First Schedule (I) to CGST Act 2017: Activities to be treated as Supply even if made Without Consideration

Provisions under First Schedule (I) to CGST Act 2017 regarding “Activities to be treated as Supply even if made Without Consideration”:

Schedule I to CGST Act 2017: Activities to be treated as Supply even if made Without Consideration (See Section 7)

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods,-

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business. [Refer Note 1]

Amendments History:

1. The word ‘taxable’ omitted from sub-section (4) vide Section 30 of the CGST (Amendment) Act, 2018 (GOI Notification dated 29/08/2018), followed with Central Tax Notification 2/2019 on commencement date of 01/02/2019. Thus, any person (not just a taxable person) importing in above situation will have to compulsory register and pay tax on RCM basis.

Commentary on Schedule I to the CGST Act, 2017

Schedule I to the CGST Act, 2017, outlines certain activities that are treated as supplies even if they are made without consideration. This is to ensure that transactions, which may not have a direct monetary consideration, are still covered under the GST regime. Here is a commentary on each provision, along with relevant examples:

Clause 1 of Schedule I to the CGST Act, 2017

Permanent transfer or disposal of business assets where input tax credit has been availed on such assets: When a business permanently transfers or disposes of assets on which input tax credit (ITC) has been claimed, it is considered a supply even without any consideration. This is to avoid tax evasion and ensure proper tax recovery.

Example: A business that has claimed ITC on a machine decides to donate the machine to a non-profit organization. This transaction, despite being without consideration, will be treated as a supply under GST.

Clause 2 of Schedule I to the CGST Act, 2017

Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Transactions between related persons (e.g., companies under common control) or distinct persons (e.g., different branches of the same company) are considered supplies even without consideration, to prevent tax evasion and ensure proper accounting.

However, gifts not exceeding INR 50,000 in value in a financial year by an employer to an employee are exempt.

Example: A parent company supplies raw materials to its subsidiary without charging any amount. This transaction will be considered as a supply under GST, even though there is no consideration involved.

Clause 3 of Schedule I to the CGST Act, 2017

Supply of goods by a principal to his agent or vice versa: Transactions where a principal supplies goods to an agent, or an agent supplies goods to a principal, for further supply or receipt on behalf of the principal, are treated as supplies even without consideration.

Example: A principal sends goods to an agent to be sold on their behalf. The transfer of goods from the principal to the agent will be considered a supply under GST even though no consideration is involved in the transaction.

Clause 4 of Schedule I to the CGST Act, 2017

Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business: Importing services from a related person or from another establishment of the same person located outside India is considered a supply even without consideration.

Example: A company in India receives management consultancy services from its parent company located outside India without any charges. This transaction will be considered as a supply under GST, even though no consideration is involved.

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Note: The CGST Act 2017 has been notified vide GOI Notification dt. 12/04/2017, which has subsequently been amended through CGST (Extension to J&K) Act 2017, Finance Act 2018, CGST Amendment Act 2018, Finance Act 2019, Finance Act 2020, Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020, Finance Act 2021, Finance Act 2022 including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective CGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of the Amendments made by various Notifications issued by CBIC from time to time, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.