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.
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Author: Yarab AYarab is associated with Tally since 2012. In his 7+ years of experience, he has built his expertise in the field of Accounting, Inventory, Compliance and software product for the diverse industry segment. Being a member of ‘Centre of Excellence’ team, he has conducted several knowledge sharing sessions on GST and has written 200+ blogs and articles on GST, UAE VAT, Saudi VAT, Bahrain VAT, iTax in Kenya and Business efficiency.
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