In the earlier part of this module, you have understood the two major components of the definition of supply. That is, all forms of supply of goods or services for a consideration, provided they are in the course or furtherance of business and import of services, whether or not in the course of furtherance of business. In this lesson, we will look at the specific inclusions to the definition of supply that are prescribed as per Schedule I of the Central Goods and Services Tax Act 2017, which can be referred to as the CGST Act. Section 7(1)(c) of the CGST Act states that activities specified in Schedule I shall be treated as supply even when made or agreed to be made without a consideration. What are the activities listed in this schedule? Let us find out. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. Supply between related persons or distinct persons made in the course or furtherance of business. You may note that gifts by an employer to an employee below 50,000 Indian rupees will not qualify as a supply. Supply of goods by a principal to his agent or by an agent to his principal. Import of services by a person from a related person or from any of their other establishments outside India in the course or furtherance of business. We will now delve deeper into each of these points. Permanent transfer or disposal of business assets. Any kind of disposal or transfer of business assets made by an entity on a permanent basis, even without a consideration, qualifies as a supply. However, it is important to note that this provision would apply only if input tax credit has been availed on such assets. Therefore, in order to qualify as a disposal or transfer of business assets on a permanent basis, some conditions need to be satisfied. There must be a disposal or transfer of business assets, the transfer or disposal must be permanent, and input tax credit must have been availed on such business assets. In view of the last condition stipulated, permanent transfer or disposal of business assets without a consideration will not be covered and thus will not be deemed as a supply when input tax credit is blocked or is not available on such business assets, or input tax credit is available on such business assets but has not been availed by the registered person. You may note that the term business assets has not been defined under the GST law. However, in common parlance, it may include the inputs and capital goods that are used in the course or furtherance of business. For instance, Mr. John gives all laptops being used in his business free of cost to his friend. This will qualify as a supply if input tax credit was availed by Mr. John on such laptops. In another instance, assume that a dealer of air conditioners permanently transfers his motor vehicle to his friend free of cost. Input tax credit on motor vehicles is blocked as per Section 17 subsection 5 of the CGST Act. Therefore, it has not been availed. The transaction will not constitute a supply as the condition of availment of input tax credit on the transfer of business asset is not fulfilled. This clause is wide enough to cover permanent transfer of business assets from the holding to the subsidiary company without any consideration. Moving on to the next para, supply of goods or services between related persons or between distinct persons without any consideration will qualify as supply, provided it is made in the course or furtherance of business. Let us understand the meaning of the terms related persons and distinct persons. Related persons- When a person is under influence of another person, they are called related persons, like members of the same family or subsidiaries of a group company. Under GST law, various categories of related persons have been specified. The term related persons is defined in the explanation to Section 15 of the CGST Act. As per this section, persons shall be deemed to be related if such persons are officers/ directors of one another's businesses. Such persons are legally recognized partners in business. Such persons are employer and employee. A third person directly or indirectly controls, owns, or holds 25 percent or more of the voting stock/ shares of both of them. One of them directly/ indirectly controls the other. A third person directly/ indirectly controls both of them. Such persons together directly/ indirectly control a third person. They are members of the same family. Persons will also be deemed to be related when one of them is the sole agent, sole distributor/ sole concessionaire of the other. Let us look at a few illustrations to determine whether or not two persons are related. Say, Ms. Priya holds 30 percent of Newbooks Limited and 35 percent shares of Freshbands Limited. In that case, Newbooks Limited and Freshbands Limited shall be deemed to be related since a third person holds more than 25 percent of their shares. Imagine another scenario where Amazeminds Limited has a deciding role in the corporate policy, operations management, and quality control of Rubylake Limited. It can be said that Amazeminds Limited controls Rubylake Limited. Thus, they are deemed to be related. Distinct persons- Before we go over the statutory provisions of distinct persons, we should first have an overview of the registration provisions for better understanding of the concept of distinct persons. Under GST law, a supplier has to obtain registration in every state/ union territory from where he makes a taxable supply, provided his aggregate turnover exceeds a specified threshold limit. Thus, he is not required to obtain registration from a state/ union territory from where he makes a non-taxable supply. Since registration in GST is PAN-based, once a supplier is liable to register, he has to obtain registration in each of the state/ union territories in which he operates and makes a taxable supply. Further, he is normally required to obtain single registration in a state/ union territory. However, where he has multiple places of business in a state/ union territory, he has the option either to get a single registration for the said state/ union territory or to get separate registrations for each place of business in such state/ union territory. Explanation 1 to Section 8 of the IGST Act stipulates that establishments shall be considered as establishments of distinct persons where a person has an establishment in India and any other establishment outside India. An establishment in a state or union territory, and any other establishment outside that state or union territory. Or an establishment in a state or union territory and any other establishment within that state or union territory. Based on our discussion so far, it is evident that supplies between distinct entities will be liable to GST. A question arises as to whether stock transfers and branch transfers will qualify as a supply under GST. Transactions between different locations of the same legal entity, having separate GST registrations, will qualify as a supply under GST, even though no consideration is provided for the same. Therefore, stock transfers and branch transfers would be treated as a supply, as these are transactions between distinct persons. However, when such transfer takes place between two units of a legal entity, in the same state and under a single registration, it will not be considered as a supply. Let us try to understand this using examples. Freshminds Limited has a registered factory in Lucknow. It transfers goods to its registered showroom in Delhi. The transaction is in the nature of an interstate stock transfer between different registrations of the same entity and will therefore qualify as a supply. In a similar situation, say, the registered factory in Lucknow transfers goods to their registered showroom in Kanpur, which is also under the same GST registration, this transaction is in the nature of an intrastate stock transfer between two units of the same entity having a single GST registration, thus it will not qualify as a supply. In the same example, say, Freshminds Limited has obtained a separate GST registration for the factory in Lucknow and showroom in Kanpur, then the stock transfer shall qualify as a supply even if it is intrastate. To summarize, supply between related persons or distinct persons shall be treated as a supply under GST, even if made without any consideration. Stock transfer or branch transfers between two registrations of the same person, whether in the same state or between different states or union territories, will qualify as supply. Free-of-cost supplies to an unrelated person will not be taxable. Intrastate stock transfers where the person has obtained single registration shall not be treated as a supply. Gifts by an employer to an employee over 50,000 rupees are subject to GST. However, services provided by an employee to the employer in relation to employment shall not be treated as supply. In this video, you learned about the first two items of Schedule I, which provide that permanent transfer or disposal of business assets where input tax credit has been availed and supply between related or distinct persons in the course or furtherance of business shall be liable to GST. In the next video, we shall discuss the next two items of Scheduled I, which are supply of goods between principal and agent and import of services from related persons.
