Page 6 - Chap1 Charge of Tax & Concept of Supply

04. Section 7(2) read with Schedule III:- Activities treated neither as supply of goods nor supply of services

Q. 6: Angad Private Ltd. is engaged in the business of distribution of construction material. As an incentive,
Angad Private Ltd. pays an amount of ` 75,000 to its employees upon achieving a specified sales target. The
incentive is part of the salary of the employees and applicable tax is deducted at source as per relevant
income tax provisions. Angad Private Ltd. is of the view that GST is not leviable on such incentive paid to the
employees. Whether the view taken by Angad Private Ltd. is correct? [Study Mat]
Answer: Yes, Angad Private Ltd.'s view is correct.
Legal Provision:
Ü As per Section 7(2) read with Para 1 of Schedule III of the CGST Act, 2017, services provided by an
employee to an employer in the course of or in relation to employment do not qualify as supply under GST.
Discussion & Conclusion:
Ü The incentive paid is not a gift but a part of salary, directly linked to achieving sales targets.
Ü Since it falls under employment-related services, GST is not applicable on such incentives.

Q.7: Krishnadev is a trader based in India. Ramakrishna, brother of Krishnadev, is located in China and is
also engaged in business of trading of goods. Krishnadev places an order with Ramakrishna for procurement
of certain goods from local market in China. Before the shipment of goods from China to India, Krishnadev
sold such goods to Christiano, a trader located in Brazil. The goods were subsequently shipped from China to
Brazil. Comment on the taxability of transaction between Krishnadev and Christiano under GST in India. If
taxable, determine the place of supply of the same. [CA Final RTP Nov 19-Similar] [Study Mat]
Answer: Legal Provision:-
Ü The transaction between Krishnadev and Christiano is a merchant trade.
Ü As per Schedule III of the CGST Act, 2017, the sale of goods from one non-taxable territory (China) to
another non-taxable territory (Brazil), without entering India, is neither a supply of goods nor a supply of
services under GST.
Conclusion:
Ü Since it is not considered a supply, GST is not applicable.
Ü As the transaction is outside the scope of GST, place of supply does not arise.

Q.8: Mohandas International entered into a transaction for import of goods from a vendor located in Italy.
Due to financial issues, Mohandas International was not in a situation to clear the goods upon payment of
import duty. Mohandas International sold the goods to Radhakrishnan Export House by endorsement of
title to the goods, while the goods were in high seas. The agreement further provided that Mohandas
International shall purchase back the goods in future from Radhakrishnan Export House. Discuss the
taxability of transaction(s) involved, under the GST law. [Study Mat]
Answer: Legal Provision:-
Ü As per Para 8(b) of Schedule III of the CGST Act, 2017, high seas sales (i.e., transfer of title to goods before
customs clearance) are neither a supply of goods nor a supply of services under GST.
Conclusion:
Ü The sale of goods by Mohandas International to Radhakrishnan Export House in high seas is not liable to
GST.
Ü Import duty, including IGST, shall be paid by Radhakrishnan Export House at the time of customs clearance.
Ü If the goods are later sold back to Mohandas International, it will be treated as a normal domestic sale, and
GST will be applicable as per prescribed rules.

Q.8.1: ABC Insurance Ltd., a registered insurer in Maharashtra, is engaged in providing insurance services.
During the current financial year, the company entered into following transactions:
1. ABC Insurance Ltd. enters into a co-insurance agreement with XYZ Insurance Ltd. where ABC Insurance
Ltd. is the lead insurer. The insured – Gyaati Industries- pays a total premium of ₹ 50,00,000 which is
apportioned by the lead insurer - ABC Insurance Ltd. between itself and XYZ Insurance Ltd. in the ratio of
60:40 for the insurance services jointly supplied by them to Gyaati Industries. ABC Insurance Ltd. agrees to

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