable in respect of such supply, the GST law treats them as deemed supply. Such activities have been enumerated in Schedule I to the CGST Act. The following are the list of such activities:

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods —

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Q13. Whether permanent transfer of business asset, where no ITC is availed, if made without consideration is liable to tax under GST law?

Ans. Entry No. 1 of Schedule I of the GST law (the CGST Act) treats a permanent transfer or disposal of business assets where ITC has been availed, as a deemed supply, even if it is without consideration.

In the present case, since no ITC is availed, the permanent transfer of business asset without consideration may not be treated as supply under GST and therefore, no GST shall be leviable.

Q14. A Company gives Diwali gifts to its employees, where the overall cost is in lakhs of rupees but individual employee gift cost does not exceed 50,000/-. Whether it will constitute supply in terms of Entry No. 2 of Schedule I of Section 7 of the CGST Act?

Ans. Schedule I to the CGST Act, spells out the activities which shall be treated as supply even without consideration.

Entry No. 2 of the Schedule I provides that –

“Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”

• The Government also vide a Press Release [C.B.E. & C. Press Release No. 73/2017, dated 10.7.2017] clarified that gifts up to a value of Rs 50,000/- per year by an employer to his employee are outside the ambit of GST.
• Therefore, the threshold limit of Rs 50,000 shall be applicable on per employee basis in a financial year.
• In view of the above, as the value of the gift to an individual employee is less than ` 50,000/- in the instant case, GST shall not be applicable.

Q15. A company is in the business of manufacturing and supplying of goods from its factory in the State of Andhra Pradesh (AP). Its corporate office is located in the State of Tamil Nadu (TN) and the orders & procurement processes are managed from TN. Will the services provided by the different arms of the company from TN to AP be considered as supply of service in the context of Entry No.2 of Schedule I of the CGST Act?

Ans. Yes, the services provided by different arms of the company from TN (corporate office) to AP (manufacturing unit) with or without consideration will be treated as supply as per Entry No. 2 of Schedule I (Activities to be treated as supply even if made without consideration) of the CGST Act. The value of such supply shall be determined as per section 15 of the CGST Act read with the applicable the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”).