Under the GST framework, the taxable event is supply of goods or services or both when made or agreed to be made for a consideration in the course or furtherance of business. All forms of supply of goods or services or both attract GST unless exempted otherwise. Therefore, anything which is not goods or services does not attract GST. Further, Schedule III of the CGST Act, 2017 specifies certain activities or transactions which shall be treated neither as a supply of goods nor as a supply of services. This schedule is in addition to the non- GST supplies and exempt supplies. The activities specified in Schedule III are outside the ambit of GST and accordingly do not attract GST.
Scope of Supply
The term supply has been defined under section 7 of the CGST Act, 2017 as 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;
(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration.
Explanation—For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
(d) ***
(1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1), —
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as —
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.’
Schedules Under the CGST Act
Section 7 of the CGST Act, 2017 specifies following 3 schedules: –
- Schedule I – It specifies the activities to be treated as supply even if made without consideration.
- Schedule II – It specifies the activities or transactions to be treated as supply of goods or supply of services.
- Schedule III – It specifies the activities or transactions which shall be treated neither as a supply of goods nor a supply of services.
Schedule III
Sub-section 2 of section 7 of the CGST Act, 2017, begins with a non obstante clause, meaning thereby, all the activities or transactions as specified in Schedule III would be treated neither as a supply of goods nor as a supply of services even if made for a consideration and in the course or furtherance of business. As such, no GST is applicable on the activities or transactions as specified in the Schedule III.
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.
The salaries and other allowances paid by an employer to employees, as part of the employment contract do not attract GST. Reimbursement of expenses incurred by the employees, in the course of employment, is also outside the purview of GST. However, fee paid to the independent directors or non-executive directors of a company attract GST under reverse charge. Gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee is not treated as supply under the GST law. However, gifts of value exceeding Rs 50000/- made without consideration are subject to GST, when made in the course or furtherance of business.
2. Services by any court or Tribunal established under any law for the time being in force. (Here, the term “court” includes District Court, High Court and Supreme Court.)
3. (a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
(b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(c) The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Note- Sale of building shall be treated neither as a supply of goods nor a supply of services only when the entire consideration has been received after issuance of completion certificate, wherever required, by the competent authority or after its first occupation whichever is earlier.
6. Actionable claims, other than lottery, betting and gambling.
As per Section 2(52) of the CGST Act, 2017, goods includes actionable claim. Actionable claim has been defined under section 2(1) of the CGST Act, 2017 to have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882. Section 3 of the Transfer of Property Act, 1882, defines “actionable claim” to mean a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. Except lottery, betting and gambling all other actionable claims are outside the purview of GST.
7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
Example- Mr. A of India got an order for some goods from a party located at country X. He delivered the said goods by purchasing it from a supplier located at country Y without entering it into India. In this case, Mr. A is not liable to pay GST.
8. (a) Supply of warehoused goods to any person before clearance for home consumption; (Here, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.)
Example- Mr. A of India imported goods from country X and kept the same in a custom bonded warehouse. Instead of clearing the said goods from the warehouse for home consumption, he sold the goods to Mr. B. Mr. B will clear the warehoused goods for home consumption. In this case, Mr. A is not liable for GST. Mr. B will clear the said goods by paying appropriate GST.
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
Example- Mr. A of India imported goods from country X. While goods are at the high sea, he sold it to Mr. B of India by endorsement of documents of title to the goods. Mr. B will clear the goods for home consumption. In this case Mr. A is not required to pay the GST.
Activities treated neither as a supply of goods nor supply of services by way of clarification
As per circular no. 1/1/2017-IGST dated 7-7-2017 and circular no. 21/21/2017-GST dated 22.11.2017, the following activities shall be treated neither as a supply of goods nor supply of services and accordingly would not be leviable to GST:-
- Inter-state movement of various modes of conveyance, carrying goods or passengers or for repairs and maintenance, between distinct persons as specified in section 25(4) of the Central Goods and Services Tax Act, 2017, carrying goods or passengers or both; or for repairs and maintenance, except in cases where such movement is for further supply of the same conveyance.
- Inter-state movement of rigs, tools and spares, and all goods on wheels like cranes, except in cases where movement of such goods is for further supply of the same goods.
However, applicable CGST/SGST/IGST, as the case maybe, would be leviable on repairs and maintenance done for such conveyance or goods.
Activities treated neither as a supply of goods nor supply of services by way of Notification
As per Notification No. 14/2017-Central Tax (Rate) dated 28-06-2017, as amended by Notification No. 16/2018-Central Tax (Rate) dated 26-7-2018 the following activities or transactions undertaken by the Central Government or State Government or Union territory or any local authority in which they are engaged as public authority, shall be treated neither as a supply of goods nor a supply of services, namely:-
- Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution.