GST Basics #5: Schedule II — Is It a Supply of Goods, or of Services?

Once something is a supply, the next question is whether it is a supply of goods or of services. Schedule II of the CGST Act answers it, and the answers are not always the ones common sense suggests.

The last instalment ended with Section 7(1A): once a transaction is a supply, Schedule II decides whether it is a supply of goods or a supply of services. That sounds like a technicality. It is not. The classification drives the rate, the place of supply, the time of supply under Sections 12 and 13, and whether an exemption reaches you at all. Schedule II exists because the honest answer often is not obvious.

Start with transfers. Transferring title in goods is a supply of goods. Transferring a right in goods without transferring title — hiring out a machine, leasing equipment — is a supply of services, even though what changes hands is plainly a physical thing. But a hire-purchase arrangement, where title passes at a future date on payment of the last instalment, is a supply of goods from the start.

Land and buildings are the entry that surprises people most. Any lease, tenancy, easement or licence to occupy land is a supply of services. So is letting out a building, commercial or residential, wholly or partly. Rent is a service under GST. Remember from Basics #4 that the sale of land itself, and the sale of a completed building, sit outside GST altogether under Schedule III — so the same asset can be outside the tax when sold and inside it when rented.

Applying a treatment or process to someone else's goods is a supply of services. That is the job-work entry, and it is why a fabricator who works on a principal's material is supplying a service, not selling goods.

Business assets carry three rules worth knowing. Permanently transferring or disposing of business assets is a supply of goods. Putting business assets to private use is a supply of services. And goods forming part of the assets of a person who ceases to be a taxable person are deemed supplied just before he ceases — unless the business is transferred as a going concern or carried on by a personal representative.

Schedule II then lists several things as services outright: renting of immovable property; construction of a complex or building where any consideration is received before the completion certificate; temporary transfer or permitted use of intellectual property; development, design, programming or customisation of software; agreeing to refrain from an act, or to tolerate an act or situation; and transfer of the right to use any goods. Finally, two composite supplies are settled by name — a works contract, defined in Section 2(119), is a supply of services, and supply of food or drink as part of a service is a supply of services.

What this means for you: before arguing about the rate, settle the classification. If you rent out premises, hire out equipment, do job work, or sign a non-compete clause, GST treats you as supplying services whatever the invoice says. The Act and its Schedules are on the CBIC tax information portal at https://taxinformation.cbic.gov.in.

Next in this series: Sections 22 to 24 — who has to register, and when.

Topics:schedule II CGST Actgoods or services GSTsection 7(1A)works contract GSTrenting immovable property GSTjob work GSThire purchase GSTsoftware GST classificationGST basics ChennaiTamil Nadu GST guide

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