Taxable Supply

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Deemed Supply of Services

The following activities have been deemed to be Supply of Services.

  1. Renting services related to Land and Building
    The following entries relate to renting of immovable property and includes:

    • any lease, tenancy, easement, licence to occupy land is a supply of services;
    • any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services
    • renting of immovable property;
  2. Construction services related to Land and Building
    The respective head contains two primary services viz., construction services and works contract services. We are detailing each of them as under:

    1. construction of a complex, building, civil structure or a part thereof with defined conditions
        The basic features of the above inclusion is as follows:

      • It must be an activity of construction
        “Construction” has been defined to include additions, alterations, replacements or remodeling of any existing civil structure. The term thus, while reflects construction of new civil structures, also includes works in respect of existing civil structures.
      • Such construction is of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly: While the term building is self explanatory, we shall focus on the term ‘civil structure’ and Complex. Complex is defined by Cambridge dictionary as a large building with various connected rooms or a related group of buildings.A civil structureLaw lexicon provides the following definition in respect of the term “civil structure”:
          o The term ‘Civil’ means:

        • of relating to, or befitting a citizen or citizens.
        • of or relating to citizens and their relations with the state
        • Having to do with ordinary citizens or ordinary community life as opposed to the military or the ecclesiastical.
        • of or in accordance with organized society.
          o The term ‘Structure’ means:-

        • “Structure” is defined to be that which is built or constructed; an edifice or a building of any kind; in the widest sense, any production or piece of work artificially built up or composed of parts and joined together in some definite manner; any construction.
        • The term “structure” includes or comprehends a building.
        • Electricity sub-station is a structure and not a building. Re St.Peter the Great, Chichester, (1961) 2 All ER 513.
        • Any building could properly be called a structure, but there are many structures which one would not normally call buildings. Almond v Birmingham Royal Institution, (1967) 2 All ER 317.
        • “Structure” (Engineering Construction (Extension of Definition) Regulations Act, 1960 can include a crane, whether mobile or not, and whether or not it also constitutes a plant, British Transport Docks Board v Williams, (1970) 1 WLR 652.
        • A Structure is something which is constructed, but not everything which is constructed is a structure. A ship, for instance, is constructed, but it is not a structure. A structure is something of substantial size which is built up from component parts and intended to remain permanently on a permanent foundation, but it is still a structure even though some of its parts may not be movable, as for instance, about a pivot. Thus a windmill or a turntable is a structure. Cardiff Rating Authority v Guest Keen Baldwins Iron & Steel Co. Ltd., (1949) 1 All ER 27.

        Thus, a civil structure would means an immovable property constructed or erected over land and used for the purpose of benefitting the society at large. Thus, Antilia even though is a huge structure, but it is not a civil structure.

      • Except where the entire consideration is received after issuance of completion-certificate by the competent authority:An activity of construction would not be called a service when the entire consideration for such an activity is recevied after issuance of a completion certificate from a competent authority. Herein, the expression “competent authority” has been defined to mean the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:––(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or(B) chartered engineer registered with the Institution of Engineers (India); or

        (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;

        Thus, this entry covers the services provided by builders or developers where building complexes, civil structure or part thereof are offered for sale but the payment for such building or complex or part thereof is received before the issuance of completion certificate by a competent authority.

    2. Works contract services in relation to immovable property
      Works contract has been defined in Section 2 of CGST Act as under:

      (119) “works contract” means a contract for building, construction, fabrication,completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;

      The meaning of the some important terms are provided as follows:

      • Erection: As per Concise Oxford Dictionary erection meant the act of erecting, and erect meant construct (a building, wall, etc.). As per Cambridge International Dictionary of English, ‘erection is the act of making or building a structure’.
      • Construction: Construction means to create, to bring into existence something by combination of concept, material and other resources.
      • Maintenance: ‘Maintenance’ means ‘to preserve or to keep in good condition.’ The object of the maintenance of a structure is to prevent its falling into decay – Jiya Lal And Ors. vs. State Of U.P. And Anr. [AIR 1981 All 72]
      • Repair:’Repair’ indicates the restoration to a good and sound condition of a structure which has been decayed or damaged- Jiya Lal And Ors. vs. State Of U.P. And Anr. [AIR 1981 All 72]
      • Alteration: Alteration means “change in form, without changing the underlying character of the thing to be changed – Bawa Singh v. The Grown, [I. L. R. (1942) Lah. 129]
      • Renovation: The term ‘renovate’ means to renew or repair or restore by replacing damaged parts – S. Bhagwant Singh And Anr. vs.Jagan Nath And Ors [12 (1976) DLT 150 a]

      Works contract on movable property not included

      It is important to note that works contract on movable property has not been included in the deeming provision.

  3. Temporary Provision of goods to others without transfer of title
    The said transaction primarily includes both provision of goods on right to use basis and supply of goods without right to use. The two transactions are detailed as under:

    1. Transfer of any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services
      Right to use is a concept which recognizes that since there is a passage of control over the economic benefits as can be derived from a property to the person acquiring such property on rent, such transaction has been brought into the ambit of VAT as deemed sale. Apex court in this context had observed in the case of 20thCentuary Finance Corporation Ltd. v State of Maharashtra [(2000) 119 STC 182(SC)] that the levy of VAT is not on goods but on the transfer of right to use goods. Thus, this head covers transaction of leasing and hiring of goods. The test laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs. Union of India [2006(2)STR161(SC)] to determine whether a transaction involves transfer of right to use goods, which has been followed by the Supreme Court and various High Courts, is as follows:

      • There must be goods available for delivery;
      • There must be a consensus ad idem as to the identity of the goods;
      • The transferee should have legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
      • For the period during which the transferee has such legal right , it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods;
      • Having transferred, the owner cannot again transfer the same right to others.
    2. Supply of goods without right to use
      The present category of deemed supply of service includes transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods.
  4. Goods put to personal or non business use
    This entry envisages transfer of business assets where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services. Thus, any use of business assets other than business shall be a deemed supply of services
  5. Job work
    This includes any treatment or process which is applied to another person’s goods and such transaction is deemed to be a supply of services. Though job work is separately defined in the law. However, this transaction includes any provision of services on goods of another person.
  6. Temporary transfer or permitting the use or enjoyment of any intellectual property rightIntellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. Some of the well known Intellectual property rights are:
    • know-how,
    • patents,
    • copyrights,
    • trade marks,
    • licences,
    • franchises or
    • any other business or commercial rights of similar nature

    Permanement transfer of Intellectual property would be supply of goods

    It is important to note that Intellectual property has been included in the ambit of goods and thus, permanent transfer of them shall constitute supply of goods.

  7. Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software has been included as a deemed supply of service. It is pertinent to note that there was never a confusion in respect such transactions being services. It includes on site development of software. The term Information Technology Software has not been defined in the GST Act. Further, the status of canned software or off the shelf softwares has not been dealt with by this entry and thus, the confusion of such softwares being goods or services may continue in the new regime.
  8. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
    The present category of deemed service includes activity of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act as a service. The scope of present inclusion is very wide as a mere agreement to do a activity without actually performing it would constitute a supply of service.
  9. supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption),
    The levy of GST on food and drinks supplied for human consumption in case of hotels / restaurant is deemed to be supply of services by this sub clause. In East India Hotels Ltd. v UOI [(2001) 121 STC 46 (SC)], it was held that the moment food is supplied to the customer, a sale is effected, and it is not material as to whether whole of the food is consumed by the customer or not. Thus, this supply contains both elements viz. of sale of goods and provision of services and thus to do away with the anamoly of the transaction, it has been deemed to be supply of services.

Transactions not to be considered as Supply

Supply being a vast concept envisage a lot many transactions in its ambit.  There are certain transactions which the GST Council has identified and agreed as not to be considered as Supply and accordingly, no provisions of the new law shall be applicable on the person supplying such Supplies or receiving such Supplies.  The list of such supplies are as under:

  1. Services by an employee to the employer in the course of or in relation to his employment.
  2. Services by any court or Tribunal established under any law for the time being in force.
    1. The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
    2. The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
    3. The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is
  3. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
  4. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
  5. Actionable claims, other than lottery, betting and gambling.

Employee Services

Employement services have been excluded from the scope of supply and thus, is not exigible to GST. The term employment has not been defined in the GST Acts.  Accordingly, to examine the term, the prime question which is to be examined is whether the contract is a “contract for service” or a “contract of service”.  The latter is excluded by virtue of this exclusion while the former is definitely included in the definition of service.

A “contract for services” is where the supplier delivers services to the customer. A “contract of services” is where the contract is for the supply of services of an employee and the contractor exercises control over the employees. While the latter is excluded being an employer-employee relationship, the former is under the purview of Finance Act, 1994.

In the case of C.P.M. Meeusen v Hoofddirectie van de InformatieBeheerGroep [C-337/97]It has been held that the essential feature of an employment relationship is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration.

Levy of GST on recovery of amounts received by an employee on premature termination

Amounts paid by the employer to the employee for premature termination of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment. Hence, amounts so paid would not be chargeable to GST.

Service by Court or tribunal

This exclusion from the term Supply is well provided as though courts and tribunal do take administrative fees for filing of appeals, however, the intent is not to render services as provision of justice cannot be said to be provision of justice.  Provision of justice is a right of every citizen and the Courts and Tribunals are doing no service in making available the right to its subjects.  Article 39 A of the constitution provides as follows:

“39A. Equal justice and free legal aid –

The State shall secure that the operation of the legal system promotes justice, on a basis of equal opportunity, and shall, in particular, provide free legal aid, by suitable legislation or schemes or in any other way, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities.”

Thus, what is available to every citizen as a right under constitution has rightly been excluded so as to upkeep the words of the constitution and recognizing that safeguarding the rights of citizen are no provision of service to them.

Functions by Member of Parliament etc

This entry includes:

(a)    The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b)   The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c)    The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

The entry is self explanatory and being excluded from Supply, no GST shall be levied on the consideration received by above persons.

Funeral related Services

This entry excludes burial, crematorium or mortuary services including transportation of the deceased.  The following services are excluded when provided as part of a funeral:

  • Funeral
  • Burial
  • crematorium
  • mortuary services
  • transportation of the deceased

The services of priest etc would also form part of funeral services and should remain excluded under the present category.  However, funeral of animals might not get covered under the above category.

Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Sale of Land per se is excluded from the purview of Supply.  Sale of Building which is sold after obtaining completion certificate or which is already completed is also excluded.

Goods

Goods has been defined in CGST Act as under:

(52)       “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the landwhich are agreed to be severed before supply or under a contract of supply;

Services

Services has been defined in CGST Act as under:

(102)           “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form,currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

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