Customer Care No.

91-1145562222

Applicability of GST on
supplies without
consideration An
Analysis
www.taxmann.com

Introduction
1.We all understand that taxable event in case of
GST is 'supply' of goods and/or services. The term
'supply', for all good reasons, is considered to be of
much wider import than the term 'sale' or
'manufacture,' which is the taxable event in current
indirect tax legislation. To cap it all, the term 'supply'
has been defined in an inclusive manner under the
Model GST Law. Therefore, we further need to look
into the ordinary and natural meaning of the term
supply, besides the prescribed inclusion list.So it
won't be incorrect to say that sky probably is the
limit. Is the apprehension justified or are we reading
too much into something!
Customer Care No. 91-11-

www.taxmann.com

3
2. The applicability of GST on specific business transactions made without
consideration
Free supplies on goods and/or services
2.1Schedule I to the Model GST Act specifies the list of transactions which are considered as
taxable supply, even if made without consideration. Amongst other transactions in the said list,
"the supply of goods and/or services by taxable person to another taxable person or nontaxable person in course of or furtherance of business" are also considered as taxable.
Now the general perception is that the free supplies will be separately valued and will get
taxed in the hands of the consumer. However, one must understand that nothing in this world
comes for free. The value of all the freebies, as a matter of fact, is already factored in while
arriving at the transaction value of non-free goods and/or services. The onus, however, would
be on the taxpayer to prove that the cost of free supplies has already been included in the
transaction value of non-free supplies and corresponding GST has been discharged.
Furthermore, as per clause 15(1) of the Model GST Law, the value of a supply of goods and/or
services shall be the transaction value, that is the price actually paid or payable for the said
supply of goods and/or services where the supplier and the recipient of supply are not related
and the price is the sole consideration for supply. Going by the stated provision, it can squarely
be said that
buyer and seller are not related and where price is the sole
consideration,
Customer
Carewhere
No. 91-11www.taxmann.com

This view is squarely in line with the current service tax law, where section 67(1)(iii) of the
Finance Act, 1994 and the Service Tax (Determination of Value) Rules, 2006, finds application
only when consideration is not ascertainable. Therefore, if consideration is zero,i.e., in case of
free services, section 67 and service tax valuation rules, cannot apply as consideration is
ascertainable but zero. Thus, no service tax is payable when value of services is ZERO, as the
charging section 66B provides that service tax is chargeable on the value of taxable service.
However, the principle applies only when there is really a free service and not when its cost is
recovered through other means.
Notice pay recovery from employee
2.2.It is a supply of service of "tolerating an act or a situation" provided by an employer to an
employee (clause 5(e) of Schedule II, which covers matters to be treated as deemed supply of
goods and/or services). What when the employer does not enforce notice period recovery from
an employee. In such a situation, it squarely gets covered under Schedule I and is to be
considered as a free supply, as it is a supply of services by a taxable person to a non-taxable
person in course of or furtherance of business, as discussed above. Further, drawing analogy
from the above discussion, can this be considered as supply with zero transaction value and,
accordingly, zero tax or maybe not. The supplier and the recipient in this case are the related
parties as defined under clause 2(82) of the Model GST Law. Therefore, one has to consider the
valuation
rules
ascertain the taxable value. There is a good chance that this
transaction will
Customer
Care
No.to
91-11www.taxmann.com

To read more, please click here

Customer Care No. 91-11-

www.taxmann.com