Supply of Service under GST : Analysis

By | August 12, 2016

Supply of Service under GST

Supply of Service under GST

Key Points about Supply of Service under Model GST Law

  • Definition of service  cover even immovable property, Intangible property and actionable claim but cover money
  • The explanation has been added in Model GST Law, but is not part of definition of service as given in proposed Article 366(26A) of Constitution of India.
  • Hire or operating lease of goods is service.
  • Renting of immovable property is supply of service
  • Leasing of Residential building for purpose of business will be supply of service
  • Sale of Copyright ,Trade marks, Royalty collected on mining lease , Carbon Credits, Saleable duty credit scrips  may be treated as intangibles and hence may be covered under the definition of Service
  • Importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, is ‘supply’.
  • Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software is service
  • Since the term  service include actionable claim, therefore  and as per the various judgement an actionable claim would include
    • right to recover insurance money or a partner’s right to sue for account of a dissolved partnership or right to claim benefit of a contract not coupled with any liability[ UOI v. Sri Sarada Mills (1972) 2 SCC 877 = 43 Comp Cas 431 (SC).]
    • A claim for arrears of rent [State of Bihar v.Mahatajadhiraja Sr. Kameshwar Singh (1952) SCR 889.]
    • Right to claim provident fund [Official Trustee v. L Chippendale AIR 1944 Cal 335]
    • lottery ticket [Sunrise Associates v. Government of NCT of Delhi (2006) 5 SCC 603]
  • Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is supply of service . This would cover the followings :-
    • Demurrage charges for not clearing goods within prescribed period.* Cancellation charges charged by hotels, airlines, builders, contractors etc.* L D Charges (Late Delivery Charges)

      * 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 term of contract etc.)

      * Agreeing not to appear for opposite party in Court.

      * Penalty for breach of contract

      Advance forfeited for cancellation of agreement, security deposits forfeited for damages done, demurrage are subject to service tax (now GST) – Para 2.3.2 of CBE&C’s ‘Taxation of Services : An Education Guide’ published on 20-6-2012.

    • Non-compete fees would be subject to service tax (now GST) – Para 6.7.1 of CBE&C’s Taxation of Services : An Education Guide’ published on 20-6-2012.
  • It was held by Hon’ble Supreme Court that the value of SIM card forms part of the activation charges as no activation is possible without a valid functioning of SIM card. Thus it is ‘service’ and not ‘goods'[ Idea Mobile Communication Ltd. v. CCE &C [2011] 32 STT 262]
  • Duty drawback received in respect of exports is simply money. It is not goods and no sales tax is payable if exporter receives duty drawback – KMA Finished Leather v. State of Tamil Nadu (2004) 134 STC 185 (Mad HC DB).Since money is neither goods nor service, GST should not apply on duty drawback.
  • If occupation of building/house is proved even before obtaining completion certificate, it will not be ‘supply of service’ and will not be subject to GST as per as per Explanation to  para (b) of Schedule II of GST Model Law, 2016:
  • A tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is deemed sale of goods under Article 366(29A) of Constitution of India. [As inserted by 46th Amendment to Constitution in 1982]. Note that this Article is continuing even after Constitutional amendment.Thus, the Constitution states that ‘works contract’ is deemed sale of goods, while GST Model Law, 2016 states that it is ‘supply of service’ as per para 5(f) of Schedule II of Model GST  Law, 2016 Thus there can be  issues relating to rate, place of supply or time of provision of service can arise. Whether the supply of Goods rules will apply or supply of service rules will apply in case of Work Contract service ?
  • Sale in canteen to Factory workers can be subject to GST.
  • As per Article 366(29A)(f) of Constitution of India, a tax on the 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 (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, is ‘deemed sale of goods’.Thus, the Constitution states that ‘supply’ is deemed sale of goods, while GST Model Law, 2016 states that it is ‘supply of service as per para 5(h) of Schedule II of GST Model Law, 2016. Thus there can be  issues relating to rate, place of supply or time of provision of service can arise. Whether the supply of Goods rules will apply or supply of service rules will apply in case of  supply of food or drinks ?

Supply of Services GST

BUY

Meaning of services under Constitution 

‘Services’ means anything other than goods [proposed Article 366(26A) of Constitution of India]

Meaning of Services under clause 2(88) of GST Model Law, 2016

“Services” means anything other than goods .

Explanation: Services include intangible property and actionable claim but does not include money

Note :-

As per clause 2(93) of Model GST  Law, 2016. “Tangible property” means any property that can be touched or felt

As per clause 2(59) of Model GST  Law, 2016. : “Intangible property” means any property other than tangible property

As per clause 2(1) of GST Model Law, 2016. “Actionable claim” shall have the meaning assigned to it in section 3 of the Transfer of Property Act, 1882

As per section 3 of Transfer of Property Act, actionable claim means 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 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.

As per clause 2(68):Money” means Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any such similar instrument when used as consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value .

Hire or operating lease of goods is service

As per para 1(2) of Schedule II of Model GST  Law, 2016. : Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services –

Leasing or renting of land and building for commercial purposes is service

As per para 2(1) of Schedule II of Model GST  Law, 2016. :- Any lease, tenancy, easement, licence to occupy land is a supply of services .

As per para 2(2) of Schedule II of Model GST  Law, 2016. : Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services .

Treatment or process is Service 

As per Para 3 of Schedule II of Model GST  Law, 2016 : Any treatment or process which is being applied to another person’s goods is a supply of services.

Renting of immovable property is supply of service 

As per para 5(a) of Schedule II of Model GST  Law, 2016. :- Renting of immovable property is supply of service

Construction Service

Following is ‘supply of service’ as per para 5(b) of Schedule II of GST Model Law, 2016:

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 before its first occupation, whichever is earlier.

Explanation. – For the purposes of this clause—

(1) the expression “competent authority” means the Government or any authority authorized 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

(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure.

Intellectual property related services

As per para 5(c) of Schedule II of Model GST  Law, 2016 :  temporary transfer or permitting the use or enjoyment of any intellectual property right is supply of Service

Note:  the term ‘Intellectual Property Right’ (IPR) has not been defined under Model GST Law

Software is service

As per para 5(d) of Schedule II of Model GST  Law, 2016: -Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software is service

Refrain from Act or tolerating an Act

As per para 5(e) of Schedule II of Model GST  Law, 2016 :Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act is supply of service

Works Contract service

As per para 5(f) of Schedule II of Model GST  Law, 2016 : works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is supply of Service

“Works contract” means an agreement for carrying out for cash, deferred payment or other valuable consideration, building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any movable or immovable property – clause 2(107) of Model GST Law, 2016.

Financial leasing and hire purchase

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 is supply of service – para 5(g) of Schedule II of Model GST  Law, 2016.

Supply of food or drinks is supply of service

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 is ‘supply of service’ – para 5(h) of Schedule II of GST Model Law, 2016.

Importation of service is Supply

As per clause 3(1)(b) of Model GST  Law, 2016, importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, is ‘supply’.

Meaning of  Import of service :-

Clause 2(52) of Model GST  Law, 2016 reads as follows –

The supply of any service shall be treated as an “import of service” if,

(a) the supplier of service is located outside India

(b) the recipient of service is located in India

(c) the place of supply of service is in India, and

(d) the supplier of service and the recipient of service are not merely establishments of a distinct person.

Explanation 1 – An establishment of a person in India and any of his other establishment outside India shall be treated as establishments of distinct persons.

Explanation 2 – A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory.

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