How to Determine Supply of Goods vs Supply of Services in GST

Schedule-II of the model GST law provides clarity on determining the type of supply as supply of goods or supply of services. This aims at eliminating the dilemma that exists in the current indirect tax system, for example, Service Tax Vs. VAT on works contract, AC Restaurant Service, Software, etc.

It is, therefore, important for businesses to know whether supply amounts to supply of goods or supply of services, and treat supply accordingly.

The law broadly lists transactions related to transfers, land and building, treatment or process (applied on third party’s goods), and transactions related to construction and works contact, renting, etc.

Let us discuss some important supplies with examples.

Sl.No Forms of supply Treated as supply of? Example
1 Any transfer of the title in goods Goods Furniture House sold furniture to Mr. Ganesh. This will be treated as supply of goods, because on sale, the title of the furniture is transferred to Mr. Ganesh.
2 Any transfer of goods without transfer of title Services Furniture House supplied furniture to Mr. Rakesh, on rental basis, for a period of 3 months.

This amounts supply of service because furniture is transferred for Mr. Rakesh’s usage, and the title of the furniture is still with Furniture House.

3 Any transfer of title of goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed. Goods Furniture House supplied furniture to Mr. Ramesh in an agreement to receive payments in 6 instalments.

This amounts supply of goods, because the title of the furniture will pass on to Mr. Ramesh on completing the payment of 6 instalments.

Typically, all hire purchase will qualify under this section.

4 Any lease, easement, tenancy, and  licence to occupy land Services Mr. Suresh lets out land on lease to Furniture House. The letting out of land on lease is considered as supply of services.
5 Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly Services Mr. Suresh lets out a building to Furniture House. Furniture House used the building for display and sale of furniture.

This is a supply of services.

6 Job work – Any treatment or process which is being applied to another person’s goods Services Furniture House also undertakes repair works and polishing of the furniture of their customers.

The repair and polishing activity will be treated as supply of service.

7 Permanent transfer or disposal of business assets transferred with or without consideration Goods We have discussed this in detail in this blog post GST Impact on Supply without Consideration & Importation of Services
8 Business assets put to private use or non- business use whether or not for a consideration Services Car used for business is put to private use. This is a supply of services.
9 Renting of immovable property Services Renting of shop premises is considered as supply of services.
10 Development, design, programming, customisation, adaptation, up-gradation, enhancement, implementation of information technology software Services Max Technologies Ltd developed a payroll software for Furniture House. The development of software is a supply of services.
11 Works contract, including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract of immovable property Services Murali Construction Ltd constructed a commercial complex involving material and labour.

This is a supply of services.

About the author

Pugal T & Yarab A

21 Comments

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  • Please explain job work with example.

    If I send goods to my job worker for manufacturing, how he should bill me ??

    Explain with details and figures.

    Thanks.

  • my querry is if a offset printer is printing books etc for his client and is using paper ,ink etc all raw material not supplied by client but from his own.is it supply of goods or service. and if paper is supplied by client then what is the position.

  • My specific question is that when a super distributor/ distributor of Co. dealing in FMCG buys goods from Co. & then further sells to distributor, will such super distributors/ distributors fall in MSME for the purposes of paying income tax @ 25% announced in the Budget.

  • Sir, How do you treat supply of free sample to a job worker ? I will be sending materials which is need to be manufactured as per my specification. Hence, manufacturer “supplying free samples ” is it taxable under GST? If it is taxable than can be input credit is available for the same?

  • In this connection, I will request you elaborate the treatment of the following under GST:

    1. Whether supply of a software like Tally.ERP9 in a CD is supply of goods or services?

    2. Whether online supply of a software license like Tally.ERP9 is supply of goods or services?

    3. Whether supply of a software like Tally.ERP9 after doing some customization to suit the needs of client is supply of goods or services?

    Regards

    • I think that, If you get the tally from any of three ways you have mentioned, one has to purchase License for some years by paying fees. License provided is like renting service provided, Which means that supply of tally tends to SUPPLY OF SERVICE. This is my personal opinion anyone having differnt opinion is welcome.

  • My question is related to Software Licenses.

    If Buyer A – imports Software Licenses (Perpetual or Subscription) and sells to Buyer B. In existing Tax regime, this is subject to VAT/CST + Service Tax.

    What will be the implications under GST. Whether this will be treated as Goods or Service ?

  • Thank You for sharing Information on Supply.
    My query on this is as law says, Any lease, easement, tenancy, and licence to occupy Property is the Supply of Service. If the property is for Residential use then it is taxable under Supply of Service?

    • You have to charge the applicable tax, as per the place of supply. If it is an intra-state supply, taxes to be charged are CGST and SGST and if it is an inter-state supply, tax to be charged is IGST.

  • Point 11 that works contract will be treated as services is interesting. Does it exempt works contract for railways from GST. Railways work do not attract service tax.

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