Transaction Not Under the Scope of Supply (Schedule III - SEC 7) of CGST Act

Scope of Supply (Schedule III - SEC 7) of CGST Act

There are a few supplies that are outside of the ambit of GST and these are notified under Schedule III of the CGST Act. We must note that these are not nontaxable or exempt supplies but these are the supplies that do not form part of the definition of supply under the complete GST laws and hence no GST is applicable on these supplies. 

The reference to schedule III is made in subsection 3 of section 7 of the act which states that notwithstanding anything in subsection 1 of section 7, the following is neither supply of goods nor services:

1. Activities notified in Schedule III; or
2. Activities or transactions notified by CG, SG, or any local authority as notified by the GST council. 

In this article, we will gain a better understanding of all such types of supplies and related understanding. 

LIST OF TRANSACTION IN SCHEDULE III

[1] Service by an employee to their employer in the course or furtherance of his employment. 

One must note here that this point when looked at standalone brings a lot of ambiguity. To clarify this, there are certain circulars present which states that:

1. Where the perquisites provided by the employer to its employee are in the course of employment and are stated in the contract between both parties, such perks will not be subjected to GST. Examples of such perks are fuel reimbursement, free accommodation, low-interest loans, etc. 
2. Remuneration or sitting fees paid to Directors, except the whole time directors who are acting as employees of the company as well, is subject to GST as it is paid for professional service and not as employees. 
3. Services provided by the employers to the employees shall be considered eligible for GST except for gifts up to a value of Rs 50,000. For example, recreational activities, and extra services beyond contract by the employer will attract GST. 

[2] Services provided by Tribal or Courts

Tribunals and courts are integral parts of the legal structure and include District courts, session courts, high courts, and supreme court. Services provided by tribunals and lawyers to any registered person are subject to GST on rever charge and GST does not apply to the decisions of courts. 

[3]  Sale of land and sale of building - subject to para 5(b) of schedule II

Proceeds from the sale of land or completed building in any form do not attract GST but are subject to para 5(b) of Sch II. In simpler terms, the construction services being works contract attracts GST. 

This means that if a sale is made before the first occupation or completion certificate, whichever is earlier, then the entire sale amount will be taxable as service as per Sch II.

[4] A person in a constitutional or government post or an MP

1. Functions discharged by any Member of parliament, local authority, state legislature, or panchayat
2. Functions discharged by any person as a member director or chairman in an entity established by CG or SG or local authority and who is not deemed as an employee before the incorporation of this clause
3. Function discharged by any person who holds post in pursuance of the constitution of India in that capacity

Are outside the ambit of GST. 

[5] Services of burial, cremation, funeral, and mortuary including transportation of the deceased individual. 

[6] Sale to and from non-taxable territories

GST is attracted only in cases where the goods have entered India and the supply of goods from one non-taxable territory to another does not account for supply as no goods have been traded on Indian soil. Therefore, high sea sales, custom bonded warehouse sales, and merchant trading are out of the ambit of GST. 

[7] Actionable claims

These include claims that can be enforced only by a suit or legal action and exclude betting, lottery, etc. For instance, procurement of NPA from another bank or person account for actionable claim hence no GST will be charged on it. But the selling of lottery tickets is a supply and will attract GST. 

[8] Custom related transactions 

1. Supply of goods from a custom bonded warehouse, before home consumption clearance, to another person. This means that the goods that are not cleared for domestic consumption or production which are kept in customs warehouses can be traded without attracting any GST. 
2. Supply of goods by a consignee to any other person through transferring the title of goods through a deed or agreement after the dispatch of goods from a foreign port but before clearance for home consumption. Meaning that the goods in the high sea can be traded without attracting any GST. 

While the above list was a summary of what Schedule III of the act says, the second part is the activities notified by the government. 

ACTIVITIES NOTIFIED BY THE GOVERNMENT THAT ARE OUTSIDE THE AMBIT OF SUPPLY UNDER THE GST

1. Service provided by SG by way of grant of license of alcohol liquor against consideration in the form of application fee or license-free or any other name, and 
2. Services provided by CG, SG, UT, or any local authority by way of any activity relating to 243G or 243W of the Consitution of India. 

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