TRANSACATION THAT IS NEITHER A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

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TRANSACATION THAT IS NEITHER A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

				By: Mr. M. GOVINDARAJAN
				October 17, 2019
All Articles by: Mr. M. GOVINDARAJAN View Profile

Contents

Supply

Section 7(1) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides that for the purposes of the Act, 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;
import of services for a consideration whether or not in the course or furtherance of business; and
the activities specified in Schedule I, made or agreed to be made without a consideration

Section 7(1A) provides that 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.

Section 7(2) provides that notwithstanding anything contained in sub-section (1),–

activities or transactions specified in Schedule III; or
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.

Schedule III

Schedule III provides the list of activities or transactions which shall be treated as neither a supply or goods nor a supply of services-

Services by an employee to the employer in the course of or in relation to his employment;
Services by any court or Tribunal established under any law for the time being in force;
The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
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.
Services of funeral, burial, crematorium or mortuary including transportation of the deceased;
Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Actionable claims, other than lottery, betting and gambling.
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 (with effect from 01.02.2019);
Supply of warehoused goods to any person before clearance for home consumption;
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.

Notifications

Vide Notification No. 14/2017-Central Tax (Rate), dated 28.06.2017 (as amended), Notification No. 14/2017- Union Territory Tax (Rate), dated 28.06.2017 (as amended) and Notification No. 11/2017-Integrated Tax (Rate), dated 28.06.2017 (as amended) the Central Government, on the recommendations of the Council notified that 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 service, namely:-

Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution.

Vide Notification No. 25/2019-Central Tax (Rate), dated 30.09.2019, Notification No. 25/2019-Union Territory Tax (Rate), dated 30.09.2019 and Notification No. 24/2019-Integrated Tax (Rate), dated 30.09.2019, the Central Government, on the recommendations of the Council notified that the following activities or transactions undertaken by the State Governments in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of service, namely:-

Service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called.”

By: Mr. M. GOVINDARAJAN - October 17, 2019

Discussions to this article

Clause 5(e), of Schedule II, provides that " agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and". Under this provision GST is paid on the amount recovered from an employee 's Full and Final settlement for not serving the notice period. The service provided by employee to the employer is exempted from GST. In the agreement it is mentioned that an employee is required to serve 60 days or 90 days, as the case may be , as a notice period. However, due to some reason , if the employee is unable to serve notice period and want to part with the company without or serving less number of days as notice period the company penalise the employee by recovering salary of those number of days not served as notice period from his full and final settlement. Since, the recovery pertains to main service i.e. service of employment and the penalty condition also form part of the agreement, the amount recovered by the company as notice pay recovery should be exempt from GST.

Experts view is welcome.