Schedule III of the CGST Act lists activities that are expressly excluded from the definition of supply. These activities are outside GST entirely. If a transaction falls under Schedule III, no GST applies, no invoice is required and no input tax credit should be linked to it.
Employee Services to Employer
Services provided by an employee to an employer in the course of or in relation to his employment are neither supply of goods nor services.
This exclusion applies only to the employee to employer relationship. It does not exempt employer-to-employee supplies. For example, an employer selling goods to an employee or providing certain taxable perquisites may still be a supply.
The key test is whether the relationship is an employer-employee relationship. Independent contractors, consultants and freelancers are not covered by this exclusion because they are not employees.
Services by Courts and Tribunals
Services provided by any court or tribunal established under any law for the time being in force are excluded. This includes Supreme Court, High Courts, district courts and statutory tribunals.
Fees paid for court processes or tribunal proceedings are outside GST.
Functions of Elected Representatives and Constitutional Bodies
The following are excluded:
- Functions performed by Members of Parliament.
- Functions performed by Members of State Legislature.
- Functions performed by Members of Panchayats.
- Functions performed by Members of Municipalities.
- Functions performed by Members of other local authorities.
- Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity.
- Duties performed by any person as Chairperson, Member or Director in a body established by the Central or State Government or local authority, where such person is not deemed to be an employee.
This exclusion is for duties performed in official capacity, not for independent commercial services provided by these persons.
Funeral, Burial, Crematorium and Mortuary Services
Services of funeral, burial, crematorium or mortuary, including transportation of the deceased, are excluded from GST. This includes the entire chain of services related to last rites.
Sale of Land and Building
Sale of land is neither supply of goods nor services. Sale of building is also excluded, subject to clause (b) of paragraph 5 of Schedule II.
The exception means that sale of a building after completion certificate, or after first occupation, whichever earlier, is outside GST. However, construction services rendered before completion are taxable under Schedule II. Therefore, booking a residential unit before completion attracts GST as a construction service, but resale of a completed building is outside GST.
Actionable Claims
Actionable claims, other than lottery, betting and gambling, are excluded. An actionable claim is a claim to a debt or beneficial interest in movable property not in possession. Examples include book debts, insurance claims and negotiable instruments.
Lottery, betting and gambling are specifically taxable under Schedule III read with Section 2(52) and are not excluded.
High Seas Sales and Warehoused Goods
Schedule III also excludes certain transactions in non-taxable territory:
- Supply of goods from a place in non-taxable territory to another place in non-taxable territory without the goods entering into India.
- Supply of warehoused goods before their clearance for home consumption.
- Supply of goods by a consignee to any other person by endorsement of documents of title after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
These exclusions avoid double taxation in high seas sales and bonded warehouse transactions.
Practical Implications
If an activity is in Schedule III, the taxpayer must not charge GST or issue a tax invoice. Input tax credit relating to such excluded activities may be blocked or require reversal under Section 17(2) as they are generally treated as exempt supplies for reversal purposes.
How Anuj Desai & Associates Can Help
We help clients determine whether a transaction falls under Schedule III, avoid charging GST on excluded activities and manage ITC reversal correctly.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
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