The taxable incident under GST is the supply of goods and/or services. The term ‘supply’ defines all forms of supply of goods or services, either already supplied or to be supplied in future, for a consideration, in the course of or for continuance of business.
Nevertheless, specific types of supplies mentioned in the GST law are considered as supply even without a consideration like transactions between related parties.
Supply with consideration is mostly for operational activities like sales, transfers, etc. To understand the concept of supply without consideration, let us start with understanding definitions of related persons and distinct persons and supply transactions between them.
The followings are treated as supplies under GST even without consideration:
According to CGST Act, ‘related persons’ covers:
The deeming provisions also include legal persons, exclusive agent, distributor or concessionaire (holder of a concession or grant, especially for the use of land or commercial premises or for trading rights) in the definition of related persons.
Quick Note: Employer’s gifts of value not exceeding INR 50,000 (in a financial year) to an employee will not be treated as a supply.
According to the CGST Act, a distinct person can be defined as:
Quick Note: Supplies made between related parties and distinct persons will be taxable even without consideration.
The transactions related to permanent transfer or disposal of business assets (capital goods) on which ITC was availed shall be treated as supply even without consideration. Here, the business is liable to pay GST. Donation of business assets would also qualify as ‘supply’, where ITC has been claimed.
However, GST does not apply to the sale of personal land/building and other personal assets, it is applicable only to business assets.
Oxford Agri-products Ltd bought 15 laptops worth INR 450,000 and paid 18% GST of INR 81000. Oxford Agri-products Ltd availed Input Tax Credit of INR 81,000. These computers were used for maintaining the finance and accounts of the business.
At the end of useful life of period, Oxford Agri-products Ltd disposed them by giving away to the office staff at FREE of cost.Though the computers were disposed without any consideration, Oxford Agri-products Ltd is liable to pay GST on the value as derived according to the valuation rules promulgated in CGST Rules 2017.
Quick Note:“Permanent transfer” means the transfer of goods without the intention of receiving goods back. Hence, goods sent on consignment, job work or for testing/certification will not qualify as supply as there is no permanent transfer.
Under the following scenarios, the supply of goods between the principal and his agent scenarios is considered as taxable supply even without consideration.
Supply to the Principal by his Agent: when agent receives or undertakes to receive goods on the behalf of principal
Supply to the Agent by his Principal: when agent supplies or undertakes to supply goods on behalf of principal
Fast-drive Two-wheelers Ltd appoints Regal Agency as their agent to store the tyres and tubes supplied by Fast-drive Two-wheelers Ltd. On receiving an order by Fast-drive Two-wheelers Ltd from his dealers, an instruction will be sent to Regal Agency to supply the consignment. Further, Regal Agency is entrusted to receive the supply of raw materials (metal, plastic, rubber) from manufacturers on behalf of Fast-drive Two-wheelers Ltd.
As mentioned in the example, it can be analysed that:
The tax liability on the above transactions will be
Quick Note: Any supplies between agent and principal will be liable to GST. The person paying GST can later claim input tax credit.
The abovementioned clause implies that any kind of imported service from related persons situated outside India without consideration will be treated as taxable supply even without consideration. Such transactions are chargeable under GST only when they have been carried out in the course of or for continuance of business.
Fast-drive Two-wheelers Ltd imported service of interior designing for the new showroom from its Head-office located in Japan. Here, the received interior designing service shall be treated as taxable service and is liable for GST on reverse charge. This is taxable since it has been imported for the continuance of business from related parties.
In case, the same service has been imported from unrelated parties without consideration for the continuance of business, it would not be chargeable under GST. Similarly, if the same service has been imported from related parties without consideration for the personal use, it would not be chargeable under GST.
Interior designing service imported by Fast-drive Two-wheelers Ltd from the head office, located in Japan for personal residence without any consideration will not be chargeable under GST.
The supply without consideration under GST in both cases (1) transactions between related persons and/or (2) transactions between distinct persons (with the same PAN) needs to be valued under GST.
Fast-drive Two-wheelers Ltd. has three branches X, Y and Z in three different states.
Branch X located in Gujarat is running out of stock of tyres and tubes and hence Branch Z located in Rajasthan transfers its excess stock.
This transfer of stock will be treated as supply from outside state even without consideration.
Here, the supply of excess stock needs to be valued. The same will be valued at:
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