How to Determine The Supply of Goods vs. Supply of Services in GST

By Registrationwala

24th April 2017

 

With the advent of the GST regime, the dilemma existing in the current indirect tax framework when it comes to Service Tax vs. VAT on work contracts, AC Restaurant Service, Software, etc. would be eliminated.

Schedule II of the GST Model casts clarity on the determination of the type of supply, being a supply of a good or a service. Thus, overcoming the loopholes in the existing tax structure regarding the application of a Service tax or a VAT, by eliminating them.

This makes it mandatory for the businesses to know whether a particular ‘supply’ amounts to supply of goods or to supply of services and treat supply accordingly.

The law widely enlists transactions related to construction, work contracts, renting etc. and also stipulates a list of transactions related to transfers, land and building, treatment or process ( (applied on third party’s goods).

 

Supply of goods

  • Any transfer of the title in goods.
  • Any transfer of title of goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed.
  • Permanent transfer or disposal of business assets transferred with or without consideration.

To illustrate, let us take a few examples of Supply of Goods.

  • Any transfer of the title in goods.

Ibex furniture sold sofa sets to Mr. Ranjan, which is a supply of goods. Here, the tritle of the sofa set would be transferred to Mr. Ranjan on sale.

  • Any transfer of the title of goods under an agreement stipulating that the property in goods will be passed at a future date upon receiving payment of full consideration as agreed.

Ibex furniture supplied sofa set to MR. Ranjan in an agreement to receive the payment in 6 installments; this is a case of supply of goods. The title in  property i.e. sofa set will be transferred to Mr. Ranjan on the completion of payment in 6 installments.

Supply of service:

  •  Any transfer of goods without transfer of title
  •  Any lease, easement, tenancy and license to occupy
  •  Any lease or letting out of a building including a commercial, industrial or residential complex for business or commerce, partially or wholly
  •  Any treatment or process applied to another person’s goods- job work
  •  When business assets are used for private use or non-business use : which may or may not be for a consideration
  •  Development, design, programming, customization, adaption, up-gradation, enactment or implementation of information technology software.
  •  Renting immovable property.
  • Work contract, including transfer of property in goods ( in the form of goods or any other form) engaged in the execution of work contract of immovable property.

The above enumerated points are briefed underneath

  •  Any transfer of goods without transfer of title

When Ibex Furniture transfers the sofa set to Mr. Ranjan for usage. This is a case of supply of service, as the title of property is still possessed by Ibex furniture.

  •  Any lease, easement, tenancy and license to occupy land

Mr. Ranjan lets out land on lease to Ibex Furniture. The letting out of land on lease amounts to a case of supply of services.

  • Any lease or letting out of a building including a commercial, industrial or residential complex for business or commerce, partially or wholly

Mr. Ranjan lets out a part of building to Ibex Furniture to display and sell its products or furniture. This is a case of supply of service.

  • Any treatment or process applied to another person’s goods- job work

Ibex furniture also does the work of repairing and polishing the furniture for its customers. This activity accustoms to a case of supply of service.

  •  When business assets are used for private use or non-business use : which may or may not be for a consideration

For instance a car used for business is being used for personal us. This amounts to a supply of service

  • Renting immovable property.

 Giving shop premises on rent is a case of supply of services.

 

How to Determine The Supply of Goods vs. Supply of Services in GST

2017-04-24