Practical FAQ’s under GST: ICAI
Practical FAQ’s under GST
Chapter 1 Supply and Levy
Q1. Whether the development of land under the Joint Development Agreement (JDA) constitutes a supply under GST?
Ans. Development of Land: Land development is the act of altering the landscape in many ways from the natural or semi-natural state for a purpose such as agriculture or construction including subdividing it into plots, typically for the purpose of building homes or a commercial complex.
Land Development in JDA: In the event of Joint Development, an agreement will be executed between the landowner and the builder. The rights for development will be given by the landowner and development will be carried out by the builder. As consideration for the development undertaken, the builder will be paid in the form of a portion of the said developed land.
In order to determine whether a transaction will constitute a supply under GST, the said transaction has to satisfy the rudiments of the definition under Section 7(1) (a) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
An excerpt from the definition is reproduced below:
“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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”
The terms that are relevant for our consideration are “supply of service”, “made for a consideration” “by a person” and “in the course or furtherance of business”
- “Supply of service”: Anything other than goods is regarded as service as per the definition of the term ‘service’ under the GST law. Hence, the activity of development of the land will be considered as service and when it is carried out for others, it becomes the supply of service.
- “Made for a consideration”: Consideration for developing the land is obtained or normally agreed between the supplier and recipient as a portion or percentage of the developed land as per the agreement.
- “By a person” – the definition of the term “person” is exhaustive and it includes anybody covered within the definition.
- “In the course or furtherance of business” – the activity carried out is obviously in the course of business or furtherance of business.
It is clear from the above that the activity of “development of land” is satisfying the rudiments of the term “supply” under the CGST Act. Hence, the development of land under the Joint Development Agreement will constitute a supply under GST.
Q2. (a) Would the act of Practicing Chartered Accountant who delivers guest lectures at various Institutes or organizations fall under the scope of supply?
(b) If yes, would any sum received as honorarium and reimbursement of local transport expenses at a fixed rate will also have to be added as “consideration”?
Ans. (a) Delivering guest lectures by Practicing Chartered Accountant at various Institutes or organizations for a consideration (contractual basis) falls under the scope of supply under section 7(1) (a) of the CGST Act.
(b) As per section 2(31) of the CGST Act, consideration includes any payment made or to be made, whether in money or otherwise or the monetary value of any act or forbearance in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person.
The sums received as honorarium and reimbursement of local transport expenses at a fixed rate shall be treated as consideration for supply under section 7(1) (a) of the CGST Act.
Q3. What do you understand by the term “in the course of business and furtherance of business”? What is the tax treatment of the same under GST?
Ans. In GST the two basic elements are supply and ITC. The definition of ‘supply’ as given in Section 7(1)(a) of the CGST Act includes-
“all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business”
Hence, “in the course of and in furtherance of business” is the primary requirement for supply in GST and supply is the primary and necessary element for levying of GST. The term ‘further’ enables the entity to supply and receive supplies where the action is towards achieving the goals of the business.
Further, the condition mandated for availing ITC as mentioned in Section 16(1) of the CGST Act is:
“Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”