“Yes, you are liable for GST without actual sale or supply”


“Yes, you are liable for GST without actual sale or supply”

Whenever any professional is asking to their clients regarding GST transaction/data for the purpose of filling GST returns then they generally get the answer that there is no purchase or sale and hence GST return should be filed nil. Is this right? Generally, everyone thought if there is no purchase or sale in the business then no GST is attracted. But this is misconception which a layman has understand related to GST. There are some specific transactions in the GST which should be considered it as deemed supply even though there is no consideration received. In GST, definition of Supply is inclusive but still Government has specified some transaction which is considered as supply irrespective of consideration is received or not.

Following activities are fall under the category of deemed supply:

  1. Supply of goods or services between related persons or distinct person as defined in section 25: if the transaction is taken place between two branches which are registered in different states but no consideration is received then such transaction should be treated as deemed supply and GST will be liable to be pay at the value which is specified in the valuation rules.
  2. Permanent Transfer/ disposal of business assets: Generally if business is permanently disposed off or transfer then no GST will be attracted, as there is no sale or purchase is taken place but If ITC is already used for such assets which is either disposed or transferred  for personal purpose with or without consideration, it shall be considered as to be “deemed supply”.
  3. Principal supply of goods to his agent: if any agent undertakes supply of goods without consideration on behalf of the principal and sell it to the customer then such transaction shall also be considered as deemed supply.
  4. Agent supplying goods to his principal: if any agent undertakes to receive such goods on behalf of the principal without consideration, it shall be treated as deemed supply.
  5. Barter System: if in any business where goods sold or services provided are settled by way of exchanging goods or services from other person then such transaction is liable for GST. Value for this should be considered as per valuation rule. If such transaction is skipped without paying GST and if notice to department then along with taxes interest is also recovered by the officer.
  6. Import of services from related person: if taxable person imported any services from related person or his establishment outside India, but it is for business purpose then it is also treated as deemed supply.

Who is Related person under section 25?

The person shall be deemed to be ‘related person’ if –

  • Such persons are directors or officers of one another’s business;
  • Such persons are employer and employee;
  • Such persons are legally recognized partners in the business;
  • One of them directly / indirectly controls the other;
  • Both of them are directly / indirectly controlled by the third person;
  • Together they directly / indirectly control the third person;
  • Any person directly / indirectly owns, control or holds 25% or more of the outstanding voting stock or shares or both of them;
  • They are members of the same family.
  • The person who are associated in the business with each other by way of sole agent / sole distributor / sole concessionaire, howsoever described

What value should be considered is transaction is between related person?

Rule 28 of the valuation rules deals with the value of supply of goods or services or both between the related persons or distinct persons. Going through the sequential order, the value of supply of goods or services or both would be –

  • Open market value;
  • In case the open market value is not available, then, the value of supply of like kind and quality;
  • In case both the above valuation is not possible, the value of supply of goods or services or both based on cost (i.e. the value of supply = cost of supply + 10% mark-up);
  • If none of the above valuations is possible, the residual method would be adopted for determination of the value of supply of goods or services or both. The value shall be determined using reasonable means consistent with the principles and general provisions.

What should be treatment of supply if it is used in further supply?

According to Proviso to rule 28 which states that when the goods being supplied are intended for further supply as such by the recipient, in such case, the value of supply shall be an amount equal to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person. Supplier is at an option whether or not to adopt such a value.

 What will be the treatment if ITC is available to recipient?

According to Proviso to rule 28 also states that in case the recipient of the goods or services or both is eligible to avail full input tax credit in that case the value declared in the invoice shall be deemed to be the open market value of the goods or services or both and the same would be adopted as value of supply.


Note: while doing GST audit for the F.Y. 2018-2019, one should check transactions and report it properly. There is some transaction which is neither recorded as sale nor as purchases in the books but still liable for GST.

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