Taxable Event in GST 3.1 Meaning of Taxable Event

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3 : Taxable event in GST
Taxable event in GST

3.1 Meaning of taxable event
'Taxable event' is that on happening of which the charge is fixed. It is that event, which on its occurrence creates
or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even though
taxable event happens to be at a particular point of time, the levy and collection of such tax may be postponed for
administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana (1990) 76 STC 71 (SC) =
188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State of Kerala v. Alex George
2004 AIR SCW 6552 (SC 3 member bench).
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the
taxable event - Kalwa Devadallain v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner (1964) 15
STC 487 (All HC).
Tax can be imposed only on 'taxable event'. However, all taxable events are not covered in legislative entries in
Seventh Schedule to Constitution - Godfrey Philips India v. State of UP AIR 2005 SC 1103 = 139 STC 537 (SC
5 member Constitution Bench).
3.1-1 'Supply of goods or services or both' is 'taxable event' in GST
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic
liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016].
Note that the word used is 'supply' and not 'sale' or 'manufacture'. 'Consideration' is not required for supply.
3.1-2 Charging section in CGST, SGST, UTGST and IGST
Section 9(1) of CGST Act is the charging section for CGST. The section reads as follows -
Subject to section 9(2) of CGST Act (which states that GST on petroleum products will be levied at a later
stage), there shall be levied a tax called the Central Goods and Services Tax (CGST) on all intra-State supplies of
goods or services or both, except on supply of alcoholic liquor for human consumption, on the value determined
under section 15 of CGST Act and at such rates not exceeding 20% as may be notified by Central Government,
on the recommendation of GST Council and collected in such manner as may be prescribed.
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST on the supply of petroleum
crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be
levied with effect from such date as may be notified by the Government on the recommendations of the GST
Council - section 9(2) of CGST Act.
Section 5(1) and 5(2) of IGST Act have parallel provisions in respect of IGST.
Thus, CGST is on - (a) intra-State supplies (b) of goods or services or both (except on supply of alcoholic liquor
for human consumption). Value will be as per section 15. Rate of GST will be notified by Central Government -
maximum 20%.
There is parallel provision in SGST Act.
3.2 General Meaning of 'supply'
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or need etc.) - Concise
Oxford Dictionary
Supply - 'Supply' is that which is or can be supplied, available aggregate of things needed or demanded, an
amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha Aiyar
Supply - furnish, substitute for - Collins Gem Dictionary.
Thus, 'Supply' is a very broad word.
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'Supply' does not need 'consideration'. Further, two separate legal entities are not required. One branch or
division or depot can 'supply' goods or services to another branch, division or depot.
3.2-1 Supply as per GST law
Section 7(1) of CGST Act as amended vide CGST (Amendment) Act, 2018, but with retrospective effect from 1-
7-2017, states that for the purpose of CGST Act, the expression 'supply' includes -
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental,
lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance
of business
(b) importation of services, for a consideration whether or not in the course or furtherance of business and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration
Activities or transactions to be treated as supply of goods or supply of services - Where certain activities or
transactions, constitute a supply in accordance with the provisions of section 7(1) of CGST Act, they shall be
treated either as supply of goods or supply of services as referred to in Schedule II of CGST Act – section 7(2A)
of CGST Act inserted vide CGST (Amendment) Act, 2018, with retrospective effect from 1-7-2017.
This seems to be only correcting a drafting mistake, as what was earlier stated in section 7(1)(d) of CGST Act
has now been stated separately and specifically. [section 7(1)(d) of CGST Act was reading as follow – Supply
includes the activities to be treated as supply of goods or supply of services as referred to in Schedule II].
Earlier section 7(1) - The section 7(1) was earlier reading as follows -
Section 7(1) of CGST Act, stated that for the purpose of CGST Act, the expression 'supply' includes -
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental,
lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance
of business
(b) importation of services, for a consideration whether or not in the course or furtherance of business
(c) the activities specified in Schedule I, made or agreed to be made without a consideration and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. [clause
(d) omitted with retrospective effect from 1-7-2017 vide CGST (Amendment) Act, 2018].
3.2-2 Activities which are neither supply of goods nor supply of services
Irrespective of anything contained in section 7(1) of CGST Act, following will not be treated as supply of goods
or services -
(a) activities or transactions specified in Schedule III; or
(b) 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 Central Government -
section 7(2) of CGST Act.
3.2-3 Changes in scope of supply of goods or services by notification
Section 7(3) of CGST Act states that the Central Government may specify, by notification, the transactions that
are to be treated as— (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as
a supply of goods; or (c) neither a supply of goods nor a supply of services.
Section 7(3) is subject to section 7(1), 7(1A) and 7(2) of CGST Act. Thus, notification issued under section 7(3)
of CGST Act cannot override any provision of section 7(1) or section 7(2) of CGST Act. [Reference to section
7(1A) inserted vide CGST (Amendment) Act, 2018. Since section 7(1A) has been given retrospective effect, this
insertion will also have retrospective effect].
3.2-4 Coverage of 'supply' is very wide as definition is 'inclusive'
The definition of 'supply' in section 7(1) of CGST Act is 'inclusive' definition. Thus, any supply of goods or
services would get covered, even if not specified in any of sub-sections of section 7(1) of CGST Act.
3.2-5 Main part of definition covers all supplies for consideration
Main part of definition in section 7(1)(a) of CGST Act makes it clear that all supplies made for consideration in
course of business are subject to GST.
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Import of services for consideration will be subject to GST even if not made in course of business. Thus, even
import for charity activities will get covered, even if they are not in course of business - section 7(1)(b) of CGST
Act.
3.2-6 Supply to be in course of business of supplier and not of recipient
The term 'supply' is from the point of view of person who is supplying and not person who is receiving the
supply. Thus, if supplier is not in the business of supplying the goods or services, GST is not applicable (and
consequently, the recipient will not be liable to pay tax under reverse charge).
Really, even otherwise, GST cannot apply as the individual selling his old goods is not it is in the course of
business (as selling of old goods is not the business of an individual).
In PIB press release dated 13-7-2017 18:57 IST (CBE&C press release No. 78/2017 dated 13-7-2017), it has
been clarified that an individual selling old jewellery is not in business of selling such jewellery. Hence, GST
will not be payable by recipient under reverse charge.
Though the view is in respect of old jewellery, principle applies to all supplies made by individual in his
individual capacity.
3.3 Transactions that will be taxable as 'supply' even if no consideration
A supply specified in Schedule I, made or agreed to be made without a consideration is 'supply' for purpose of
CGST Act- section 7(1)(c) of CGST Act.
Thus, these transactions will be subject to GST, even if there is no consideration. The valuation for purpose of
GST will be as per GST Valuation Rules.
The Schedule I of CGST Act reads as follows -
Schedule I [section 7] - Activities to be treated as supply even if made without consideration
(1) Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.
(2) Supply of goods or services or both between related persons, or between distinct persons as specified in
section 25, when made in the course or furtherance of business [section 25(4) of CGST Act states that
establishments of same person with distinct GST Registration Numbers will be treated as 'distinct persons']
(3) Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf
of the principal, or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of
the principal.
(4) Import of services by a (*) person from a related person or from any of his other establishments outside India,
in the course or furtherance of business. [ * - The word was 'taxable'. This word has been omitted vide CGST
(Amendment) Act, 2018 [This amendment has been made effective on 1-2-2019]. Thus, import by any person
from a related person outside India shall be 'import', but it should be in the course or furtherance of business.
Service supplied by establishment of person in India to own establishment out of India exempt - Service
supplied by establishment of person in India to own establishment out of India is exempt, if place of supply is
out of India – Sr. No. 10E of Notification No. 9/2017-IT (Rate) dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Complimentary free tickets issued taxable under GST, even if no consideration? - In KPH Dream Cricket P
Ltd. In re (2018) 98 taxmann.com 243 (AAR - Punjab), it has been held that complimentary tickets issued free
for cricket matches (IPL) is 'supply' and taxable [seems debatable since such supply is not to related person or
distinct person as defined in section 25 of CGST Act. In my view, tax should not apply but ITC of common input
services should be reversible on proportionate basis].
3.3-1 Permanent transfer/disposal of business assets
Permanent transfer/disposal of business assets (even without consideration) will be subject to GST only where
input tax credit (ITC) has been availed on such assets - clause 1 of Schedule I to CGST Act.
As per clause 4(a) of Schedule II of CGST Act, where goods forming part of assets of a business are transferred
or disposed of, with or without consideration, such transfer will be supply of goods.
By combined reading, in my view, transfer of business assets without consideration will attract GST only in
respect of those goods where ITC has been availed.
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This clause also has to be read with clause 4(c) of Schedule II, which states that transfer of business as going
concern is not a 'supply'. Thus, transfer of entire business as a going concern cannot be subject to GST.
Further, services by way of transfer of a going concern, as a whole or an independent part thereof is exempt from
GST - Notification Nos. 12/2017-CT (Rate) and 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017
[This exemption has been included in 'services', as anything which is not 'goods' is 'service'. Otherwise, in
normal trade understanding, this activity cannot be termed as 'service'].
Thus, transfer of business asset as whole an independent part is not subject GST.
Transfer of business as going concern as a whole or of one of the units is not subject to GST - Rajashri Foods
(P.) Ltd. In re [2018] 93 taxmann.com 417 (AAR-Kar.).
Transfer of business as a going concern with assets and liabilities as slum sale is exempt from GST - Innovative
Textiles Ltd. In re (2019) 73 GST 714 = 104 taxmann.com 436 (AAR-Uttarakhand).
However, in Merck Life Science P Ltd. In re [2019] 72 GST 1 = 100 taxmann.com 321 (AAR-Maharashtra),
transfer of business as slump sale on going concern basis was held as supply of service covered in para 5(e) of
Schedule II. It was held that even if there is no consideration, since parties are related, GST is payable on
notional consideration [This may be justified on basis of specific facts of the case, Otherwise, the fact whether or
not parties are related should not make any difference. In fact, the appellant unnecessarily invited trouble by
applying for advance ruling].
3.3-2 Supply between related persons and distinct persons
Supply of goods or services or both between (a) related persons, or (b) between distinct persons as specified in
section 25, when made in the course or furtherance of business will be subject to GST, even if there is no
consideration - clause 2 of Schedule I to CGST Act.
Supply of goods to own branch or division with distinct GSTIN - Section 25(4) of CGST Act states that
establishments of same person with distinct GST Registration Numbers will be treated as 'distinct persons'.
Thus, inter-state stock transfers or branch transfer will be subject to GST. Even intra-state stock transfer or
branch transfer will be subject to GST if there are separate GST registrations.
Supply of service by HO or one branch/division to another - On the basis of aforesaid principle, even supply of
service by one branch/division to another will be subject to GST if there are distinct GST registration numbers,
as held in Cummins India Ltd. In re (2019) 73 GST 517 = 103 taxmann.com 126 (AAR-Maharashtra), where it
was held that in such cases, valuation should be as per rule 30 of CGST Rules i.e. 110% of cost [really, in my
view, it can be on basis of rule 31 of CGST Rules also, for which principles as applicable to distribution by Input
Service Distributor can apply].
Services supplied by HO of Bank to branch with separate GSTIN is taxable supply even if there is consideration.
Valuation can be done on cost basis on basis of certificate of CA/CMA - FAQ Nos. 55 and 56 issued by CBI&C
on banking sector on 27-12-2018.
In fact, unless specific notification is issued under rule 32(7) of CGST and SGST Rules, such services should be
subject to GST.
In Columbia Asia Hospitals (P.) Ltd.,In re [2018] 69 GST 427 = 96 taxmann.com 245 (AAR-Karnataka), it has
been (indeed rightly) held that Corporate office and units are distinct persons under CGST Act. Hence, activities
performed by employees at corporate office such as accounting, other administrative and IT system maintenance
for units located in other states as well i.e. distinct persons as per section 25(4) of Central Goods and Services
Tax Act, 2017 (CGST Act) shall be treated as supply as per Entry 2 of Schedule I of CGST Act and will be
subject to IGST (if located in other State) - view upheld in Columbia Asia Hospitals (P.) Ltd., In re [2018] 100
taxmann.com 501 (AAAR-Karnataka).
In my view, this judgment is valid in case of common input services and services (other than services of
employees) supplied by one branch/division to another or by HO to division/branches.
However, in case of services of employees, the services supplied by employee to employer are neither goods nor
services as per Sr No. 1 of Schedule III of CGST Act. Though branch or division is separate taxable person for
purpose of GST with 15 digit GSTIN, the 'employer' is same i.e. having 10 digit PAN. Hence, services of
employee of one branch/division to another branch/division are neither supply of goods nor supply of services
and hence should not be subject to GST.
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Of course, if another division/branch is in position to avail Input Tax credit, it would be advisable to pay tax and
avail ITC instead of entering into possible litigation.
Service supplied by establishment of person in India to own establishment out of India exempt - Service
supplied by establishment of person in India to own establishment out of India is exempt, if place of supply is
out of India - Sr. No. 10E of Notification No. 9/2017-IT (Rate) dated 28-6-2017 as inserted w.e.f. 27-7-2018.
Maintaining liaison office/branch office in India is not supply of service - If liaison office in India does not
render any consultancy or other services directly/indirectly, with or without any consideration and liaison office
does not have significant commitment powers, except those which are required for normal functioning of office,
on behalf of head office, then reimbursement of expenses and salary paid by head office to liaison office,
established in India, is not liable to GST and head office is not required to get itself registered under GST -
Habufa Meubelen B.V.,In re [2018] 95 taxmann.com 120 (AAR- Rajasthan). * Takko Holding GMBH In re
[2018] 98 taxmann.com 334 (AAR - Tamil Nadu).
Inter-state supply of aircraft engines, parts and accessories by airlines to own branch -Inter-state supply of
aircraft engines, parts and accessories by airlines to own branch in another State will be subject to IGST. The
Input Tax Credit can be availed for payment of tax on inter-state supply even if the airlines are not allowed to
take input tax credit for supply of services of transport of passengers by air in economy class - MF(DR) circular
No. 16/16/2017-GST dated 15-11-2017.
3.3-3 Supply to Related persons without consideration
Supply to related person in course of business is liable to GST, even if there is no consideration.
The term 'Related person' has been defined in section 15(9) of CGST Act. This definition is for all purposes of
CGST Act and hence will apply to Schedule I also.
The definition is discussed in chapter on GST Valuation.
Free Samples - Free samples to unrelated persons will not be subject to GST but input tax credit will have to be
reversed. However, free samples given to related persons will be subject to GST (and then ITC will be available)
- Para A of CBI&C circular No. 92/11/2019-GST dated 7-3-2019.
3.3-4 GST on fringe benefits to employees
Employer and employee have been defined as 'related persons'. Hence, a view is clearly possible that fringe
benefits provided to employees will be subject to GST.
It has been clarified that fringe benefits are in relation to employment and hence outside GST– PIB press release
dated 10-7-2017:09 IST and CBI&C press release No. 73/2017 dated 10-7-2017.
However, in FAQ No. 43 on 'Levy' issued by CBI&C on 28-8-2017, it has been stated that tax is payable on
fringe benefits are supply of goods or services and are liable to tax, if not exempted.
In my view, strictly legally, GST will be payable on fringe benefits supplied to employees even if no recovery is
made.
Even meals supplied in canteen should be subject to GST @ 5% (CGST 2.5% plus SGST/UTGST 2.5%) on
open market value.
In case of canteen in factories employing more than 250 workmen, canteen is a statutory requirement. As per
section 46 of Factories Act, if 250 or more workers are employed, provision of canteen facility is mandatory.
Since this is mandatory, Input Tax Credit of canteen services provided to employees should be available in view
of proviso to section 17(5)(b) of CGST Act. This clause is inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-
2-2019.
In such case, GST should be payable on amount recovered from employees.
If free transport, free car or free telephones (for personal use) is supplied as perquisite, GST should be payable
on basis of open market value. Its input tax credit is not available as actually it is output service of the taxable
person.
Insuring employees/their relatives and recovering part premium from employees is not supply of insurance
service - In Jotun India P Ltd. In re (2019) 76 GST 691 = 110 taxmann.com 184 (AAR-MH), applicant was
taking group insurance policy for parents of employees and was recovering 50% of premium from employees. It
was held that insuring employees/their relatives and recovering part premium from employees is not supply of
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insurance service and is not in course of business of applicant. Hence, no GST is payable on amount recovered
from employees - following decision in Posco India Pune Processing Centre P Ltd. In re (2019) 102
taxmann.com 21 (AAR - MH).
3.3-5 Transaction between principal and agent
Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of
the principal, or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of
the principal, will be subject to GST, even if there is no consideration - clause 3 of Schedule I of CGST Act.
'Agent' means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or
any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods
or services or both on behalf of another - section 2(6) of CGST Act.
'Principal' means a person on whose behalf an agent carries on the business of supply or receipt of goods or
services or both - section 2(88) of CGST Act.
Liability only of C&F Agents, not of commission agents - As per aforesaid clause (a), the agent will be liable
for GST on value goods or services only if he undertakes to supply any goods or services or both on behalf of
any principal (like consignment agent). However, if the agent does not supply goods or services, he is not liable
for GST on value of goods or services. In case of commission agent, he does not undertake supply of goods or
services. He will be liable for GST only on his commission.
Clause (b) will cover cases where agent returns goods to Principal.
Commission Agent is not required to register if his receipts of commission are less than Rs. 20/10 lakhs per
annum - Persons who supply goods or services or both on behalf of other taxable persons whether as an agent or
otherwise require registration under GST even if his turnover is below Rs. 20/10 lakhs per annum- section 24(1)
(vii) of CGST Act.
There was misunderstanding that all commission agents require mandatory registration under GST irrespective
of his commission income (i.e. even if income from commission is below 20/10 lakhs per annum).
Now it has been clarified that such registration is required only by C&F agents who stock and sale goods on
behalf of Principal. Registration is not required by ordinarily commission agents who do not deal in goods or
services themselves, if their annual turnover is less than Rs. 20/10 lakhs - CBI&C Circular No. 57/31/2018-GST
dated 4-9-2018.
In case of commission agent of agricultural produce, the commission agent is not a taxable person and
agriculturist is also not a taxable person. Hence, the commission agent does not require registration under GST.
However, if he is liable to pay GST under reverse charge, he will be liable to be registered under section 24(iii)
of CGST Act - - CBI&C Circular No. 57/31/2018-GST dated 4-9-2018, as amended vide corrigendum dated 5-
11-2018.
Position in respect of del credere agent - Del credere agent is similar to commission agent. The only difference
is that he guarantees payment to supplier of goods or services, if recipient does not pay. In some cases, the del
credere agent himself pays to supplier and then recovers amount from recipient. In some case, the del credere
agent advances short term loan to buyer and then buyer pays to the supplier.
CBI&C, vide circular No. 73/47/2018-GST dated 5-11-2018, has clarified that if del credere agent is like
ordinary commission agent, there is no impact on GST liability.
However, if the del credere agent (DCA) received the goods and then supplies as per para 3 of Schedule I of
CGST Act (i.e. he is C&F Agent), the value of interest will be included in the value of supply of goods by DCA
to the recipient as per section 15(2)(d) of CGST Act. [Note that in this case, there are two separate transactions
and tax invoices. The first transaction is when supplier raises tax invoice on DCA (who is similar to C&F Agent
in this case) and second is when the DCA (who is similar to C&F Agent in this case) issues tax invoice on
buyer].
Supply of goods to Agent for further sale by auction - In Tata Coffee Ltd., In re [2020] 116 taxmann.com 733
(AAAR-KARNATAKA), depots are set up by State Governments in terms of Karnataka Forest Act for purchase
and sale of timber, as timber could only be purchased and sold by State Government. Sale of timber by Depot
was done by way of auction. Sale of timber happened through GTD (Government Timber Depot) and not to
GTD. Proceeds of timber sold through auction process by GTD were given to appellant on completion of auction
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process. It was held that GTD acts in capacity of agent of appellant and this transaction of depositing timber by
appellant in GTD amounts to supply in terms of Schedule I of CGST Act. (Tata Coffee Ltd., In re [2019] 110
taxmann.com 342 (AAR - Karnataka) affirmed).
3.3-6 No tax on free food supplied in religious institutions
There will be no GST on free food supplied in anna kshetras run by religious institutions. Further, prasadam
supplied by religious places like temples, mosques, churches, gurudwaras attracts Nil rate of tax. However, ITC
will not be available - - PIB press release dated 11-7-2017 15:44 IST and CBE&C press release No. 75/2017
dated 11-7-2017.
3.3-7 Donations and grants received are not subject to tax as no consideration
Donations or grants received without any condition are not subject to tax.
Amounts received as charitable donations out of free will and public/Government grants for activities of society
are not related to services provided by Society. These are excludible from taxable value for charging service tax
(as mandap service) - Cultural Society of Angamally v. CCE (2008) 13 STT 227 (CESTAT).
Donations and grants-in-aid received by charitable institution received from different sources for conducting
training courses is not 'consideration received' for coaching service provided - MF(DR) circular No. 127/9/2010-
ST dated 16-8-2010.
However, in Indian Institute of Corporate Affairs In re (2019) 107 taxmann.com 413 (AAR- New Delhi),
amount under Corporate Social Responsibility was paid for a particular purpose of installation of solar pumps,
construction of toilets etc. It was held that this is 'consideration' and GST is payable.
Distinction between sponsorship and donation - In donation or grant, there is no consideration. However, in
sponsorship, consideration is involved as name of sponsor is announced, which is indirect advertisement.
Mere putting name of donor without any reference or mention of business activity is not for advertisement. The
recipient institutions place a name plate only as expression of gratitude and is not aimed at giving publicity to the
donor in such manner as would be an advertising or promotion of business of donor. In that case, there is no
supply of service for a consideration in the form of donation. In that case, there is no GST liability on such
donations received - CBI&C circular No. 116/35/2019-GST dated 11-10-2019.
Thus, if the donor is getting some business advantage by putting his name as donor, that would be
'consideration'. In that case it will be 'sponsorship' and the donor will be liable to pay GST under reverse charge.
If reverse charge is not applicable, the recipient receiving the sponsorship will be liable to pay GST under
forward charges.
3.4 Business
Section 2(17) of CGST Act defines 'Business' as follows—
"Business" includes -
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity,
whether or not it is for a pecuniary benefit.
(b) any activity or transaction in connection with or incidental or ancillary to (a) above.
(c) any activity or transaction in the nature of (a) above, whether or not there is volume, frequency,
continuity or regularity of such transaction.
(d) supply or acquisition of goods including capital goods and services in connection with commencement
or closure of business.
(e) provision by a club, association, society, or any such body (for a subscription or any other
consideration) of the facilities or benefits to its members.
(f) admission, for a consideration, of persons to any premises.
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or
furtherance of his trade, profession or vocation.
(h) activities of a race club including by way of totalisator or a license to book maker or activities of a
licensed book maker in such club [The words in italics substituted vide CGST (Amendment) Act, 2018.
[This amendment is notified and made effective on 1-2-2019]. Till Amendment Act, the words were as
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follows – 'services provided by a race club by way of totalisator or a licence to book maker in such
club. In my view, this is only correcting a drafting mistake. The activities were even otherwise taxable,
as the definition of 'business' is inclusive. Further, 'services' includes anything other than goods as per
section 2(102) of CGST Act.
(i) any activity or transaction undertaken by the Central Government, a State Government or any local
authority in which they are engaged as public authorities.
3.4-1 Broad definition of 'Business'
The definition of 'business' is inclusive definition.
Following points emerge from the definition of 'business' -
Profit motive irrelevant - Profit motive is immaterial.
Occasional transactions are subject to GST - Business normally implies something done on regular basis.
However, since business includes 'Adventure', occasional transactions may also be covered. Adventure implies
some 'speculation'.
Incidental or ancillary activities taxable - Incidental or ancillary business is also covered.
For example, sale of used car, sale of scrap, sale of old machinery, sale of old furniture etc. is subject to GST,
though normally the taxable person may not be in business of selling cars, furniture or machinery.
In Member, Board of Revenue v. Controller of Stores AIR 1989 SC 1468 = (1989) 74 STC 5 (SC), it has been
held that any activity which is incidental or ancillary to the main business also constitutes business and thereby
the person engaged in such business becomes a dealer ('taxable person' under GST Act).
In following cases, transaction was held as incidental to business.
Sale of unserviceable parts by transport undertaking - In State of Orissa v. Orissa Road Transport Co. Ltd. 107
STC 204 = 1997 AIR SCW 3489 = AIR 1997 SC 3409 (SC 3 member bench), it was held that State transport
undertaking is liable to tax on sale of its un-serviceable, old and obsolete parts. - similar view in Controller of
Stores, Northern Railway v. ACTO - AIR 1976 SC 489 = (1976) 37 STC 423 (SC).
Sale of scrap - In State of Tamilnadu v. Burmah Shell Oil Co AIR 1973 SC 1045 = 31 STC 426 (SC), it was held
that sale of scrap as well as sale of advertisement material at cost price was connected with business of assessee
and turnover in respect of these commodities was exigible to tax.
Sale of old machinery and scrap by manufacturer - Sale of old unserviceable machinery and scrap by
manufacturer is incidental to his business - State of Orissa v. Steel Authority of India Ltd. (2011) 44 VST 50 = 7
GST 552 (Ori HC DB).
Sale in store for employees - In State of Tamilnadu v. Binny Ltd. (1982) 49 STC 17 (SC), sale effected in stores
maintained by company as a welfare measure for employees was held as incidental to main business and hence
taxable.
Sale of pledged goods by Banks - Sale of pledged goods by Bank is in the course of banking business - Federal
Bank Ltd. v. State of Kerala (2007) 6 VST 736 (SC).
Sale of old newspaper and waste paper - In Indian Express P Ltd. v. State of Tamilnadu (1987) 67 STC 474
(SC), it was held that sale of old and unsold copies of newspaper by newspaper publisher is 'incidental' to main
business.
In The Hindu v. State of Tamil Nadu (1987) 67 STC 477 (SC), it was held that sale of glazed newsprint (during
the period publication was stopped), old newspapers, print waste and cut waste are sales 'incidental or ancillary'
to the main business of printing and publishing and liable to sales tax.
Sale of spiritual goods, providing accommodation and food by charitable organization is 'business' and hence
taxable - Sale of spiritual goods (like booklets, DVD, MP3), providing accommodation and food by charitable
organization is 'business' and is taxable under GST – Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra,
In re (2018) 69 GST 627 = 97 taxmann.com 20 (AAR). - view confirmed in Shrimad Rajchandra Adhyatmik
Satsang Sadhana Kendra In re [2019] 71 GST 541 = 101 taxmann.com 2 (AAAR).
3.4-2 Government activities subject to GST
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Section 2(17)(i) of CGST Act states that 'business' includes any activity or transaction undertaken by the Central
Government, a State Government or any local authority in which they are engaged as public authorities.
Thus, excluding sovereign activities of State, all activities of Government is 'business'.
However, some of their activities as public authority will be specifically excluded from scope of GST by issuing
notification under section 7(2)(b) of CGST Act on recommendation of GST Council.
Thus, unless specifically excluded by a notification, their activities will be liable to GST.
Sovereign activities not subject to GST - Activities like Dispensing Justice, maintaining armed Forces,
conducting audit by C&AG, elections to Parliament or State Legislatures are 'sovereign activities' as no other
person can do it.
In CCE v. Ankit Consultancy (2007) 8 STT 84 (CESTAT), it was held that preparation of voters list for Chief
Electoral Officer is a sovereign activity of State. It is not a business activity. Hence this activity cannot be
incidental or auxiliary to any 'business activity' - relying on Baktawar Singh Balkrishan v. UOI (1988) 2 SCC
293, where it was held that maintaining armed forces is a part of sovereign activity of State and it cannot be
termed as 'business activity' with an eye on profit.
The decision was followed in CCE v. CS Software Enterprises (2008) 16 STT 187 (CESTAT).
The decision was followed in CCE v. CMC Ltd. (2007) 11 STT 146 = 12 VST 335 (CESTAT) in respect of
activity of preparation of voter's identity card for Election Commission.
[Really, election itself is sovereign activity. Incidental activity like preparing voting list etc. cannot be sovereign
activity].
3.4-3 Main activity should be business
Though definition of 'business' is wide and inclusive, the ancillary activities can get covered under 'business'
only when main activity is 'business'.
In State of Tamilnadu v. Board of Trustees 1999 AIR SCW 1262 = AIR 1999 SC 1647 = (1999) 4 SCC 630 =
114 STC 520, it was held that main activity of port trust is not 'carrying on business of buying, selling, supplying
or distribution of goods'. 'Carrying on business' requires something more than merely selling or buying etc. It
depends on volume, frequency, continuity and regularity of transactions. Even if 'profit motive' is statutorily
excluded from definition of 'business', but still the person may (must ?) be 'carrying on business'. Hence, if main
activity is not 'business', the sales made in connection with or incidental or ancillary to the main activity would
not be business - followed in Vishakhapatnam Port Trust v. CTO (2002) 127 STC 393 (AP HC DB).
In CST v. Sai Publication Fund (2002) 4 SCC 57 = 258 ITR 70 = 122 Taxman 437 = 126 STC 288, a trust set up
to spread message of Saibaba of Shirdi was selling publications for spreading his message. Sale of proceeds went
to trust which can be utilised only for objects of trust. It was held that irrespective of profit motive, trust is not a
'dealer' and main activity of trust to spread message of Saibaba does not amount to business. It was held that only
those persons who 'carry on business of buying and selling goods' are the dealers. The main activity of person
should be 'business' [confirming CST v. Sai Publication Fund (1995) 98 STC 388 (Bom HC)].
In Tirumala Tirupati Devasthanam v. State of Madras (1972) 29 STC 266 (Mad HC), it was held that as the
devasthanam is not indulging in commercial activity, it is not a dealer.
This was followed in Sri Velur Devasthanam Vaitheeswaran Koil Dharmapuram Adhinam v. State of Tamil Nadu
(2012) 53 VST 235 (Mad HC DB). In this case, it was held that sale by Devasthanam of gold bullion offered by
devotees by public auction is not a business or trading activity. The devasthanam is not a dealer.
In Sulabh International Social Service Organisation v. State of Tamilnadu (2012) 53 VST 248 (Mad HC DB), it
was held that a charitable organisation undertaking constructions of latrines is not a 'dealer'.
In Indian Institute of Technology (IIT) v. State of UP (1976) 38 STC 428 (All HC), it was held that IIT is not a
dealer as its principal activity is academic and not commercial.
In Institute of Chartered Accountants of India v. DGIT (2013) 217 Taxman 152 = 35 taxmann.com 140 (Del HC
DB), it was held that dominant objective of ICAI is to regulate Chartered Accountancy profession in India.
Conducting extensive educational programs, conducting coaching classes and campus placements, for fees,
cannot be held as 'business' but only as in aid of its objects. It cannot be said that assessee is involved in carrying
on any business, trade or commerce.
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In DCCT v. South India Textile Research Association (1978) 41 STC 197 (Mad HC DB), it was held that when
an organisation is constituted solely and exclusively for carrying on research, purchase of goods for purpose of
carrying on research and sale of resulting products and waste is not 'business'.
In State of AP v. Sri Bhramaramba (1989) 73 STC 321 (AP HC DB), it was held that if dominant activity of an
institution such as a religious or charitable institution is not a business activity, the secondary activity which has
elements of commerce or trading activity, will be exempt from tax if it is integral part of main activity. In this
case, it was held that (a) sale of food in canteen run by temple was not taxable as it was for supply of foodstuffs
to visiting pilgrims at reasonable prices. It was integral to main activity and is not taxable. (b) Similarly, the
temple was running motor vehicles for transporting pilgrims at reasonable rates. Hence, sale of unserviceable
parts is not taxable as it has character of functional integrity. (c) Sale of human hair offered by pilgrims to the
temple is not a commercial activity.
Sale of publications by University is not business - University is not a dealer. Activity of publishing
brochure/admission forms does not constitute business - Mahatma Gandhi Kashi Vidyapeeth v. State of Uttar
Pradesh (2013) 64 VST 271 (All HC DB).
Principal activity of University is to impart education. Activity of providing meals to students is a minor,
subordinate and insignificant part. It would be unreasonable to lend business colour to the University -
University of Delhi v. Ram Nath AIR 1963 SC 1873.
However, in Manipal University v. State of Karnataka (2014) 45 GST 278 = 45 taxmann.com 6 = 71 VST 442
(Karn HC DB), it was held that sales tax is payable on sale of prospectus and application forms [It was held that
assessee was making huge profit out of this sale and hence is indulging in business] [really arguable case].
Education is not 'business' - Education is not 'business'. Sale of prospectus cannot be subjected to sales tax -
CTO v. Banasthali Vidyapith (2015) 79 VST 282 (Raj HC).
Distribution of food in temple is not business - In Arumigu Dhandayuthapani Swami Thirukkoil v. CTO (1998)
108 STC 114 (Mad HC DB), the appellant (a temple) used to offer 'prasadam' to devotees after 'pooja'. It was
purchasing ingredients for distributing prasad. It was held that the activity of temple is not 'business'. - same
view in Tirumala Tirupati Devasthanam v. State of Madras (1972) 29 STC 266 (Mad HC) * Temple Sri Bankey
Bihari Ji v. CST (1972) 29 STC 685 (All HC).
Providing accommodation to devotees by a trust of temple without profit motive is not 'business'. - Sri Palani
Dhandayuthabani Devasthanam v. CTO (2001) 124 STC 553 (Mad HC DB).
School providing food in hostel to students is not 'dealer' - Principal activity of the school is predominantly
academic or charitable. Main activity is imparting education. It is not 'business' - Scholars Home Senior
Secondary School v. State of Uttarakhand (2011) 42 VST 530 (Uttarakhand HC) - same view in Indian Institute
of Technology, Kanpur v. State of Uttar Pradesh (1976) 38 STC 428 (All HC).
Purchase of food stuff by educational institutions for supply to students in their hostels is not 'business'. It is not
taxable - Gowtham Residential Junior College v. CTO (2009) 19 VST 305 (AP HC DB).
Printing of forms by Government press is not business - Government of India Press printing forms, registers
and other printed matter to various departments of Central Government is not carrying on any trade. Activity is
not commercial and Central Government is not carrying on any business. The Press is not liable to sales tax. -
State of Haryana v. Government of India Photolitho Press (2002) 126 STC 253 (P&H HC DB).
3.5 Deemed supply of goods and services
Section 7(1)(d) of CGST Act states that supply includes activities to be treated as supply of goods or supply of
services referred to in Schedule II to CGST Act.
Thus, these are 'deemed supply of goods' or 'deemed supply of service', subject to GST.
The distinction between goods or service will also be relevant to determine place of supply and time of supply.
3.5-1 Schedule II of CGST Act
Schedule II of CGST Act is as follows. The comments in bracket are my comments on each entry.
Schedule II [section 7] – Activities or Transactions to be treated as supply of goods or supply of services
[The words 'or transactions' inserted with retrospective effect from 1-7-2017 vide CGST (Amendment) Act, 2018]
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1. Transfer
(a) Any transfer of the title in goods is a supply of goods [This covers sale, barter, exchange etc. In fact, it
should cover gift of goods also, as this clause does not talk of consideration].
(b) Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title
thereof, is a supply of services [This covers renting or operating lease of goods. 'Undivided share'
means that exclusive possession is not required to be transferred e.g. renting of one locker by bank,
share taxi].
(c) Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a
future date upon payment of full consideration as agreed, is a supply of goods [This covers financial
lease and hire purchase].
2. Land and Building
(a) Any lease, tenancy, easement, licence to occupy land is a supply of services [The lease of tenancy of land can
be of any period - even 99 or 999 years].
(b) Any lease or letting out of the building including a commercial, industrial or residential complex for business
or commerce, either wholly or partly, is a supply of services [This covers renting or leasing of building. Even
renting of part of residential complex for business or commerce will be subject to GST. Thus, if a residential flat
is given to company as residence of their employees, it can get covered under GST].
3. Treatment or process
Any treatment or process which is being applied to another person's goods is a supply of services [This covers
job work, testing].
4. Transfer of business assets
(a) Where goods forming part of the assets of a business are transferred or disposed of by or under the
directions of the person carrying on the business so as no longer to form part of those assets, (*), such
transfer or disposal is a supply of goods by the person [* - The words were 'whether or not for a
consideration'. These words have been omitted with retrospective effect from 1-7-2017 vide Finance
Act, 2020, though the amendment is not yet notified].
[This clause has to be read with clause I Schedule I. Hence, such transfer will be subject to GST if
Input Tax Credit was availed on such goods. This clause also has to be read with clause 4(c) of
Schedule II. Further, services by way of transfer of a going concern, as a whole or an independent part
thereof is exempt from GST - Notification Nos. 12/2017-CT (Rates) and 9/2017-IT (Rates) both dated
28-6-2017, effective from 1-7-2017. Thus, transfer of entire business as a going concern cannot be
subject to GST].
(b) Where, by or under the direction of a person carrying on a business, goods held or used for the
purposes of the business are put to any private use or are used, or made available to any person for use,
for any purpose other than a purpose of the business, (*), the usage or making available of such goods
is a supply of services [* - The words were 'whether or not for a consideration'. These words have been
omitted with retrospective effect from 1-7-2017 vide Finance Act, 2020].
[This covers use of property of taxable person like motor vehicles, residential premises, guest house,
telephone, laptop etc. for private use of partner/director/executives/employees].
(c) Where any person ceases to be a taxable person, any goods forming part of the assets of any business
carried on by him shall be deemed to be supplied by him in the course or furtherance of his business
immediately before he ceases to be a taxable person, unless— (a) the business is transferred as a going
concern to another person; or (b) the business is carried on by a personal representative who is deemed
to be a taxable person [Transfer of entire business is not subject to GST. Only goods transferred are
subject to tax].
Effect of omission of words 'with or without consideration' in clauses (a) and (b) of para 4 of Schedule II -
Clauses (a) and (b) of Para 4 of Schedule II of CGST Act specifies transactions relating to transfer of business
assets as goods or services. The definition was using the term 'with or without consideration'. These words have
been omitted with retrospective effect from 1-7-2017.
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These words were causing confusion as in some cases, the transaction was not 'supply' as there was no
consideration, but it could be treated as 'supply' in view of the words 'with or without consideration' in para 4 of
Schedule II of CGST Act, though that was not the intention at all.
In my view, these words were redundant and unnecessarily confusing. In my view, by removing these words,
there is no change in present provisions relating to taxability in case of transfer of business assets.
5. Supply of services
The following shall be treated as 'supply of service'
(a) renting of immovable property [Since lease of building and land is already covered in clause 2(a) and
(b) above, this can cover other immovable property like plant and machinery].
(b) construction of a complex, building, civil structure or a part thereof, including a complex or building
intended for sale to a buyer, wholly or partly, except where the entire consideration has been received
after issuance of completion certificate, where required, by the competent authority or after its first
occupation, whichever is earlier.
Explanation.—For the purposes of this clause—(1) the expression "competent authority" means the
Government or any authority authorized to issue completion certificate under any law for the time
being in force and in case of non-requirement of such certificate from such authority, from any of the
following, namely - (i) an architect registered with the Council of Architecture constituted under the
Architects Act, 1972; or (ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or
planning authority (2) the expression "construction" includes additions, alterations, replacements or
remodeling of any existing civil structure.
[This covers sale of flat in a residential complex before it is occupied. Once it is occupied, any sale by
the buyer after that will not attract GST, even if completion certificate is not obtained. However, if
builder himself is selling, he will be exempt from GST only if he sales after completion certificate is
obtained].
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right [This covers
allowing use of trade mark, copyright, design, patents].
(d) development, design, programming, customisation, adaptation, upgradation, enhancement,
implementation of information technology software [This covers development of software but not
software itself in physical form].
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act [this
covers demurrage, LD charges, notice pay, penalty for violation of contract] and
(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash,
deferred payment or other valuable consideration [This is renting, where possession and control of
goods is transferred to recipient]
6. Composite supply
The following shall be treated as a supply of services, namely—
(a) works contract as defined in section 2(119) of CGST Act [The definition covers only immovable
property]
(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or
any other article for human consumption or any drink (other than alcoholic liquor for human
consumption), where such supply or service is for cash, deferred payment or other valuable
consideration [supply of food. The clause does not say 'in restaurant'. Thus, even home delivery of
cooked food will be covered, as it includes service. However, sale of tinned food items is sale of goods
as no 'service' element is involved].
7. Supply of goods
The following shall be treated as supply of goods, namely - supply of goods by any unincorporated association
or body of persons to a member thereof for cash, deferred payment or other valuable consideration [supply of
goods by club to its members. Interestingly, this does not cover supply of services].
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3.6 Activities or transactions which are neither supply of goods nor supply of services
Present service tax law has concept of 'negative list of services'. Similar concept has been introduced in Model
GST Law.
As per Schedule III of CGST Act read with section 7(2)(a) of CGST Act, following matters will not be treated as
supply of goods or services.
Schedule III [Section 7]
Activities or transactions which shall be treated neither as a supply of goods nor a supply of services
1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any Court or Tribunal established under any law for the time being in force. [Explanation - The
term 'Court' includes District Court, High Court and Supreme Court]
3. (a) The functions performed by the Members of Parliament, Members of State Legislature, Members of
Panchayats, Members of Municipalities and Members of other local authorities (b) The duties performed by any
person who holds any post in pursuance of the provisions of the Constitution in that capacity or (c) 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 [true indeed].
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased [small mercy
after death].
5. Sale of land and, subject to para 5(b) of Schedule II, sale of building [para 5(b) covers sale of flat in a complex
after completion or after its first occupation].
6. Actionable claims, other than lottery, betting and gambling.
7. 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.
8. (a) Supply of warehoused goods to any person before clearance for home consumption;
(b) 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;
Explanation 1—For the purposes of paragraph 2, the term 'Court' includes District Court, High Court and
Supreme Court.
Explanation 2.—For the purposes of this paragraph, the expression "warehoused goods" shall have the same
meaning as assigned to it in the Customs Act, 1962.
Paragraphs 7 and 8 and Explanation 2 inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019.
Activities and transactions covered under Schedule III are not 'exempt supply' except covered in paragraph 5
- For purpose of section 17(3) of CGST Act (proportionate reversal of ITC when taxable person is making both
taxable and exempt supply), the expression "value of exempt supply" shall not include the value of activities or
transactions specified in Schedule III of CGST Act, except those specified in paragraph 5 of the said Schedule.
Schedule III of CGST Act specifies transactions or activities which shall be treated neither as supply of goods
nor supply of services.
Paragraph 5 of Schedule III of CGST Act pertains to sale of land or sale of building after completion certificate
is obtained.
For determining the value of an exempt supply as per section 17(3) of CGST Act-- (a) the value of land and
building shall be taken as the same as adopted for the purpose of paying stamp duty, and (b) the value of security
shall be taken as 1% of the sale value of such security – Explanation under Rule 45 of CGST and SGST Rules,
2017.
Services of Court Receiver - Court appoints Receivers to take care of property pending litigation (lis pendente).
In Bai Mamubai Trust v. Suchitra (2019) 109 taxmann.com 300 (Bom HC), it has been held that office of Court
Receiver us an establishment of High Court. The Court receiver implements orders of Court. Hence, it is service
provided by officer of Court. The fees fall under Item 2 of Schedule III of CGST Act and hence is not 'supply' at
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all. However, if the Court Receiver undertakes business activities, he will be liable to pay GST under section 92
of CGST Act. If plaintiff alleges violation of legal rights and seeks damages from a Court to make good the
violation, it is not a supply, as no reciprocal relationship exists. It is wrongful unilateral act which results in
damages. Hence, no GST is payable in such cases.
'Transfer of title in goods' is supply of goods, even if goods (moulds in this case) were out of India - In
Automative Components Technology India (P.) Ltd., In re [2020] 115 taxmann.com 99 (AAR - TAMILNADU),
the foreign supplier of applicant manufactured moulds and used them outside India for manufacture of
components for the applicant. The foreign supplier raised invoice for mould on applicant in India. The goods did
not come to India. Later, applicant raised invoice on Indian buyer for the moulds (which never entered in India).
Title in moulds was transferred from foreign supplier to applicant in India, who, in turn, transferred the title to
Indian buyer. Thus, with regard to the moulds, there were two transactions involved in respect of moulds (which
do not enter India at all) - T1: Transfer of title in moulds from the foreign supplier to the Applicant. T2: Transfer
of title in moulds from the Applicant to the Indian buyer. It was held that there is transfer in title of moulds by
applicant for a consideration and supply is in course of business and, therefore, same constitutes supply of goods
and GST is liable to be paid on such supply.
Interestingly, this is not import of goods, though supplier of goods is out of India. There is no movement of
goods (mould). However, it is still 'transfer of title in goods' and GST is payable. The decision of AAR is in
respect of second transaction i.e. T2. In case of first transaction (T1), since this is not import of goods, issue is
whether applicant in India would be liable under reverse charge. Really, there is no provision of payment of tax
by applicant under reverse charge. Applicant may pay IGST under reverse charge and take its credit, but this is
also litigation prone.
3.6-1 Services by employee to employer not subject to GST
Services by employee to employer are not subject to GST. However, services provided by employer to employee
can be subjected to GST, if these are for personal use of employees.
It has been clarified that fringe benefits are in relation to employment and hence outside GST-PIB press release
dated 10-7-2017 17:09 IST.
Gifts upto Rs 50,000 to employees may be exempted. However, reversal of input tax credit will be required.
In common parlance, gift is without consideration, is voluntary in nature and is made occasionally. It cannot be
demanded as a right by employee and the employee cannot move a Court for obtaining gift - PIB press release
dated 10-7-2017 17:09 IST.
Meaning of 'gift' - Gift is the transfer of certain existing movable or immovable property made voluntarily and
without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf
of the donee - section 122 of Transfer of Property Act.
Test of relation of employer and employee - In employment, there is master servant relation. It is contract of
service and not contract for services.
In Cosmopolitan Hospitals v. Vasantha P NairI (1992) CPJ 302 (NCDRC) had held that medical services are
covered under CPA. The reason is - there is difference between 'contract for service' and 'contract of service'. In
contract of service, the master can order or require what is to be done and how it is to be done. This is a 'contract
of personal service' and hence is out of purview of CPA as the master can always dispense with service of
servant and hence no occasion would arise for him to complain about service of the servant. However, in
'contract for service', the person cannot order what is to be done or how it is to be done e.g. lawyer-client
relationship will fall in this category. Services rendered in professional category would fall in this category, e.g.
when a person gives cloth to a tailor for stitching a suit, the service rendered is in the course of his profession
and not under contract of personal service. Thus, service of doctor is covered under the definition of service, as it
is 'contract for service' and not 'contract of service'.
The distinction between 'contract of service' and 'contract for service' has been fully upheld by Supreme Court in
Indian Medical Association v. V P Shantha (1995) 6 SCC 651 = (1996) 1 Comp LJ 15 = 1995 AIR SCW 4463 =
AIR 1996 SC 550 = (1995) 3 CTJ 969 = 86 Comp Cas 806 (SC 3 member bench). In this case, it was held that
'contract for services' implies a contract whereby one party undertakes to render services e.g. professional or
technical services to or for other in the performance of which he is not subject to detailed direction and control
but exercises professional or technical skill and uses his own knowledge and discretion. However, a 'contract of
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service' implies a relationship of master and servant and involves an obligation to obey orders in the work to be
performed and as to its mode and manner of performance - similar views in Shivnandan Sharma v. Punjab
National Bank Ltd. AIR 1955 SC 404 * Chandi Prasad Singh v. State of Uttar Pradesh AIR 1956 SC 149 *
Dhrangadhra Chemical Works v. State of Saurashtra AIR 1957 SC 264.
In Dhrangadhra Chemical Works v. State of Saurashtra AIR 1957 SC 264, it was observed, 'The principles
according to which the relationship as between employer and employee or master and servant has got to be
determined are well settled. The test which is uniformly applied in order to determine the relationship is the
existence of a right of control in respect of the manner in which the work is to be done. A distinction is also
drawn between a contract for services and a contract of service and the distinction is put in this way - 'In the one
case, the master can order or require what is to be done, while in other case, he cannot only order or require what
is to be done but how itself it shall be done. - - Prima facie test for the determination of the relationship between
master and servant is the existence of the right of master to supervise and control the work done by the servant
not only in the matter of directing what work the servant is to do but also the manner in which he shall do his
work. - - Test of control is not one of universal application. There are many contracts in which the master could
not control the manner in which the work was done'.
In Smt. Savita Garg v. National Heart Institute AIR 2004 SC 5088 = (2004) 8 SCC 56 = 2004 AIR SCW 5820, it
was held that doctors who are staff of hospital are on 'contract of service', while doctors on panel whose services
are requisitioned from time to time by hospital are on 'contract for service'. Hospital is controlling authority of
both - quoted with approval in Balaram Prasad v. Kunal Naha (2014) 1 SCC 384.
In short, in case of contract of service, the employer not only orders/requires what is to be done but also directs
as to how it shall be done, whereas in contract for service, the master can only require as to what is to be done -
Max Mueller Bhavan In re (2004) 138 Taxman 113 (AAR).
3.6-2 Transaction of sale of land and building out of GST
Sale of land and, subject to para 5(b) of Schedule II, sale of building is neither supply of goods nor a supply
service as per para 5 of Schedule III of CGST Act.
Para 5(b) of Schedule II of CGST Act covers supply of building before completion or before occupancy. Thus,
sale of completed building after completion certificate will not be subject to GST.
However, for purpose of section 17(3) of CGST Act (proportionate reversal of ITC when taxable person is
making both taxable and exempt supply), the expression 'value of exempt supply' shall include value of sale of
land and sale of completed building – Explanation to section 17(3) of CGST Act inserted vide CGST
(Amendment) Act, 2018, w.e.f. 1-2-2019.
Long lease of land is practically sale of land - In Lavasa Corporation Ltd. v. Jitendra Jagdish Tulsiani [2018]
96 taxmann.com 212 (Bombay HC), agreement of lease was executed to take apartments on long term lease of
999 years. Almost 80% of the cost was paid and substantial amount of stamp duty and registration charges were
paid. Lease rent was nominal of Rs one per year. It was held that though nomenclature of the document is
'agreement to lease' in its real purpose, it is an 'Agreement to sale'. Law is well settled that the nomenclature of
the document cannot be a true test of its real intent. The document has to be read as a whole to ascertain the
intention of parties. In reality, the transaction is 'agreement of sale'.
This judgment is in respect of RERA, and may not apply to GST. Further, specific provisions have been made in
respect of GST on long lease in case of real estate projects of residential and commercial apartments.
Sale of developed plots by including development cost in sale value of plots - Often a developer purchases land,
converts it into plots, develops it by providing internal roads, water drains, compound walls, health club, and
then sales individual plots. If he charges separately development charges, then obviously GST is payable on
development charges @ 18%. However, if he includes the development cost in value of plots and sales
individual plots by paying stamp duty and registration fee on total value, what would be tax liability?
In PPD Living Spaces P Ltd. In re (2018) 70 GST 579 = 98 taxmann.com 158 (AAR-Kerala), it was held that it
is lawful to structure agreement by fixing land cost after development charges. However, there was some
confusion that if plots are sold after issuance of completion certificate, ITC has to be reverse on pro rata basis.
Really, in case of sale of plots, there is no question of issue of completion certificate.
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In my view, it is possible to sale plot by including development costs and in that case, no GST is payable as it is
composite supply with principal supply of land.
However, in respect of health club, club house and play courts, it would be difficult to say that these are part of
composite supply of plots. Hence, it is advisable to pay GST on this construction at cost plus 10%.
In any case, simple service of development of land belonging to landowners is subject to GST when no sale of
land is involved - MAARQ Spaces P Ltd In re (2019) 111 taxmann.com 368 (AAR-Karn).
3.6-3 Salary to partners not subject to GST
Working partners are entitled to draw salary from the firm. On the basis of provisions of Partnership Act. It is
settled that a partner is not 'employee' of the firm and salary is only share of profit. The issue is whether such
remuneration will be subject to GST.
Luckily it has been clarified vide S Nos. 58 and 71 of Tweet FAQ released by CBE&C on 26-6-2017, that GST is
not payable on salary to partners.
In Anil Kumar Agrawal, In re [2020] 116 taxmann.com 428 (AAR - Karn), it has been held that there is salary
received as partner from firm and share of profit received from partnership is not 'supply' and hence out of GST.
In my view, the answer is correct.
Salary to partner is only share of profit in income tax - In CIT v. R M Chidambaram Pillai (1977) 106 ITR 292
(SC), it was held that a firm is not a 'legal person' though it has some attributes of personality. In income tax law,
a firm is a unit of assessment, by special provisions, but is not a full person. Salary paid to partner is only profit
known by a different name. In strict law, there cannot be a contract of service between a firm and one of its
partners, since contract of employment requires two distinct persons viz. employer and employee. A man cannot
be his own employer.
Thus, salary to partner is only share of profit by different name. It is only supply money and hence not covered
under GST as mere supply of money is neither goods nor services.
Alternate argument that partner is employee due to deeming fiction - Though partnership firm is not 'legal
person', by a legal fiction under GST Law, it has been defined as a 'person', notwithstanding provisions of
Partnership Act.
Thus, once a legal fiction is created by law, it has to be taken to its logical end. Once a deeming provision has
been introduced, it has to be 'deemed' for all purposes for which the fiction was created. Hence, partnership firm
and the partner have to be 'deemed' as two different persons and then a partner will be employee of the
partnership firm. Since service provided by employee to employer is neither supply of goods nor supply of
service as per clause 1 of Schedule III of CGST Act, GST cannot apply.
It may be advisable to have proper agreement with partner for this purpose.
Conclusion - In view of above and in view of departmental clarification, such remuneration to partners is not
taxable under GST.
3.6-4 Activities in relation to functions under Article 243G are neither goods nor services
Activities or transactions undertaken by the Central Government or State Government or Local Authority in
which they are engaged as public authority i.e. services by way of any activity in relation to a function entrusted
to a Panchayat under Article 243G of Constitution of India are neither supply of goods nor supply of services -
Notification No. 14/2017-CT (Rate) dated 28-6-2017.
These are discussed in a separate chapter under 'Government related activities'.
3.6-5 Inter-state movement of modes of conveyance, carrying goods or passengers or for repairs and
maintenance is neither supply of goods nor services
CBE&C circular No. 1/1/2017-IGST dated 7-7-2017 has clarified as follows -
Inter-state movement of various modes of conveyance, carrying goods or passengers or for repairs and
maintenance is neither supply of goods nor supply of service, as per decision of GST Council.
This will cover trains, buses, trucks, tankers, Trailers, Vessels, Containers and Aircrafts.
However, if such movement is for further supply of same conveyance, GST provisions will apply (i.e. car or
truck or vehicle itself is driven to other State for sale in that State).
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However, generation of e-way bill is required, if value exceeds Rs 50,000.

3.6-6 Inter-State movement of rigs, tools and spares, and all goods on wheel like cranes
CBI&C circular No. 21/21/2017-GST dated 22-11-2017 has clarified as follows –
Inter-State movement of rigs, tools and spares and all goods on wheels (like cranes) shall be treated as neither as
'supply of goods' nor supply of services. IGST will not apply. However, if these are repaired, GST will apply on
such repair or maintenance charges.
These instructions apply to tower cranes, rigs, batching plants, concrete pumps and mixers which are not
mounted - para 13 of CBI&C circular No. 80/54/2018-GST dated 31-12-2018.
However, generation of e-way bill is required, if value exceeds Rs 50,000.
3.6-7 Service of grant of licence of alcoholic liquor by State Government is neither goods nor service
service supplied by State Government 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, is neither supply of goods nor supply of
service - Notification No. 24/2019-IT (Rate) and No. 22/2019-CT(Rate) both dated 30-9-2019.
3.7 Services provided by Government or local authority which are not taxable
Any activity or transaction undertaken by Central Government, State Government or Local Authority as public
authority has been specifically included in definition of 'business' under section 2(17)(i) of CGST Act.
However, some of these activities will be specifically excluded from scope of GST by issuing notification under
section 7(2)(b) of CGST Act on recommendation of GST Council.
Activities or transactions undertaken by the Central Government or State Government or Local Authority in
which they are engaged as public authority i.e. services by way of any activity in relation to a function entrusted
to a Panchayat under Article 243G of Constitution of India are neither supply of goods nor supply of services -
Notification No. 14/2017-CT (Rate) dated 28-6-2017.
3.8 Tax liability in case of Mixed supply and composite supply
Often, various supplies are made together e.g. (a) supplier of car arranges for its registration with RTO (b)
supplier of goods or food arranges for its packing, insurance and delivery (c) commercial coaching institute
supplies printed study material, recorded lectures (d) Goods Transport Agency arranges loading, unloading and
storage (e) Tour operator arranges hotel booking, sight seeing, travel arrangement, visa etc. (f) car repairer also
supplying spare parts (g) supplier of machinery also undertaking its erection and commissioning (h) Hotel
providing laundry and intercom services.
In some cases, such combined supply is normal trade practice. This is termed as 'composite supply'. In some
cases, it is not normal trade practice. This is termed as 'mixed supply'. Normally, in case of composite supply,
consolidated bill may be issued, while in case of mixed supply, bill is often split in various separate supplies.
3.8-1 Tax liability in case of composite and mixed supply
The statutory provisions are as follows.
The tax liability on a composite or a mixed supply shall be determined in the following manner — (a) a
composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a
supply of such principal supply (b) a mixed supply comprising two or more supplies shall be treated as supply of
that particular supply which attracts the highest rate of tax - section 8 of CGST Act.
'Principal supply' means the supply of goods or services which constitutes the predominant element of a
composite supply and to which any other supply forming part of that composite supply is ancillary - section
2(90) of CGST Act.
'Composite supply' means a supply made by a taxable person to a recipient comprising of two or more taxable
supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in
conjunction with each other in the ordinary course of business, one of which is a principal supply.
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials,
transport and insurance is a composite supply and supply of goods is a principal supply - section 2(30) of CGST
Act.
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'Mixed supply' means two or more individual supplies of goods or services, or any combination thereof, made in
conjunction with each other by a taxable person for a single price where such supply does not constitute a
composite supply.
Illustration: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated
drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied
separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately
- section 2(74) of CGST Act.
Comment on illustration given in mixed supply - The illustration given in case of 'mixed supply' is not fully
correct, as really, during Diwali, it is indeed trade practice to supply these items together as part of season's gift.
Retreading of tyres is service but supply of retreaded tyre is goods - As per MF(DR)(TRU) circular No.
34/8/2018-GST dated 1-3-2018, retreading of tyres is a composite supply and pre-dominant element is process of
retreading which is a service. However, if the old tyre belongs to supplier of retarder tyres (i.e. he sales retreaded
tyre on his own account), it is supply of goods under heading 4012 and chargeable @ 28%.
Bus body building - Whether it is supply of goods or services depends on which supply is the principal supply,
based on facts and circumstances of the case - MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-3-2018.
The activity of fabrication and fitting and mounting of bus bodies on the chassis supplied by the other party is a
composite supply with supply of goods, i.e., bus-bodies, being principal supply and same is covered under HSN
code 8707 - Paras Motor Industries, In re [2018] 95 taxmann.com 218 (AAR- Haryana).
Activity of Body building of buses undertaken by applicant carried out on chassis supplied by principal in
capacity of a job worker would amount to 'Composite Supply'. Rate of tax on such 'Composite Supply' would be
determined by predominant component involved in such 'Composite Supply' depending upon character of body
being built on chassis, which would eventually be classifiable under Chapter 87 of Tariff. On the other hand if
predominant element happens to be Service Part, then Principal Supply would be classified under heading No.
9988 - Arpijay Fabricators (P.) Ltd., In re [2018] 96 taxmann.com 44 (AAR-Madhya Pradesh)
Supply, erection and assembly of air conditioning plant is composite supply - In Nikhil Comforts In re (2019)
75 GST 305 = 107 taxmann.com 233 (AAR-Maharashtra), it has been held that supply, erection, installation and
assembly of air conditioning plant is a composite supply liable to tax @ 28% (as applicable to air conditioner), as
principal supply is air conditioner. It is not 'works contract' service and hence not eligible for 18% GST.
Supply and installation of pumps is composite contract, it is supply of goods - In United Engineering Works In
re (2019) 75 GST 756 = 108 taxmann.com 104 (AAR-Karnataka), it was held that supply of submersible pump
sets and installation, electrification and energisation of same to Government bodies is composite supply.
Principal supply is supply of goods. It is not a works contract as not related to immovable property and is not a
works contract [There can be two views on this issue].
Servicing of vehicles which covers both goods and services - In case of servicing of vehicles which covers both
goods and services, if value of goods and services is shown separately, the goods and services shall be liable to
tax at the rates applicable to such goods and services separately. Servicing of vehicles which covers both goods
and services.
In other words, supply of goods and services will be treated as two different supplies - neither mixed supply nor
composite supply.
Priority Sector Lending Certificates (PSLC) - Priority Sector Lending Certificates (PSLCs) are tradable
certificates issued against priority sector loans of banks so as to enable banks to achieve their specified target and
sub-targets for priority sector lending through purchase of these instruments in the event of a shortfall and at the
same time incentivizing the surplus banks to lend more to these sectors. Priority Sector Lending Certificates
(PSLC) are tradable like duty credit scrips and are 'goods' - MF(DR)(TRU) circular No. 34/8/2018-GST dated 1-
3-2018.
Other services supplied by DISCOMS against charge are taxable under GST - Service of transmission or
distribution of electricity by DISCOMS is exempt from tax. DISCOMS provide other services for which they
charge separately e.g. i. Application fee for releasing connection of electricity; ii. Rental Charges against
metering equipment; iii. Testing fee for meters/transformers, capacitors etc.; iv. Labour charges from customers
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for shifting of meters or shifting of service lines v. charges for duplicate bill. These are subject to tax - MF(DR)
(TRU) circular No. 34/8/2018-GST dated 1-3-2018.
[In other words, as per the circular, it is a mixed supply and not composite supply. The issue is surely arguable as
really it is a composite supply though charged separately].
3.8-2 Distinction between 'composite supply' and 'mixed supply'
A composite supply is 'naturally bundled' while 'mixed supply' is not naturally bundled in ordinary course of
business.
A supply can be 'mixed supply' only if it is for a single price, while a supply can be 'composite supply' even if
separate prices are charged.
Trade practice is also relevant. A vehicle repair shop also supplies spare parts. However, the long trade practice
is to treat these two supplies separately. Hence, such activity is not 'composite supply'. It is also not 'mixed
supply' as single price is not charged.
3.8-3 Meaning of 'naturally bundled'
The definition of 'composite supply' uses the words 'naturally bundled'. This is not defined in GST Act but was
used in Finance Act, 1994 (relating to service tax). Hence, clarifications given under those provisions are
relevant.
The principle was nicely explained in Para 9.2.4 of CBI&C's 'Taxation of Services : An Education Guide'
published on 20-6-2012, as follows -
Whether services are bundled in the ordinary course of business would depend upon the normal or frequent
practices followed in the area of business to which services relate. Such normal and frequent practices adopted in
a business can be ascertained from several indicators few of which are listed below -
♦ The perception of the consumer or the service receiver. If large number of service receivers of such
bundle of services reasonably expect such services to be provided as a package then such a package
could be treated as naturally bundled in the ordinary course of business.
♦ Majority of service providers in a particular area of business provide similar bundle of services. For
example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.
♦ The nature of the various services in a bundle of services will also help in determining whether the
services are bundled in the ordinary course of business. If the nature of services is such that one of the
services is the main service and the other services combined with such service are in the nature of
incidental or ancillary services which help in better enjoyment of a main service. For example service
of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per
day. Such service is an ancillary service to the provision of hotel accommodation and the resultant
package would be treated as services naturally bundled in the ordinary course of business.
♦ Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course
of business are - (a) There is a single price or the customer pays the same amount, no matter how much
of the package they actually receive or use (b) The elements are normally advertised as a package (c)
The different elements are not available separately (d) The different elements are integral to one overall
supply - if one or more is removed, the nature of supply would be affected.
No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary
course of business. Each case has to be individually examined in the backdrop of several factors some of which
are outlined above.
3.8-4 Illustrations of naturally bundled service
An airline provides movie or catering on board. A service provider of pandal and shamiana may also offer to
provide catering service. A job worker may also agree to provide delivery of goods after job work.
A CA may offer income tax consultancy in addition to auditing services.
A contractor may offer services right from design, getting necessary approvals, actual construction, finishing,
arranging electrical and water connections and getting completion certificate of a building.
A 'turnkey project' is another example of bundled service.
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In such cases, the service is required to be classified as per essential character.

A Goods Transport Agency (GTA) provides composite services which may include ancillary services like
loading/unloading, packing/unpacking, transhipment, temporary storage during transit etc. All such ancillary
services will form part of GTA service and would be eligible for abatement available to GTA service - MF(DR)
circular No. 186/5/2015-ST dated 5-10-2015.
In Dalveer Singh v. CCE (2008) 12 STT 226 (CESTAT SMB), appellant was providing service of transporting
goods from railway wagons to company's warehouse. It included loading/unloading of goods. It was held that
loading/unloading is incidental to transport of goods and the service is not 'cargo handling service'.
In CCE v. Maa Sharda Transport (2013) 42 GST 282 = 33 taxmann.com 18 (CESTAT). Assessee was engaged
in filling of ash into bunkers, in addition to transport activity. It was held that this activity is incidental to
transportation of goods and was not taxable under cargo handling service.
In Suzlon Infrastructure v. CCE (2012) 283 ELT 49 (CESTAT), assessee had received a composite contract for
erection and commissioning. Assessee raised four separate invoices for construction of civil work, supply and
installation of transmission line, erection and commissioning of windmill and final testing. It charged service tax
only on one invoice of erection and commissioning. It was held that it was a composite service and entire service
is to be held as erection and commissioning service only (decision not relating to bundled service but principle
applicable here).
Cold storage charges are inseparable part of C&F Agent's service and includible in taxable value of services -
Monsanto Manufacturers P Ltd. v. CCE (2013) 65 VST 58 (CESTAT).
Erection, commissioning, installation and testing of electricity meters at the premises of electricity consumers is
service relating to transmission and distribution of electricity (and hence exempt) - Paschimanchal Vdyut Vitran
Nigam v. CCE (2012) 36 STT 636 = 24 taxmann.com 169 (CESTAT).
In Card Protection Plan Ltd. v. CCE (2012) 36 STT 107 = 22 taxmann.com 176 (ECJ), appellant was providing
insurance scheme of 'protection and recovery' plan in case of loss of credit card, car keys, passports, share
certificates etc. In addition to insurance, other facilitation services like card registration service, emergency
airline ticket, assisting in informing police, lost key location were provided. It was held that insurance and other
facilitation services would constitute a single indivisible economic transaction for levy of tax. It cannot be split
artificially.
Supply of software, its customisation and training are closely linked and they constitute a single indivisible
economic transaction, even if separate prices were given. Predominant element was customisation as it would
make software useful to consumer and its price was also higher. Hence whole contract constituted a single supply
of service - Levob Verzekeringen BV and OV Bank NV v. Secretary of State for Finance, Netherlands (2012) 36
STT 135 = 23 taxmann.com 174 (ECJ).
If two or more elements are so closely linked that they form a single indivisible economic supply, which can be
split only artificially, all those elements constitute a 'single supply' - Aktiebolaget NN v. Skatteverket (2012) 36
STT 264 = 22 taxmann.com 175 (ECJ) * Don Bosco Onroerend Goed BV v. Secretary of State for Finances
(2012) 36 STT 284 = 22 taxmann.com 179 (ECJ).
Telecom service and separate handling charge for handling of payment of mobile bills is a 'single supply'
(naturally bundled service). The charges for handling payment of bills is not a separate service, even if separate
price charged - Everything Everywhere Ltd., formerly T-Mobile (UK) Ltd. v. Commissioners for Her Majesty's
Revenue and Customs (2012) 37 STT 763 = 28 taxmann.com 138 (ECJ)
Renting of immovable property and cleaning service of common parts are separate transactions. These are not
naturally bundled services, as cleaning services are separately available from third parties - RLRE Tellmer
Property sro v. Tax Department of Usti nad Labem (2012) 36 STT 257 = 23 taxmann.com 244 (ECJ) [The
principle of this decision would apply in India. However, the actual decision may not apply as in India, generally
such services are not separately or so easily available].
Transport of goods plus cash collection as composite service - In NV Nederlandse Spoorwegen v.
Staatssecretaris van Financien (2013) 38 STT 541 (ECJ), assessee was carrier, engaged in transport of goods on
a cash-on-delivery system (like VPP in India). It was held that service of cash collection is only ancillary to
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service of transport of goods. These two services are not separable. Hence, it is eligible for exemption/abatement
as applicable to transport of goods.
Door delivery of cargo by airlines - In Jet Airways v. CST (2008) 15 STT 1 = 33 VST 501 (CESTAT), assessee
was transporting goods by air. He was getting the cargo collected at source/delivered at destination from its cargo
agents, which incidental to transportation of goods by air. It was held that this is not 'cargo handling service' (as
essential character of service is transport of goods by air).
Charges of PLC, EDC , parking space charges etc. are part of 'construction service' - A builder/contractor
charges separately for Preferential Location Charges (PLC), additional charges for modifications suggested by
customers, maintenance during construction period, covered parking charges, EDC (External Development
Charges), IDC (Internal Development Charges) etc. In my view, all these are 'naturally bundled services'. These
should get covered under 'construction of complex' and be eligible for abatement in valuation. However, club
membership fee cannot be part of construction service and should not get covered under 'naturally bundled
service'. Similarly, maintenance service provided after construction is over is not part of 'construction service'
and should not be eligible for abatement.
However, in Bengal Peerless Housing Development Company Ltd., In re [2019] 110 taxmann.com 34 (AAAR-
WB), it has been held that PLC is a separate service charged separately at the option of customer. It is not part of
value of construction service and no abatement is available in respect of PLC amount charged [In other words, it
is not composite supply]. The decision in Bengal Peerless Housing Development Co. Ltd. In re [2019] 105
taxmann.com 58 (AAR-West Bengal) has been reversed, where, it was held that service of construction of a
dwelling unit in a residential complex, bundled with services relating to the preferential location of the unit and
right to use car parking space and common areas and facilities, is a composite supply, construction service being
the principle supply. Entire value of the composite supply is, therefore, to be treated, for the purpose of taxation,
as supply of construction service.
Electricity and water charges collected from tenant on actual basis is part of composite supply of renting or
immovable property - In E-Square Leisure (P) Ltd. In re (2019) 104 taxmann.com 121 (AAR - Maharashtra), it
has been held that GST is payable on electricity and water charges collected from tenant on actual basis. The
amount collected is not as 'pure agent'. Renting is main supply and supply of electricity, water, fuel are in nature
of ancillary supply. All these are inter-dependent. It is a 'composite supply' [In my view, if rent agreement clearly
states that renting is of immovable property only and electricity and water charges is responsibility of tenant, it
can be argued that electricity and water charges are not part of renting service].
Boarding schools - Boarding schools provide service of education coupled with other services like providing
dwelling units for residence and food. This may be a case of bundled services if the charges for education and
lodging and boarding are inseparable. Their taxability will be determined in terms of the principles laid down in
section 66F of the Act. Such services in the case of boarding schools are bundled in the ordinary course of
business. Therefore the bundle of services will be treated as consisting entirely of such service which determines
the dominant nature of such a bundle. In this case since dominant nature is determined by the service of
education, the entire bundle would be treated as educational service - Para 4.12.4 of CBI&C's Taxation of
Services : An Education Guide' published on 20-6-2012.
Freight forwarder - Freight forwarder is a classic example of naturally bundled service, where the service starts
with taking delivery of goods from place of seller, packing, loading, transporting, clearing at State borders or
customs (as applicable), unloading at other side, transporting to destination and giving delivery to the customer
at other end. In my view, essential character of service is transport of goods and should fall under that
description.
This view has been confirmed in Para 5.9.5 of CBI&C's 'Taxation of Services : An Education Guide' published
on 20-6-2012.
In APL Logistics (India) v. CCE (2015) 50 GST 531 = 55 taxmann.com 364 (CESTAT), assessee was providing
logistics support service to exporters/importers. Ocean freight was shown separately in invoice, which was paid
by assessee to shipping lines. It was held that service tax is not payable on ocean freight.
Service tax on freight forwarder on transportation of goods from India - If freight forwarder acts as mere agent
of shipping lines/carrier/ocean liner, he only charges outward freight on transportation of goods from India. In
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such case, he is merely acting as intermediary. He will be liable to pay service tax on his commission and not the
outward freight.
If he is acting as Principal, he bears all legal responsibility and risks. In such case, he is not liable to pay service
tax when destination of goods is outside India - CBI&C circular No. 197/7/2016-ST dated 12-6-2016.
3.8-5 Illustrations of composite supply of goods
In case of supply of goods also, there can be composite supply or mixed supply.
As per Rule 3(b) of General Interpretative Rules [GIR] for classification of goods, in case of composite goods, if
these cannot be classified on basis of specific description, these should be classified as if they consisted of the
material or component which gives it their essential character.
For example, if a set consists of drawing instruments (90.17), pencil (96.09) and pencil sharpener (82.14), put up
in a leather case (4201.90); the set will be classifiable under 90.17 i.e. drawing instrument.
Supply of mobile with charger - Supply of mobile with charger is a composite supply as there is no intention to
effect separate sale of charger - Samsung (India) v. CCT (2018) 66 GST 1 = 90 taxmann.com 92 (All HC DB).
No doubt this is the correct decision.
In State of Punjab v. Nokia India P Ltd. (2015) 49 GST 277 = 52 taxmann.com 410 = 315 ELT 162 = 77 VST
427 (SC), cell phone was sold along with battery charger as a package. It was held that battery charger is an
accessory. It is not part of cell phone as it is not required at the time of operation of cell phone. Hence, mere
making composite package of cell phone and battery charger could not make it composite goods. Hence, Vat on
battery charger has to be on the basis that it is accessory and not composite article [In this case, billing was
composite. Even then it was held that battery charger is to be treated separately].
This judgment was indeed noted by Allahabad High Court, but was distinguished giving various reasons.
[In my view, apart from the reasons given, the most appropriate reason is that there is specific definition of
'composite supply' in GST Law and no concept of 'accessory' in GST Law].
Supply of goods with transportation, loading/unloading - In IAC Electricals P Ltd. In re [2018] 68 GST 392 =
93 taxmann.com 476 (AAR –WB), the taxable person had entered into two separate contracts – one for supply of
materials at ex-factory price and other for transportation, transit insurance, loading/unloading of goods. It was
held that the contracts are not independent [This was clear from terms of contract also]. It was held that this is a
composite contract.
Supply of desktop computer with CPU, Monitor, keyboard and mouse is single supply - Supply of desktop
computer with CPU, Monitor, keyboard and mouse with one single price is single supply. It is classifiable under
heading 8471 - HP India Sales P Ltd. In re (2019) 110 taxmann.com 86 (AAR-TN).
Electricity and water charges collected from tenant on actual basis is part of composite supply of renting or
immovable property - In E-Square Leisure P Ltd. In re (2019) 104 taxmann.com 121 (AAR - Maharashtra), it
has been held that GST is payable on electricity and water charges collected from tenant on actual basis. The
amount collected is not as 'pure agent'. Renting is main supply and supply of electricity, water, fuel are in nature
of ancillary supply. All these are inter-dependent. It is a 'composite supply' [In my view, if rent agreement clearly
states that renting is of immovable property only and electricity and water charges is responsibility of tenant, it
can be argued that electricity and water charges are not part of renting service].
Work of blasting is composite supply of goods and services - In Khedut Hat In re (2018) 70 GST 779 = 98
taxmann.com 136 (AAR-Gujarat), applicant was engaged in blasting activity. The explosives were consumed
during blasting and property in the explosives was never transferred to customer. Even then, it was held that this
is deemed supply of explosives. It is composite supply as defined under section 2(30) of CGST Act and tax rate
will be on basis of principal supply as per section 8(a) of CGST Act.
Maintenance Contract where some lubricants or oil is used is a composite contract of supply of goods and
services? - In Khilari Infrastructure P Ltd. In re (2018) 69 GST 693 = 97 taxmann.com 122 (AAR-Maharashtra),
it was held that maintenance Contract where some lubricants or oil is used (cost 2% to 5% of total contract) is a
composite contract of supply of goods and services seems doubtful since properly of lubricants and oil is never
transferred to customer. In fact, the AAR, in its order itself, has sought guidance of GST Council of this issue.
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Supply of medicines and food with healthcare services - Supply of medicines and food along with and part of
healthcare services is a composite supply. It is exempt. However, if food or medicines are supplied separately on
optional basis, it is not a composite supply - Columbia Asia Hospitals (P.) Ltd.,In re [2018] 100 taxmann.com
212 (AAR - KARNATAKA) - same view in KIMS Health Care Management Ltd.,In re [2018] 70 GST 735 = 99
taxmann.com 37 (AAR - Kerala) * Ernakulam Medical Services P Ltd. In re (2018) 70 GST 617 = 98
taxmann.com 161 (AAR-Kerala) * Rajagiri Health Care & Education Trust,In re [2018] 99 taxmann.com 36 =
71 GST 19 (AAR - Kerala). * Kindorama Healthcare In re (2019) 105 taxmann.com 224 (AAR – Kerala) *
Terna Public Charitable Trust.,In re [2019] 107 taxmann.com 356 (AAR - Maharashtra).
Food supplies to patients as part of health care service is composite supply and not separately taxable - FAQ on
GST Chapter 4 Q No. 28 issued by CBI&C on 15-12-2018.
Supply of medicines, consumables and in-plants during providing health care services - Supply of medicines,
consumables and in-plants during providing health care services supplied to in-patients for diagnosis or
treatment by hospital are naturally bundled and are exempt under 'health care service' - KIMS Health Care
Management Ltd. In re (2018) 70 GST 735 = 99 taxmann.com 37 (AAR-Kerala) * Starcare Hospital Kozhikode
(P.)Ltd., In re [2019] 105 taxmann.com 225 (AAR - Kerala) * Kindorama Healthcare (P.)Ltd., In re [2019] 105
taxmann.com 224 (AAR - Kerala) * CMC Vellore Association In re (2020) 113 taxmann.com 55 (AAR-TN).
Marine Consultancy Service and support service is composite supply - In Five Star Shipping,In re [2018] 98
taxmann.com 435 (AAAR-MAHARASHTRA), appellant was providing Marine Consultancy Service to foreign
ship-owners (FSO) in respect of opportunities of maritime operation business and support service in respect of
maritime transport of foreign ship owners (which was in nature of intermediary service). It was held that the
entire gamut of services performed by the Appellant is composite supply of the intermediary services, classified
under the Service Accounting Code 999799, and other miscellaneous services with SAC 998222 (accounting
services), of which the intermediary service is the principal supply. Earlier, in Five Star Shipping In re (2018) 69
GST 17 = 95 taxmann.com 2 (AAR-Maharashtra), it was held that this is 'mixed supply'. (It is not clear why
consultancy service has been held as accounting service.)
Supply of free medical instrument with obligation to purchase minimum quantity of goods - In Abbott
Healthcare (P.) Ltd.,In re [2018] 98 taxmann.com 156 (AAR- Kerala), the appellant was supplying specified
medical instruments to hospitals, labs, etc. for use without consideration against an agreement containing
minimum purchase obligation of products like reagents, calibrators, disposals etc., for a specific period. It was
held that this constitutes composite supply. This is 'naturally bundled' as supply of goods has no independent
existence severed from supply of right to use machine/instrument and becomes a 'composite supply', whereby
supply of instrument is 'principal supply'. Thus, entire transaction is liable to GST under Sr. No. 17(iii) - Heading
9973 as 'transfer of right to use of any goods for any purpose' (whether or not for a specified period) for cash,
deferred payment or other consideration - view confirmed in Abbott Healthcare (P.) Ltd., In re [2019] 72 GST
705 = 103 taxmann.com 159 (AAAR-Kerala).
However, this view has not been accepted in Abbott Healthcare (P.) Ltd, v. CST (2020) 113 taxmann.com 181
(Ker HC) and the matter has been remitted back to AAR for fresh consideration.
Comprehensive maintenance agreement - In Sandvik Asia (P.) Ltd., In re [2018] 71 GST 174 = 100
taxmann.com 14 (AAR- Rajasthan), it has been held that in composite supply of comprehensive maintenance
contract, supply of maintenance services is to be considered as principal supply and supply of other goods or
services shall be ancillary to such principal supply. Maintenance and repair services of commercial and industrial
machinery fall under heading 9987171 and prescribed rate of GST is 18 per cent (CGST at rate of 9 per cent of
taxable value, SGST at rate of 9 per cent of taxable value) or IGST at rate of 18 per cent of taxable value. This
decision has been reversed in Sandvik Asia (P.) Ltd., In re [2019] 104 taxmann.com 424 (AAAR- Rajasthan) and
it was held that it is mixed supply (as there were two separate agreements) [In my view, decision of AAR is still
valid if it is single comprehensive maintenance contract].
After sale service with spare parts, batteries etc. - In Cummins India Ltd. In re (2019) 72 GST 734 = 103
taxmann.com 124 (AAR-Maharashtra), applicant was providing after sales service to customers, which included
supply of spare parts, maintenance services, rebuilding of engine and batteries, for a single price. It was held that
principal supply is one of supply of service. Supply of goods is incidental to supply of service.
3.8-6 Illustrations of mixed supply
23/24
Contract for supply of spares and supply of repairs and maintenance services - Where supply of spare
parts/accessories and repair services are distinct and separately identifiable, these cannot be considered as
composite supply. Separate rates as applicable to spare parts and repair services will apply - Vista Marine and
Hydraulics In re (2020) 77 GST 349 = 110 taxmann.com 498 (AAR-Kerala).
Earlier, in Sandvik Asia (P.) Ltd., In re [2018] 71 GST 174 = 100 taxmann.com 14 (AAR- Rajasthan), it was held
that in composite supply of comprehensive maintenance contract, supply of maintenance services is to be
considered as principal supply and supply of other goods or services shall be ancillary to such principal supply.
Maintenance and repair services of commercial and industrial machinery fall under heading 9987171 and
prescribed rate of GST is 18 per cent (CGST at rate of 9 per cent of taxable value, SGST at rate of 9 per cent of
taxable value) or IGST at rate of 18 per cent of taxable value.
UPS (Uninterrupted Power Supply) with battery - In Switching Avo Electro Power Ltd., In re [2018] 96
taxmann.com 106 = 69 GST 414 (AAAR-West Bengal), it was held that when a UPS is supplied with built-in
batteries so that supply of battery is inseparable from supply of UPS, it should be treated as a composite supply.
However, storage battery has multiple uses and can be put to different uses. When battery is supplied separately
with static converter (UPS) it cannot be considered as a composite supply or a naturally bundled supply (i.e. it
will be treated as mixed supply).
[Earlier, in Switching Avo Electro Power Ltd., In re [2018] 92 taxmann.com 223 = 67 GST 449 (AAR-West
Bengal), it was held that where UPS and battery are supplied as separate goods, but a single price is charged for
combination of goods supplied as single contract, supply of UPS and battery is to be considered as mixed supply,
as they are supplied under a single contract at a combined single price. This order was modified in appeal as
stated above].
Separate charges for different supplies means it is not 'mixed supply' - If separate amounts are charged for
different supplies (like accommodation, food, guides, trekking etc.), the goods and services will be liable to tax
at rates as applicable to such goods and services separately - Kerala Forest Development Corpn Ltd. In re (2019)
74 GST 123 = 104 taxmann.com 42 (AAR- Kerala) [In my view correct, since if separate charges are made, it is
not 'mixed supply'].
24/24

Taxable Event in GST 3.1 Meaning of Taxable Event

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Taxable Event in GST 3.1 Meaning of Taxable Event

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3/2/2021 www.taxmann.

3 : Taxable event in GST

Taxable event in GST

However, generation of e-way bill is required, if value exceeds Rs 50,000.

In such cases, the service is required to be classified as per essential character.

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