Treatment of Supply without consideration under GST

By CA Atul Gupta & CA Rashi Paliwal

The proposed Goods and Services Tax (GST) draft model law has been released by Empowered Committee of State Finance Ministers in June 2016 which proposes to subsume various taxes from the present indirect taxes structure.

Unlike present regime where taxable event for Central Excise is “manufacturing”, for Service Tax is “provision of service” and for Value Added Tax is “Transfer of property”, under the proposed regime, all the taxable events will be replaced with only one incidence which will be known as “Supply”.

Section 3 of the Model GST Law define Supply as -

(a) all forms of supply of goods and/or services 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 service, whether or not for a consideration and whether or not in the course or furtherance of business, and

(c) a supply specified in Schedule I, made or agreed to be made without a consideration.

Part (c) in above as given in schedule - I have been re-produced below –



1. Permanent transfer/disposal of business assets.

2. Temporary application of business assets to a private or non-business use.

3. Services put to a private or non-business use.

4. Assets retained after deregistration.

5. Supply of goods and / or services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.

Provided that the supply of goods by a registered taxable person to a job-worker in terms of section 43A shall not be treated as supply of goods.”


Herein in this article we will focus on the fifth clause of schedule – I, i.e. Supply of goods/service by a taxable person without consideration.

Let’s start with an example of the same which can be goods as free samples which are supplied in the course or furtherance of business to any person by a taxable person will attract GST under the new regime. Although, normal trade discounts or cash discounts reflected on invoice won’t be covered under such clause.

To understand who is a taxable person, we may refer Section 9 of the Model GST Law which provides that “any person who is doing business in India and liable to be registered as per the provisions is a taxable person”. Although there are some exceptions to this definition which are –

•             An agriculturist;

•             Any person having aggregate turnover less than Rs. 10 lakhs;

•             Any person carrying on business in North Eastern States including Sikkim having aggregate turnover less than Rs. 5 lakhs;

•             Services of employee to employer;

•             Person engaged in supplying goods/services which are not liable to GST; or,

•             Any person liable to pay tax under Reverse Charge who is receiving services in a year for personal use till certain amount.

Prima facie, it can be seen that there are some cases which are not covered under this limb, although they might be covered elsewhere under the Model GST law. Such cases are given as below –

Supply of goods/services by a non-taxable person irrespective of the fact that whether supplied to a taxable person or another non-taxable person; and,

Goods/services are supplied by a taxable person not in the course or furtherance of business, i.e. for personal purposes.


Valuation of goods/services supplied without consideration under present regime vis-à-vis proposed regime

The concept of supply without consideration under GST seems to be a deviation from the existing provisions contained either in Service tax where service without consideration is kept outside the purview or VAT where sale without consideration is also not chargeable to VAT. It seeks to broaden the tax base under the proposed tax structure.

New bone of contention between the centre and a few states under the goods and services tax (GST)

Around 33,000 big service tax assessees are emerging as the new bone of contention between the centre and a few states under the goods and services tax (GST).

There are an estimated 1.1 million service tax assessees, which are entities that collect service tax and are registered with the Central Board of Excise and Customs. Of these, around 3% are estimated to be big assessees who provide annual taxable services of more than Rs1.5 crore.

At the end of the first GST council meeting on 23 September, finance minister Arun Jaitley had said that as part of the agreement between the centre and the states on dual control, states will administer all value-added tax (VAT) dealers up to a revenue threshold of Rs 1.5 crore.

For those above this threshold, a model of cross empowerment will be followed, wherein the control will be divided between the centre and the states. It was also decided that the centre will control all existing registered service tax assessees irrespective of their threshold. 

But in the second meeting of the GST council last week, there was some acrimony on this issue, Mint reported on 30 September. States such as West Bengal and Tamil Nadu opposed the proposal to give the centre full control over all the service tax assessees.

Instead, they sought cross empowerment for the big service tax assessees while agreeing to allow the small ones to continue under the centre’s administrative control, said two people who attended the meeting.

 “What rattled a few states was the line included in the minutes of the GST council meeting that the centre will administer these existing registered service tax dealers for the next three years,” said a state government official who did not wish to be identified. “They have sought cross empowerment for bigger service tax assesses.

But the question remains whether states have the expertise to control such large service tax providers and if they can be entrusted this responsibility,” he said. 

 Another official said the centre’s attempt to pass off some items currently being taxed by the states as services has also upset states. This included assessees like restaurants where both service tax and value-added tax is levied.

 GST will subsume all indirect taxes levied by the central and the state governments including excise duty, service tax, VAT, luxury tax, entry tax and entertainment tax.

 However, the challenge remains to keep the administrative compliance burden on the businesses at a minimum and to ensure that every business, while paying both state GST and central GST, has to deal with only one tax authority.

 “This problem was always going to arise as there are many such services where states also levy VAT like the tax levied on restaurants, copyright, leasing of goods and works contract. 

 Many service tax assessees also sell goods,” said Bipin Sapra, tax partner at audit and consulting firm EY. “However, dual control will not be welcomed by industry.”
SOURCE: MINT: Remya Nair 

Author & Contributors. (Contributing welcome)