Activities specified in Schedule I of the CGST Act are treated as a supply even when made without consideration. This article focuses on Paragraph 1 of Schedule I, which deals with the permanent transfer or disposal of business assets.
In general parlance, a business asset is any movable or immovable property owned or used by a taxable person for carrying on business activities and from which the business derives economic benefit.
In M/s Sanofi India Limited, a business asset was defined as: "A piece of property or equipment purchased exclusively or primarily for business use. There are many categories of assets including current and non-current, short-term and long-term, operating and capitalized, and tangible and intangible."
Whether stock or spare parts qualify as business assets remains debatable. However, supply of spare parts under warranty, being free and without consideration, does not constitute supply under GST. Circular No. 195/07/2023-GST (17.07.2023) clarifies that no additional GST is chargeable on warranty replacement of parts or repair services, where no separate consideration is charged.
A transfer occurs when ownership or effective control over a business asset passes from the taxable person to another person permanently, regardless of consideration.
Disposal refers to discarding, scrapping, destroying, or otherwise permanently eliminating a business asset from the business. If an asset permanently leaves the business and ITC was availed, it amounts to either a transfer or disposal and hence becomes a deemed supply.
The following transactions are not covered under Para 1 of Schedule I:
In essence, if a taxpayer permanently gives up ownership of a business asset without consideration and ITC was availed, the transaction is treated as supply and GST becomes applicable.
In such cases:
Effectively, the taxpayer pays GST from his own pocket. The intent of the law appears to be that once the cycle of value addition ends (through disposal/transfer), the government should receive tax on such final supply.
M/s Crystal Crop Protection Ltd. — It was held that transfer of business between two GST registrations of the same PAN constitutes supply under Schedule I. However, such transaction does not qualify as transfer of business as a going concern.
M/s Sanofi India Limited (AAAR) — Products given as brand reminders were treated as business expenses and not as permanent disposal or transfer of business assets. The AAAR relied on the UK decision in Marks & Spencer PLC, where it was held that the term "free" must be interpreted in a commercial sense.
The law cannot be read mechanically. While Schedule I treats certain transactions without consideration as supply, each transaction must be analysed on its commercial substance. Judicial precedents and circulars clearly indicate that not every free supply results in GST liability — context and intent matter.
In practice, commercial reality overrides literal interpretation.
Disclaimer: The content shared is based on personal understanding and experience. Readers are advised to seek professional advice before acting on the same.