Supply Without Consideration (Schedule I – Section 7)

Supply Without Consideration (Schedule I – Section 7)

As per Section 7(1)(c) of CGST Act 2016, the activities specified in Schedule I of the act, made or agreed to be made without any consideration shall be considered as a supply. There are four such cases in schedule 1 and we will be discussing the same one by one in detail in this article. 

SCHEDULE I OF GST 

1. Permanent disposal or transfer of assets of business where ITC has been availed on such assets. For instance, XYZ Ltd donates used furniture and fixtures to an NGO. This will fully qualify as supply given that the company has duly availed ITC on such furniture and fixtures. 
   
   Another example can be old computers used by a registered person who is transferred to a charitable school without any consideration. This will also be a supply given that the person has availed ITC. 
   
   Therefore, for this case, the following three conditions are to be fulfilled:
   1. There should be disposal or transfer of business assets. 
   2. The nature of disposal or transfer should be permanent, and 
   3. ITC must be claimed on these business assets.
      
      If any of the above condition is not met, then the transaction will not be in the ambit of supply. 

2. Supply between related parties/persons or between distinct persons when made in the course or furtherance of business. Giving gifts not exceeding Rs 50,000 in value in an FY by an employer to an employee shall not be treated as supply under this act. 
   
   A few of the definitions and explanations of the terms used above are as follows:
   
   Related parties: as per section 15, a Person, including a legal person, is deemed as a related person if:

   • Such persons are directors/officers of one another’s business
   • Such persons are employer and employee
   • Such persons are legally recognized partners
   • One of them controls another directly or indirectly 
   • Another person controls/holds/owns at least 25% voting share of both directly or indirectly
   • A third person controls both of them directly or indirectly 
   • Such people are members of the same family 
   • Such persons control third person together directly or indirectly 
   • One of them is the sole distributor/agent/concessionaire of the other. 
     
     Distinct Person: As per section 25, a person who is required to obtain or has obtained more than one registration across one or more states or union territories shall in respect of such registrations be treated as a distinct person. Moreover, where a person is required to obtain or has obtained registration in respect of an establishment, and has an establishment in another UT or state then such establishment is referred to as an establishment of distinct persons. 
     
     For instance, the Manufacturing plant of Ayurveda company located in Haridwar transfers the finished goods from Haridwar Uttarakhand to Jaipur, Rajasthan at its store so that the same can be sold in retail. The plant and store are registered in different states making them distinct persons and hence even if the transaction is without consideration, it will qualify as a supply. 
3. Supply of goods by a principal to his agent or by an agent to his principal where the agent undertakes to supply or receive such goods on behalf of the principal.

   To understand this better, let’s analyze some circulars by the GST department. 

   If the invoice issued by the agent to the end customer is issued in his own name then it will be included in Schedule 1 but if the invoice is issued in the name of the principal, then it will not be covered under the said schedule. However, schedule I only covers the goods transaction made between agent and principal, and if there are any service transactions then the same is not covered under the said schedule. 

   For instance, Ostrich Publishers are renowned book suppliers across the nation. Mr. Penguin is an agent of Ostrich Publishers responsible for selling books on behalf of the publisher to the retailers. If Mr Penguin issues the invoice in his name, then the supply between him and Ostrich Publishers, even though without consideration will constitute a supply under schedule I.

4. If any person imports any kind of service from a related person or from any of his establishments located outside India in the course or furtherance of business. The definition of the related person remains the same as explained above.

   For instance, A subsidiary company receiving services from its parent located outside India without any consideration will be treated as supply given that it is in the course or furtherance of business even though the parent entity hasn't charged anything in return.

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