Transactions Treated as Supply under
GST Even If Made Without
Consideration

This article deals with transactions between related persons and other such activities

that is treated as ‘Supply’ under GST even if made without consideration. GST will be

applicable on these transactions. These are listed in the Schedule I of the CGST Act.

These transactions are mostly between parties which are related or between an agent

and a principal. The parties pay GST and can later claim it as input tax credit

1. Transactions between Related Persons                                                     Transactions between related parties are of special importance under any law as the

   pricing methodologies and arriving at them are challenging. When parties are related,

   the prices are controlled and they would not sometimes be the prices that would have

   otherwise been charged, had the transaction taken place between unrelated parties.

   Related persons is defined u/s 2(84) of the GST Act.

   Who is a related person under GST?

   Persons shall be deemed to be related if they fall under any of the categories below:

    Officer/ director of one business is the officer/ director of another business

    Businesses are legally recognised as partners

    An employer and an employee

    Any person holds at least 25% of shares in another company either directly or indirectly

    One of them controls the other directly or indirectly

    They are under common control or management

    The entities together control another entity

    They are members of the same family

   Persons include a legal person who can be individuals, HUF, company, firm, LLP, co-

   operative society, body of individuals, local authority, government etc or an artificial

   juridical person. It also includes entities incorporated outside India.

   Persons who are associated with one another’s business or is a sole agent or sole

   distributor or sole concessionaire shall be deemed to be related.

   What is the taxability of supply made between related

   persons?

   Supplies between the related persons with consideration in arm’s length shall constitute

   as ‘Supply’ like any other transaction.

   Whereas, the supply made between related persons for inadequate or no Consideration

   is covered under Schedule I of the GST Act. Such transactions shall be treated as

   ‘Supply’ only if it happens in course or furtherance of business.

   Further, when an entity makes an import of service from a related person or

   establishment outside India (without consideration) but for furtherance of business, it

   shall be considered as a supply.

   Exception: Relief has been given in a case where an employer gifts his employee and

   the value of gift is less than Rs. 50,000. It is not considered as Supply.

2. Supply of Goods via Agent                                                                             
   1. By a principal to his agent and the agent will supply them on behalf of the principal.

   For example, a company based in Mumbai employs an agent in Pune (Maharashtra)

   and sends goods to him. GST is applicable.

   2. By an agent to his principal when the agent receives these goods on behalf of the

   principal.

   For example, a company in the suburbs employs an agent in the city. The agent buys

   goods from the city and sends them to the principal to sell in the suburbs.

   Any supplies between agent and principal will be liable to GST. Both agent and principal

   will be liable to pay GST jointly & severally. The person paying GST can later claim

   input tax credit.

   3 .Taxable Person Importing Services From

   a Related Person

   Import of services by a taxable person from a related person or from any of his other

   establishments outside India, for business purposes, will be treated as supply.

   For example, ABC Inc. is incorporated in the US by A Ltd. along with B Ltd. in India.

   Services are imported by B Ltd from ABC Inc. without any consideration, the import will

   be deemed to be a supply. GST will be paid by B Ltd. on reverse charge basis.

   4. Permanent Transfer of Business Assets

   where ITC has Been Availed on Such Assets

   Permanent transfer or sale of business assets on which input tax credit has been

   availed will also be treated as supply even if there is no consideration received. GST is

   applicable to the sale of business assets only. It does not apply to the sale of personal

   land/building and other personal assets.

   “Permanent transfer” means transfer without any intention of receiving the goods back.

   Goods sent on job work or goods sent for testing/certification will not qualify as supply

   as there is no permanent transfer.

   Donation of business assets or scrapping or disposal in any other manner (other than

   as a sale – i.e., for a consideration) would also qualify as ‘supply’, where input tax credit

   has been claimed.