Page 10 - Chap1 Charge of Tax & Concept of Supply

Chairs and coolers hired out to Function Garden
5 12%
[Transportation services provided by Mrs. Kajal are exempt. However, since chairs and
coolers are hired out along with their transportation, it is a case of composite supply wherein
the principal supply is hiring out of chairs and coolers. Accordingly, transportation service
will also be taxed at the rate applicable for renting of chairs and coolers (Refer note)]
Note: As per section 2(30), composite supply means a supply made by a taxable person to a recipient consisting of two
or more taxable supplies. Since in point (v), service of hiring out of chairs & coolers is taxable while transportation
service is exempt, it is possible to take a view that this is not a case of composite supply.
In that case, the two services will be treated as independent services and taxed accordingly.

07. Some Important Clarifications:-

Q.13: Mr. Kanjilal Adani is an oil exploration & production contractor and is registered under GST in the
State of Gujarat. He entered into a Production Sharing Contract (PSC) with Government of Gujarat
wherein he gets a license to explore, exploit and sell the petroleum crude and/or natural gas from the
Government in Aliabet Oilfield in lieu of royalty and a share in profit petroleum.
In the month of June, Mr. Kanjilal Adani explored the petroleum reserves at Aliabet Oilfield. He got a
portion of the petroleum silt (non-taxable under GST) worth ` 3,00,000 as part of compensation. This
petroleum silt is part of cost petroleum as per the contract entered with the Government.
Examine the taxability of the petroleum silt received by Mr. Kanjilal Adani under the GST law. [Study Mat]
Answer:- The petroleum silt received by Mr. Kanjilal Adani as part of cost petroleum is not taxable under GST.
Legal Provisions:
1) CBIC Clarification on Cost Petroleum:
Ü Cost petroleum is not a consideration for services provided to the Government under a Production
Sharing Contract (PSC).
Ü Oil exploration and production contractors carry out activities for themselves, not as a service to the
Government.

Ü Contractors acquire the right to explore, exploit, and sell petroleum in exchange for royalty and a share in
profit petroleum.
2) Taxability of Petroleum Silt:
Ü The compensation received in the form of petroleum silt is part of cost petroleum as per the contract with
the Government of Gujarat.
Ü Since cost petroleum is not taxable under GST, the petroleum silt received will also not attract GST.
Conclusion: The petroleum silt worth ₹3,00,000 received by Mr. Kanjilal Adani as part of cost petroleum is not
taxable under GST.

Q.14: Answer the following questions independently:-
1. Rob Shareholding Ltd., an approved intermediary, has entered into a agreement wherein certain
securities were to be lent to Dhandhan Bank, under Securities Lending Scheme, 1997. Dhandhan Bank
shall pay specified lending fee against such lending of securities to it. Explain the taxability of transactions
involved in the Securities Lending Scheme, 1997. [Study Mat]
2. Vikramaditya is a salaried employee and is planning to invest in stocks. He has opened a trading account
with Vaydaa Brokers. During the month, Vikramaditya undertook future contracts (without a physical
delivery option, but are cash settled on the expiry of the contract date), amounting to `35,00,000.
Vikramaditya needs your advice whether such future contracts undertaken by him amount to supply and
are liable to GST.
Answer:-
1 Ü Securities Lending Scheme, 1997 (SLS) facilitates the lending and borrowing of securities.
Ü Securities are neither covered in definition of goods nor covered in the definition of services.
Ü Therefore, a transaction in securities which involves disposal of securities is not a supply in GST and
hence not taxable.
Ü As per CBIC clarification, SLS doesn't treat lending of securities as disposal of securities and
therefore is not excluded from the definition of services.

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