Page 5 - Chap1 Charge of Tax & Concept of Supply

03. Section 7(1)(c) read with Schedule I:- Activities to be treated as supply even if made without
consideration

Q.3: Mokshabhumi Industries has its manufacturing unit in the State of Maharashtra. It stores the finished
goods manufactured by it at a depot located in the State of Gujarat. The depot is owned by Punyabhumi Ltd.
– a related person of Mokshabhumi Industries. Punyabhumi Ltd. has not charged any consideration from
Mokshabhumi Industries for usage of depot for storage purpose. Whether the storage of goods permitted by
Punyabhumi Ltd. to Mokshabhumi Industries qualifies as supply under GST? [Study Mat]
Answer:
Ü As per Section 7(1)(c) read with Para 2 of Schedule I of the CGST Act, 2017, supply of goods or services
between related persons without consideration is treated as supply if made in the course or furtherance of
business.
Ü Since Punyabhumi Ltd. is providing storage services to Mokshabhumi Industries in the course of
business, it qualifies as supply under GST, even though no consideration is charged.

Q.4: Chandragupta Maurya is an artist who makes contemporary paintings. He is registered in the State of
Kolkata. Chandragupta Maurya appoints Dhruv Kumar to auction his painting in Maharashtra. Dhruv
Kumar arranges for the auction and identifies the potential bidders. The highest bid is accepted and the
painting is sold to the highest bidder. The invoice for the supply of the painting is issued by Dhruv Kumar on
the behalf of Chandragupta Maurya but in his own name and the painting is delivered to the successful bidder.
Examine whether Dhruv Kumar can be considered as an agent of Chandragupta Maurya under Para 3 of
Schedule I of the CGST Act, 2017. [Study Mat]
Answer:
Ü As per Section 7(1)(c) read with Para 3 of Schedule I of the CGST Act, 2017, supply of goods by a principal
to an agent for further supply in the agent’s name is treated as supply, even if made without consideration.
Ü CBIC clarifies that if the agent issues the invoice in his own name, the provision of goods from the principal to
the agent falls under Para 3 of Schedule I.
Ü In this case, Dhruv Kumar is not just providing auction services; he also supplies the painting on behalf of
Chandragupta Maurya and issues the invoice in his own name.
Ü Therefore, Dhruv Kumar qualifies as an agent of Chandragupta Maurya under Para 3 of Schedule I.

Q.5: M/s. Chand is a manufacturer of Paper products having factory at Pune, Maharashtra. M/s. Kela and
M/s. Bela of Mumbai, Maharashtra are appointed as agents to sell the products on behalf of M/s. Chand
with the conditions that both of them guarantee the realization of payment from buyers. Both M/s. Kela and
M/s. Bela provide short-term borrowing facilities to buyers for timely payment of dues against supplies
made to them and for this they charge interest from the ultimate buyer. While M/s. Kela raises invoices in
the name of M/s. Chand and M/s. Bela raises invoices in its own name.
In light of provisions contained in Para 3 of Schedule I of CGST Act, kindly explain treatment of interest
charged by M/s. Kela and M/s. Bela in above mentioned cases. [CA Final July 21 Exam]
Answer:

Ü M/s. Kela & M/s. Bela are Del Credere Agents (DCA) as they guarantee payment to the supplier, M/s. Chand.

Ü As per Para 3 of Schedule I of the CGST Act, 2017, a DCA is considered an agent if it issues the invoice in its
own name.
Ü M/s. Bela issues invoices in its own name, making it an agent under Para 3 of Schedule I, whereas M/s. Kela
issues invoices in M/s. Chand’s name, so it is not an agent under this provision.
Tax treatment of interest charged:

Ü M/s. Kela (Not an Agent) Interest on short-term credit is an independent supply of service and is exempt
from tax.
Ü M/s. Bela (Agent under Para 3 of Schedule I) Interest is subsumed in the value of goods supplied and is

taxable as part of the goods' value.
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