Concept of ‘declared services/supplies’ diluted under GST law? : 19-03-2019

MARCH 19, 2019

By S Sivakumar, LL.B, FCA, FCS, ACSI (London), Advocate

AS TIOL readers are well aware, the Central Goods and Services (Amendment) Act, 2018 has inserted Sub-Section (1A) to Section 7 of the CGST Act, 2017 and has also deleted Clause (d) of Section 7(1) with retrospective effect from July 1, 2017. The amended Section 7, after this and other amendments brought about to Section 7(1), reads as under:

“7. (1) For the purposes of this Act, the expression “supply” includes–

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business and;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

Clause (d) of Section 7(1), before being omitted by the Central Goods and Services (Amendment) Act, 2018, with retrospective effect from July 1, 2017, read as under

“7. (1) For the purposes of this Act, the expression “supply” includes–

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

The concept of a declared service/supply under the GST law, in terms of Clause (d) of Section 7(1) of the CGST Act, 2017 has been borrowed from the erstwhile service tax law, wherein, Section 66E of the Finance Act, 1994 proclaimed certain transactions as ‘declared services’. The title to the said Section 66E of the Finance Act, 1994 read as under:

“66E. The following shall constitute declared services, namely:–”

As is known, the list of supplies listed in Schedule II to the CGST Act is very similar to the list of services listed in Section 66E of the erstwhile Finance Act, 1994. With the omission of Clause (d) of Section 7(1) and the introduction of Sub-Section (1A) to Section 7 to the CGST Act, it is clear that, for an activity or transaction to be treated as a declared supply in terms of Schedule II, it is a pre-condition that such supply or transaction should be a supply within the meaning of the amended Section 7(1). Under the service tax law, the legal view was that, with Section 66E of the Finance Act, 1994 not referring to the charging Section 66B, the activities or transactions included under Section 66E were treated as services by the very fact that they were included under Section 66E. However, the GST law, for an activity or transaction to be treated as a declared supply in terms of Schedule II, the said activity or transaction has to satisfy the definition of ‘supply’ under Clauses (a), (b) or (c) of Section 7(1).

This is a noticeable development insofar as the concept of declaring certain specified activities or transactions as taxable supplies under the GST law.

Taking this discussion forward…..it is now possible to take a view that, that activities such as renting of immovable property included under Sl No. 5(a) of Schedule II (the constitutional challenge to the levy of service tax on renting of immovable property services is still pending in the Apex Court) do not meet the criteria laid down in Section 7(1) and consequently, cannot be treated as taxable supplies, despite being included under Schedule II. A similar view is possible in respect of levy of GST on lease of land, license to occupy land, etc., which are included under Sl.No. 2(a) of Schedule II, as these activities, per se , do not meet the criteria laid down in Section 7(1) of the CGST Act.

In my view, pure Developers who are not engaged in construction or works contract activities by themselves (having completely outsourced these activities to third party contractors) can also contend that, they are not covered by Section 7(1) and are consequently, not liable to GST, despite being listed under Schedule II.