GST INDIA DAILY

SCOPE OF SUPPLY SERIES – PART 11

Last week we have gone-through the several topic SCHEDULE II services under GST. Read Part 10 of Scope of Supply under GST, in the following link:

https://wordpress.com/read/blogs/170704436/posts/739

In this article we shall see the following entries which are to be treated as supply of service in detail:

1. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

1. 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

1. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act:

 Under this scope, following activities are included:

• Demurrage charges for not clearing goods within prescribed period.
• Cancellation charges charged by Hotel and airlines.
• Liquidated damages recovered by Builders and Contractors.
• Non-Compete fees payable for agreeing not to compete for particular period.
• Forfeiture of deposit or advance as penalty ( Like quality, late delivery, violation of any terms of contract)
• Penalty for breach of contract.

For example Refundable security deposit is not taxable, however if deposit is forfeited then it would be taxable.

Non-competent fee under Income tax act has been specifically included as business income. The same is also liable to GST.

If an employee leave job without giving required notice, Notice pay is recovered from employee. On such amount GST has to be charged and paid by the employer. This is actually supply of services of tolerating an act or a situation provided by employer to employee.

• 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

Transfer of Right to use goods for cash, deferred payment or valuable consideration is considered supply of services under Schedule II.

There are two case laws involved under this entry

1. M/s. Abbott Healthcare Pvt. Ltd. (GST AAR Kerala)

The issue involved in this case is whether the placement of specified medical instruments to un-related customers like hospitals, labs etc, for their use without any consideration, for a specific period constitute supply.

The Hon’ble AAR of Kerala vides Advance Ruling Order No. KER/ 15 /2018 dated September 26, 2018 stated that the supply of instrument and reagent is naturally bundled and becomes a composite supply. As supply of instrument is a onetime activity and supply of reagent is a continuous activity, till the termination of the agreement. This transaction being a composite supply, the applicable tax rate is the tax rate of instrument, which is the principal supply.

The placement of specified medical instruments to unrelated customers like hospitals, labs etc, for their use without any consideration, against an agreement containing minimum purchase obligation of products like reagents, calibrators, disposals etc for a specific period constitute composite supply.

1. M/S Ishan resins & Paints Limited (GST ARR WEST BENGAL)

The Applicant intends to lease trucks or tankers without operator to goods transport agencies (hereinafter called “GTA”) or any other persons. The Applicant seeks a ruling whether supply of services by way of leasing of goods transport vehicles without operators to GTA would be exempt 

The Applicant intends to lease out vehicles like trucks, tankers etc. that are designed to transport goods. The control and possession of the vehicle will be transferred to the lessee, who will engage operator and bear the cost of repair, insurance etc. It is, therefore, not classifiable under SAC 9966, which is restricted to rental services of transport vehicles with operator

The service is classifiable under SAC 997311 as leasing or rental services concerning transport equipment without operator. It amounts to the transfer of the right to use the goods

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MANIMARAN KATHIRESAN ( ON BEHALF OF GST INDIA DAILY TEAM)