GST Impact on Supply without Consideration & Importation of Services

Last updated on August 2nd, 2017 at 04:14 pm

In our earlier blog Supply of Goods and Services: What does it Mean we discussed about supply with consideration which is mostly about business operational activities like sales, transfers, and so on.

In this blog post, we will discuss exceptional scenarios, which form a part of supply, and are taxable:

  • Supplies made without consideration
  • Supplies made for a consideration, whether or not in the course or for furtherance of business

Supply without consideration

GST supply without consideration

The following activities are considered as Supply even without consideration, and are liable for tax.

Note: A key scenario ‘Supply of goods and or services without consideration between related persons or distinct person’, will be covered in detail in our next blog post. 

1. Permanent transfer/disposal of business assets on which Input Tax Credit has been availed

In the event of sale or transfer of business assets i.e. capital goods on which Input Tax Credit was availed – the transaction shall be treated as supply even when these are cleared or transferred without consideration, and the business is liable to pay GST.

Example

Super Cars Ltd purchased 15 computers worth Rs.3,00,000 and paid GST of Rs.54,000. Super Cars Ltd availed Input Tax Credit of Rs.54,000. These computers were used for maintaining the records and accounts of the business.

After years of usage, Super Cars Ltd decided to give these computers away to the employees without any cost.

Though the computers were disposed without any consideration, Super Cars Ltd is liable to pay GST.

Note: Once the complete rules are made available, further clarity on how to arrive at the taxable value of such supply will be available.

2. Supply of goods between Principal and his Agent

Supply of goods under the following scenarios is considered as taxable supply even without consideration.

  • Supply by the Principal to his Agent: When the agent undertakes to supply goods on behalf of the principal
  • Supply by the Agent to the Principal: When the Agent undertakes to receive such goods on behalf of the Principal

Example

Super Car Ltd appoints Sharma Agency as an agent. They will store the spare parts supplied by Super Cars Ltd, and as and when an order is received by Super Cars Ltd from his dealers, instruction will be sent to Sharma Agency to supply the consignment.

Also, Sharma Agency is entrusted to receive the supply of raw material from manufacturers on behalf of Super Cars Ltd.

As per the example,

  • Super Cars Ltd is the principal and Sharma Agency is the agent.
  • Supply of spare parts by Super Cars Ltd to Sharma Agency is a taxable supply
  • The receipt of raw material by Sharma Agency on behalf of Super Cars Ltd and the subsequent supply by Sharma Agency to Super Cars Ltd is a taxable supply

The liability on the above will be either shared jointly by Super Cars Ltd and Sharma Agency, or individually borne by either of them.

Note: Once the complete rules are announced, further clarity will be available on the liability to pay tax.

3. Importation of services by a taxable person from a related person or from any of his other establishments outside India, in the course of or for furtherance of business.

This implies that services imported without consideration from related persons situated outside India will be subject to levy of GST only if it is in the course of or for furtherance of business.

Example 1

Interior design service received by a branch from its Head office, located in Singapore. The interior service is taxable and liable for GST on reverse charge.

Hence, service imported without consideration from unrelated persons for the furtherance of business, and import of service without consideration for personal use is not a supply, and consequently, not subject to GST.

Example 2

Interior design service from its head office, located in Singapore for personal residence without any consideration.  Since the service is free and for personal use, it is not subject to GST.

Supplies made for a consideration whether or not in the course or for furtherance of business 

GST supply whether or not in the course or for furtherance of business

The import of service for a consideration whether or not in the course or for furtherance of business is considered as taxable supply. This implies that if the services are imported for a consideration, either for business purpose or for personal use, you are liable to pay GST.

Example

Super Cars Ltd imported navigation design services from a vendor in Singapore for a consideration of SGD (Singapore Dollars) 20,000.

Now, Super Cars Ltd is liable pay GST on the above mentioned import of service on reverse charge.

Coming Soon

  • Determining supply as goods or services
  • Understanding mixed supply and composite supply

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25 Comments

  • how to do invoicing to dealers in tally software for free goods or goods supplied in promitional offer like buy 1 get 1 free. where we bill and collect only GST on free samples or goods suuplied without consideration.

    Regards
    Vikash

    • You can enable ‘Allow modification of tax details for GST’ and ‘Allow to override assessable value’ in F12 configuration of sales voucher and you can then mention value on which GST needs to be calculated.

  • I belongs to Hyderabad, i was on deputation to Delhi for one year. I want to Purchase a New car in Delhi. After one year when i go back to Hyderabad, what will be the impact of GST and Road Tax on Vehicle

    • GST will be charged at the purchase of CAR and it will not be levied again if car is taken back to Hyderabad. For Road tax, you need to refer the relevant state provision.

  • Dear Sir,

    Will GST be applicable in the following situation:

    A Ltd is a manufacturer and seller of mobile phones. A Ltd has appointed B Ltd to act as a service partner for the mobile phones sold by it. Now, A Ltd transfers certain spare parts to B Ltd for servicing the products received from customers of A Ltd.

    In this case, is A Ltd required to charge GST on B Ltd on the spare parts so transferred?

    Please advise

    Regards
    Varun

  • In case of inter state branch transfer with separate registration no. is tax liability will comes on freight in case where freight is shown in Tax Invoice or is not shown in Tax Invoice?

  • What shall be the invoice for- -mate for goods and services supplied without consideration or supply of mixed or composite supply of goods and services.

  • Can you please explain GST impact on Freight & Insurance charges to be billed. Are they going to be taxable. If so, will they be eligible for ITC.

  • Let me know if Company A uses Cold storage facility of company B and supplies goods on delivery challan. Compnay A wants to give delivery to Company C (Distributor of Company A) directly from warehouse of Company B on Delivery Challan or Invoice. What will be GST impact on Company A, Company B and Company C. Explain.

    Explanation: Company A is using services of Company B and paying services charges to company B on per delivery basis on value or volume or monthly lump sum basis irrespective of value or volume of each such delivery. Company A is directly selling to Company C after charging appropriate GST and recovering full payment from Company C including GST component.

    • GST will be applicable on supply of goods from A to B and later, from B to C. On the service supplied by B to A, GST will be applicable.

  • Material supplied Free of cost for assemble in purchase product. What will be the assessable value under GST

    Tool Cost amortization is considered as part of assessable value in the case of Central Excise Law. What will be the assesable value under GST

  • What happens in the following example

    Company A has HO at Mumbai
    They have there branches all over india (Chennai, Delhi, Kolkata, Pune)
    They have a policy for Centralized procurement at HO and then distribute / transfer to Branches.
    For example they purchase 4 Laptops at HO
    They want to send 1 laptop each to there Branches as above.
    What would be the GST impact, as it is going to be with out consideration
    Transfer to Pune Branch would be Intra State
    Transfer to other Branches would be Enter state.

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