Second Schedule (II) to CGST Act 2017: Activities or Transactions to be treated as Supply of Goods or Services

Provisions under Second Schedule (II) to CGST Act 2017 regarding “Activities or Transactions to be treated as Supply of Goods or Services”:

Schedule II to CGST Act 2017: Activities or Transactions to be treated as Supply of Goods or Services (See Section 7) [Refer Note 1]

1. Transfer

(a) any transfer of the title in goods is a supply of goods;

(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;

(c) any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

2. Land and Building

(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

3. Treatment or process

Any treatment or process which is applied to another person’s goods is a supply of services.

4. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person; [Refer Note 2]

(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services; [Refer Note 2]

(c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless,-

(i) the business is transferred as a going concern to another person; or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

5. Supply of services

The following shall be treated as supply of services, namely:-

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

Explanation: For the purposes of this clause,-

(1) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:—

(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and

(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.

6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:-

(a) works contract as defined in clause (119) of section 2; and

(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

7. Supply of Goods

The following shall be treated as supply of goods, namely:-

Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. [Refer Note 3]

Amendments History:

1. The text ‘or Transactions’ inserted in Heading vide Section 31 of the CGST (Amendment) Act, 2018 (GOI Notification dated 29/08/2018), with retrospective effect from 01/07/2017, followed with Notification 2/2019 on commencement date of 01/02/2019.

2. In para 4(a) and 4(b), the text ‘whether or not for a consideration,’ omitted vide Section 131 of the Finance Act 2020 (GOI Notification dated 27/03/2020), with retrospective effect from 01/07/2017, followed with Central Tax Notification 92/2020 on commencement date of 01/01/2021.

3. Paragraph 7 of Schedule II omitted with retrospective effect from 01/07/2017, vide Section 122 of the Finance Act 2021 (GOI Notification dated 28/03/2021), followed with Central Tax Notification 39/2021 on commencement date of 01/01/2022.

Commentary on Schedule II of the CGST Act, 2017

Schedule II of the CGST Act, 2017 lays down the classification of certain activities or transactions as either supply of goods or supply of services. Here is a commentary on each of the provisions with relevant examples:

Clause 1 of Schedule II of the CGST Act, 2017: Transfer

a) When the title (ownership) of goods is transferred, it is considered a supply of goods. For example, selling a car to another person.

b) Transferring rights in goods without transferring the title is a supply of services. For instance, leasing a car to someone.

c) If an agreement states that the title of goods will be transferred upon full payment in the future, it is considered a supply of goods. A car purchase on installments is an example.

Clause 2 of Schedule II of the CGST Act, 2017: Land and Building

a) Leasing, renting or granting permission to occupy land is a supply of services. Renting farmland is an example.

b) Leasing or renting out a building (commercial, industrial or residential) is a supply of services. Renting out an office space is an example.

Clause 3 of Schedule II of the CGST Act, 2017: Treatment or process

Applying treatment or processes to another person’s goods is a supply of services. For example, a laundry service provider cleaning clothes for customers.

Clause 4 of Schedule II of the CGST Act, 2017: Transfer of business assets

a) If a person transfers or disposes of goods from their business assets, it is a supply of goods. For example, selling office furniture during a business liquidation.

b) If goods used for business are put to private use or made available for non-business purposes, it is a supply of services. Using a company car for personal trips is an example.

c) When a person ceases to be a taxable person, their business assets are considered supplied unless the business is transferred as a going concern or carried on by a personal representative.

Clause 5 of Schedule II of the CGST Act, 2017: Supply of services

The following activities are treated as supply of services:

a) Renting immovable property.

b) Construction of buildings, civil structures or complexes, with certain exceptions.

c) Temporarily transferring or permitting the use of intellectual property rights.

d) IT software development, design, programming, customization, adaptation, upgradation and implementation.

e) Agreeing to refrain from an act, tolerate a situation or perform an act.

f) Transferring the right to use goods for any purpose.

Clause 6 of Schedule II of the CGST Act, 2017: Composite supply

The following composite supplies are treated as supply of services:

a) Works contracts, as defined in the Act, such as a construction contract.

b) Supply of goods like food or drinks, as part of a service or in any other way, for cash or other valuable consideration. For example, a restaurant serving food and drinks.

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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.