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Supply made without Consideration & Importation of Services

The taxable event in GST law will play a significant role as the levy of tax will be based on the occurrence of that event. For instance, in the pre-GST taxation system, excise was levied on manufacture, VAT on sale value, and Service Tax on provision of services. Under GST, all the aforesaid taxable events will be replaced with only one event which is ‘SUPPLY.’ In our earlier post, ‘Understanding Supply of Goods and Services,’ we mentioned the types of supplies that are taxable under GST, with our without consideration, and even explained what factors constitute for Supplies made with Consideration.

Recap: Supplies of goods/ services made with consideration includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease or disposal, and even importation of services, such that they are made – or agreed to be made – for a consideration in the course or furtherance of business.

In this post, we have attempted to explain the transactions which would be treated as ‘Supply without Consideration,’ under GST.

Supply without Consideration

Mentioned below are three different types of activities that are considered as Supply without consideration, and they will all be taxable.

1. Permanent transfer of business assets on which Input Tax Credit has been availed on such assets, will be treated as supply even if there is no consideration received.

For example, Shyam Events Ltd purchased 1500 door and window curtains sets worth Rs.12,00,000 and paid GST @18% of Rs.2,16,000. Shyam Events Ltd availed Input Tax Credit of Rs.2,16,000 on this purchase. These curtains were used for decorating corporate event parties. Following many years of using these curtains, Shyam Events Ltd chose to give these curtains away to his employees without any cost. Though the curtains were disposed without any consideration, Shyam Events Ltd is still liable to pay GST.

2. Supply of goods between Principal and his Agent

This is based on either of the two cases – wherein the agent takes responsibility to receive supply goods/ services on behalf of the Principal, and / or when the agent supplies goods on behalf of the principal. For example,

Case 1: Minda Electronics Ltd  has a business of lamps. They have appointed Ajanta Agency as an agent, who will store lamps supplied by Minda Electronics Ltd, and as and when an order is received by Minda Electronics Ltd from his dealers, instruction will be sent to Ajanta Agency to supply the consignment. The supply of lamps by Minda Electronics to Ajanta Agency is a taxable supply.

Case 2: Ajanta Agency is responsible to receive the supply of lamps’ raw material from manufacturers on behalf of Minda Electronics Ltd., and As per the example, 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 Minda Electronics Ltd and Ajanta Agency, or be borne individually by either of them. The party paying the GST, can claim Input Tax Credit.

3. Taxable Person Importing services from a Related Person

As a general principle, import of services without consideration will not be considered as supply under GST. But, import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business, even without consideration will be treated as supply.For example,Dua Inc. is incorporated in Singapore by Minda Ltd. along with Lumax Ltd. in India. Services are imported by Lumax Ltd from Dua Inc. without any consideration, the import will be deemed as supply – and the tax levied (GST) will be paid by Lumax Ltd. on reverse charge basis.

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