Schedule II of the CGST Act is a classification tool. It does not create a new charge but clarifies whether certain activities are to be treated as supply of goods or supply of services. This matters for rate, time of supply, place of supply and invoicing.
1. Transfer
Schedule II first deals with transfers:
- Any transfer of title in goods is a supply of goods.
- Any transfer of right in goods or of undivided share in goods without transfer of title is a supply of services.
- Any transfer of title in goods under an agreement that property in goods passes at a future date on payment of full consideration is a supply of goods.
Examples:
- Normal sale of goods passes title and is a supply of goods.
- Hire purchase, where ownership passes after full payment, is treated as supply of goods.
- Transfer of the right to use goods for a period without transferring title is a service.
2. Land and Building
- Any lease, tenancy, easement, licence to occupy land is a supply of services.
- Any lease or letting out of a building, including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
This means renting of commercial or residential property is a service, not a supply of goods.
3. Treatment or Process
Any treatment or process applied to another person's goods is a supply of services. This covers job work, printing on customer-supplied paper, dyeing, embroidery, heat treatment, polishing and similar activities where the goods belong to someone else.
4. Transfer of Business Assets
Schedule II deals with business assets in three situations:
- Where goods forming part of the assets of a business are transferred or disposed of so that they no longer form part of those assets, whether or not for consideration, such transfer or disposal is a supply of goods by the person.
- Where business goods are put to private use or made available to any person for non-business purposes, whether or not for consideration, such usage or making available is a supply of services.
- Where a person ceases to be a taxable person, any goods forming part of the business assets are deemed to be supplied immediately before cessation, unless the business is transferred as a going concern or is carried on by a personal representative.
This clause is important for closures, asset transfers and private use of business assets.
5. Supply of Services
Schedule II expressly classifies the following as supply of services:
- Renting of immovable property.
- Construction of a complex, building, civil structure or 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, or after first occupation, whichever is earlier.
- Temporary transfer or permitting the use or enjoyment of any intellectual property right.
- Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software.
- Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
- Transfer of the right to use any goods for any purpose, whether or not for a specified period.
6. Composite Supply and Works Contract
Schedule II also provides that a works contract is a composite supply and shall be treated as a supply of services. A works contract includes any contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property where transfer of property in goods is involved.
This classification is important because works contracts are subject to service tax as services, not as separate goods and services.
Practical Importance
The classification determines:
- Whether invoice should be a tax invoice or bill of supply.
- The applicable rate and exemption notification.
- Place of supply rules, especially for services related to immovable property.
- Time of supply for services, which often follows invoice or payment.
How Anuj Desai & Associates Can Help
We help clients classify complex transactions under Schedule II, especially works contracts, software, IPR, job work and construction, and ensure the correct GST rate, invoicing and reporting.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
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