We have previously discussed how supply of goods and services takes place under the GST with respect to business activities related to operations such as sales, disposal of assets, transfer of assets etc. In this article, we aim to touch on the exceptions to the rule where supplies are taxable, namely –
- When a supply is made without a consideration; and
- When a supply is made at a consideration however it may or may not be in the course of furtherance of the business.
We have put together a list of activities that qualify as a supply without consideration however, are taxable nonetheless, such as the following –
| Activity | Description |
| Permanent transfer or permanent disposal of business assets on which Input tax credit has been availed | In case there is a sale of business assets such as capital assets and machinery on which the input tax credit has been availed then such a transaction shall be regarded as a supply. In some cases, a company may give away its business assets to its employees without consideration and even in such a case, the transaction is regarded as taxable and the business will be liable to make the requisite GST payment.
The final copy of the GST Rules are awaited so as to shed light on determining the exact taxable value of entering into such a supply transaction. |
| Supplying goods and services based on a principal agent relationship | In the event that an agent undertakes to sell goods or services on behalf of its principal or the agent undertakes to receive such goods on behalf of the principal then the supply of the goods or services shall be considered as a taxable supply – even when there is no involvement of a consideration amount.
For example, if F&M Clothing appoints Lara Fashion as its agent and Lara Fashion accepts a bundle of textiles and garments from a manufacturer on behalf of F&M Clothing without a consideration, then such a supply will still amount to being a taxable supply and the liability of the same may be shared between the principal and agent depending on their agreement, or may be borne individually by either party. The final copy of the GST Rules are awaited so as to shed light on determining the exact taxable value of entering into such a supply transaction. |
| When a service is imported by a taxable person to a related person from an establishment of his from outside India, either during the course of or in furtherance of the business | According to such a transaction, when a service is imported, it will be subject to a levy of the GST when such import takes place between related persons who are situated outside India, without consideration, and is done during the course of or with a view to further the business.
For example, when F&M Clothing avails of a service from its head office located in Australia, then such a service received shall be taxable and GST is liable to be paid on a reverse charge basis. This brings us to an understanding that when a service is imported from unelated persons without a consideration amount involved, and is done for the furtherance of the business, or the import of supply of service for personal use without a consideration amount will not be considered as a supply and thus will not be taxable or have a levy of GST. |
| When a supply is made for a consideration and may or may not be made during the course of or in furtherance of the business | When a good or service is supplied for a consideration and may or may not be done in the furtherance of the business (for either business or personal use) GST is levied on such a transaction and liable to be paid.
For example, if F&M Clothing has availed of services from Lara Fashion based in Australia for a consideration of 1,000 Australian Dollars, then F&M Clothing is liable to pay GST on such a transaction on the basis of reverse charge. |
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