Activities or Transactions which shall be treated as neither supply of goods nor as supply of services

Certain supplies are neither treated as supply of goods nor services. In normal course, such supplies would be treated as a taxable supply. However by providing for exceptions the legislature makes it clear not to tax such supplies. An attempt is made to list out those supplies for the benefit of the readers.

Statutory provision:

Section 7(2) overrides sub-section (1) thereof and lists out certain activities or transactions referred to in Schedule III and Government activities/functions as notified by GST Council, which are neither supply of goods or services. But for this exception these activities or transactions would have been treated as taxable supplies as the expression ‘supply’ is wide enough to capture it.

Schedule III:

Schedule III to CGST Act provides for a list of activities/transactions, which are neither supply of goods nor services:

1. Services by an employee to the employer in the course of or in relation to his employment. This is similar to the exception provided for in the definition of ‘service’ in section 65B(44) of the Finance Act, 1994 (ST law). Any service provided by employee is thus not a supply of service. However, services provided by the employer to an employee would be treated as a taxable supply.
2. Services by any Court or Tribunal established under any law for the time being in force. This entry is also similar to the exception provided for in the definition of ‘service’ in section 65B(44) of the Finance Act, 1994 (ST law). The term “Court” in this context would include District Court, High Court and Supreme Court.
3. The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities. This entry is also similar to the exception provided for in the definition of ‘service’ in section 65B(44) of the Finance Act, 1994 (ST law).
4. The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity. Eg: Chief Election Commissioner, Comptroller and Auditor General. There is a similar exception in the definition of ‘service’ in the current ST regime.
5. 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. Eg: Chairperson or Member of Industrial Area Development Board.
6. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. This activity is currently exempted under the ST regime.
7. Sale of land. This is a State subject and hence excluded as it is not yet subsumed in GST.
8. Sale of building. Exception to this entry is construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier. Note: For a more detailed explanation readers are requested to see the write up on “Supplies deemed to be either goods or services”.
9. Actionable claims, other than lottery, betting and gambling. The term ‘actionable claim’ has the meaning assigned to it in section 3 of the Transfer of Property Act, 1882 and has a wide connotation. Further the definition of ‘goods’ in section 2(52) of the CGST Act includes actionable claim also. However, only the actionable claims w.r.t. lottery, betting and gambling would be a taxable supply.

The notification providing for exceptions would be issued pursuant to recommendation of the GST Council. The activities/transactions, which are in the nature of public service would be considered by the GST Council, which are performed by the Central Government, State Government or local authority. In the ST regime there have been issues and disputes concerning services from Government or local authority by a business entity as tax is payable on reverse charge basis. There is no clarity in the ST regime as to what constitutes taxable government service.