Schedule I of CGST Act: Activities Treated as Supply Even Without Consideration
Schedule I, read with Section 7 of the CGST Act, identifies specified transactions that are treated as a "supply" for GST purposes even when no consideration is charged. This is an exception to the general rule that a supply ordinarily involves consideration.
Meaning and legal basis of Schedule I
Section 7 of the CGST Act defines the scope of "supply". Section 7(1)(c) specifically brings within supply the activities or transactions listed in Schedule I when they are made or agreed to be made without consideration. Schedule I therefore creates deemed supplies for specified business situations.
The current text is important in relation to import of services. Paragraph 4 now applies to import of services by a person from a related person or from any of that person's other establishments outside India, in the course or furtherance of business. The earlier expression "taxable person" was substituted with effect from 1 February 2019.
Activities treated as supply even without consideration
- Permanent transfer or disposal of business assets: A permanent transfer or disposal of business assets is treated as supply where input tax credit has been availed on those assets.
- Related persons and distinct persons: A supply of goods or services or both between related persons, or between distinct persons specified in Section 25, is treated as supply when made in the course or furtherance of business. However, gifts by an employer to an employee up to Rs. 50,000 in value in a financial year are excluded by the proviso.
- Principal-agent supplies of goods: The Schedule covers goods supplied by a principal to an agent where the agent undertakes to supply the goods on behalf of the principal, and goods supplied by an agent to a principal where the agent undertakes to receive the goods on behalf of the principal.
- Import of services from related persons or overseas establishments: Import of services by a person from a related person or from any of the person's other establishments outside India, in the course or furtherance of business, is treated as supply even without consideration.
What are "related persons" and "distinct persons"?
Distinct persons under Section 25
Under Section 25 of the CGST Act, establishments having separate GST registrations of the same legal person can be treated as distinct persons. Consequently, supplies between such registrations may attract GST even where no price is charged, subject to the applicable provisions and valuation rules.
Related persons
For GST valuation, persons may be treated as related in the circumstances specified in the explanation to Section 15, including specified relationships involving control, ownership, management, partnership, employment and family. Whether parties are related should be examined on the facts of each transaction.
How are Schedule I supplies valued?
Because Schedule I can apply where there is no consideration, the taxable value may need to be determined under the CGST Rules rather than by reference to a price actually paid. Rule 28 contains the principal valuation mechanism for supplies between distinct or related persons, other than supplies through an agent. Depending on the circumstances, valuation may refer to open market value, like-kind and quality, or the prescribed sequential valuation methods. Where the recipient is eligible for full input tax credit, the value declared in the invoice is generally deemed to be the open market value under the rule.
Practical points for businesses
- Review branch, unit and separately registered GSTIN transactions even where no consideration is charged.
- Check whether input tax credit was availed before permanently transferring or disposing of business assets.
- For principal-agent transactions, examine whether the agent has authority to supply or receive the goods on behalf of the principal.
- Review services received without charge from overseas related parties or overseas establishments where they are connected with business.
- Apply the relevant valuation rule and invoicing requirements where a Schedule I transaction is taxable.
Related CGST Act resources
Central Goods and Services Tax Act, 2017
Schedule II - Activities or transactions to be treated as supply of goods or supply of services
Schedule III - Activities or transactions treated neither as supply of goods nor supply of services