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Supply without considerationThis article deals with the concept of supply without consideration under the GST.

Transfer or disposal of business assets

Normally unless the supply is made for a consideration no GST would be leviable. However permanent transfer or disposal of business assets is one exception to this general principle and would be subject to GST even if no consideration is involved for supply of such assets provided input tax credit has been availed on such assets.

For example an individual A Trading with turnover of Rs 50 lakhs transfers a car used for its business to B an individual permanently as a gift than it would constitute a taxable supply under GST.

In the above example if A is a dealer registered under composition scheme than there is no taxable supply because A has not availed input tax credit in respect of the car. Now suppose A is registered under the normal provisions but uses the car exclusively for personal purposes than also no taxable supply is there as it is not a business asset.

Branch transfers/transfers amongst business verticals

As per clause 2 of Schedule I of the CGST Act Supply of goods or services or both between distinct persons as specified in section 25, when made in the course or furtherance of business will be treated as supply even if made without consideration.

As per section 25(4) of the CGST Act, A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

As per section 25(5) of the CGST Act, Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

For example if a company ABC Ltd. which has the head office in Kolkata and branch office in Chennai transfers goods worth Rs. 25 Lakhs from the HO to branch office without consideration it would constitute a taxable inter-state supply and be subject IGST. Even though both the HO and the branch office are the part of the same legal entity and one person only but for the purpose of levy and collection of GST they would be considered as distinct persons.

Suppose in the above example ABC Ltd. has two distinct business divisions paint and shipping. Paint division of the company supplies paints worth Rs 1,000 to the shipping division. Both the supplier division and the recipient division and the place of supply is Kolkata. It would still be considered as intra state taxable supply and be subject to CGST and SGST if the both divisions have obtained separate registrations as different business verticals even though they are a part of the same legal entity.

Services to related persons

Now suppose employer who is CA represents his employee before the Income Tax authorities but does not charge any professional fee in respect of the same. It would constitute a taxable supply under GST and be subject to levy and collection of taxes.

However gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both and hence not be considered as a taxable supply.

Principal and Agent

Principals supply there goods through agents without any consideration being received from the agent. The agent makes sales on behalf of principal and is entitled to a commission thereof. The agent may collect payments on behalf of the principal or the customer might make direct payment to the principal. In either case there is no sale because agent does not receive any consideration from the principal. However as per Schedule I supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal will be considered as supply and if the good are taxable than be subject to GST.

Similarly supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal is deemed to be a supply of goods even though agent receives no consideration for providing goods to the principal except commission which is his remuneration for handling goods on behalf of the principal.

Import of services

Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business is deemed to be a supply even if the import involves no consideration.

Recommanded  Article Concept of Supply under GST Regime

The purpose of this article is to create awareness about the soon to be implemented Goods and Service Tax in India.

ca rishabhkumarThe author is a fellow member of the Institute of Chartered Accountants of India and also a qualified Company Secretary. The author has also done DISA(ICAI), certificate on IFRS (ICAI), Certificate on Forex and Treasury Management (ICAI), Certificate on Forensic Accounting and Fraud Prevention (ICAI). The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com or 91 9007909221 or Twitter @CARKBarmecha.

CA Rishabh Kumar Barmecha

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5 thoughts on “Supply without consideration : GST

  1. Kumar BS says:

    wanted to know if goods supplied without consideration to distributors as per monthly schemes will attract GST or not

    1. Mehulrajsingh says:

      GST will be applicable

  2. Nandini says:

    we had sent goods under not for sale nominal value invoice like 1 RS. in VAT regime and such goods are to be received back in GST regime. Under what document such goods to be received back?

  3. Nandini says:

    We want to send fixture purchased (VAT paid & ITC claimed) to retail outlets free of cost as business promotion. Under what document can we transport such fixtures?

  4. bhanu says:

    supply of goods without consideration will attract gst or not

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