Article 265 of the Indian Constitution clearly prohibits the collection of taxes without the authority of law. This principle is foundational to the applicability of the Goods and Services Tax (GST) in India. GST is levied only on supplies that are clearly defined under the law. While the application of GST might sometimes seem illogical or unreasonable, it is bound by legal definitions and provisions. For instance, GST is payable even without consideration in certain cases, such as the import of services for personal consumption, which is not for business purposes.
One common question among taxpayers and professionals is what types of transactions are not covered under GST. To shed light on this, let’s explore some examples of non-taxable supplies under Section 7(1) of the CGST Act.
Examples of Non-Taxable Supplies Under Section 7(1):
1. Regulation and Control Fees:
Fees charged for regulatory and control purposes, such as registration fees by the Regional Transport Authority for motor vehicles or the Registrar of Companies for company registration and filing, are not considered supplies under GST.
2. Non-Taxable Supplies:
Defined under Section 2(78) of the CGST Act, non-taxable supplies refer to goods or services that are not leviable to tax under the CGST or IGST Act. Examples include transactions involving money, supply of liquor, narcotic substances, and specified petroleum products like crude petroleum, petrol, diesel, aviation turbine fuel, and natural gas.
3. Supplies Without Consideration:
Certain supplies of goods or services without consideration are also not liable for GST, except those specified in Schedule I.
4. Activities/Transactions Mentioned in Schedule III:
- Services by an employee to an employer in relation to his employment, including those by a whole-time director.
- Services provided by Courts or Tribunals.
- Functions performed by members of Parliament, State legislature, Panchayats, municipalities, or other local bodies, as per the Constitution of India, and functions by bodies established by the Central or State Government.
- Services related to burial, funeral, crematorium, or mortuary, including transportation of the deceased.
- Sale of land and completed buildings.
- Actionable claims, excluding lottery, betting, and gambling.
- Supply of goods from one non-taxable territory to another without entering India.
- Supply of warehoused goods before clearance for home consumption.
- Supply of goods to a consignee during the course of movement from outside India by way of endorsement of the title to goods.
5. Relief and Rehabilitation Work:
Activities related to relief and rehabilitation are not considered supplies under GST.
6. Grants, Donations, and Pure Charity:
Grants, donations, and pure charitable activities are also not taxable under GST.
7. Deemed Goods or Services in Schedule II:
Certain items enumerated in Schedule II are deemed as goods or services but are not liable for GST until they constitute a supply. Examples include:
- Penalties for cancellation of airline tickets before travel.
- Compensation or penalties for delayed delivery of goods or services.
- Deductions for poor workmanship or defects in supplied goods, or liquidated damages in services for quality or service levels, which may not be considered a “supply”.
Understanding these exclusions helps businesses and professionals navigate the complexities of GST and ensures compliance with the law while identifying areas where GST is not applicable. By recognizing what constitutes a non-taxable supply, entities can better manage their tax liabilities and avoid unnecessary complications.
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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.
