2019 (10) TMI 753 - AAR - GST

Disposal of attached assets without consideration is a taxable 'Supply' under CGST Act.

In Re: M/s. Aquarelle India Private Limited

The disposal of assets fastened to a building without consideration constitutes a 'Supply' under Section 7 of the CGST Act, 2017, and is chargeable with ... Supply or not - disposing off assets (no CENVAT/VAT Credit was taken) fastened to the building on delivering possession to the lesser, on which no consideration will be received - value appearing in the books as on the date of disposal - open market value - HELD THAT:- It is an admitted fact that the applicant had taken the building on rent or lease during the earlier regime for business purposes and has invested in the furnishing of the building to suit his requirements. They capitalised the assets as “Office Equipment, furniture and fittings” in their books of accounts. The applicant stated that they have not claimed any input tax credit under the earlier laws on the assets involved. The applicant is disposing off these assets so that they no longer would be a part of their assets and the same is for nil consideration. It is an admitted fact that the assets sought to be transferred are capitalised under the head “Office equipment, furniture and fittings” and forms the part of the assets of the business entity, i.e. applicant and these assets are sought to be transferred or disposed of by the applicant and they undoubtedly no longer form part of those assets, then such transfer or disposal would be a supply of goods by the applicant and it is immaterial whether the said transfer/disposal is for a consideration or not - they would be treated as supply of goods as per entry no. 4(a) of Schedule II to the CGST Act. Tthe transaction of transfer of ownership of business assets in the course or furtherance of business for a consideration (being the monetary value in relation to the transfer of such assets) would constitute a supply in accordance with the provisions of clause (a) of Section 7(1) of the CGST Act and the same would be the supply of goods in accordance with the entry no. 4(a) of the Schedule II to the CGST Act. Value of taxable supply - HELD THAT:- Since there is no price actually paid or payable for the said supply of goods, section 15(4) of the CGST Act would become applicable for determining the value of this supply - The value of the supply is prescribed in rule 27 of the CGST Rules, 2017 which is related to the determination of the value of supply of goods or services where the consideration is not wholly in money. Issues Involved:1. Whether disposing off assets fastened to the building, without any consideration, falls within the ambit of 'Supply' as per Section 7 of the CGST Act, 2017 and is chargeable with GST.2. If the transaction is considered as 'Supply,' what should be the value on which GST is to be discharged as per Rule 27 of the CGST Rules, 2017.Issue-wise Detailed Analysis:1. Disposing of Assets as 'Supply':The applicant, a registered dealer, sought an advance ruling on whether the disposal of assets fastened to a leased building, without any consideration, constitutes a 'Supply' under Section 7 of the CGST Act, 2017. The assets were capitalized before the introduction of GST, and no CENVAT or VAT credit was availed.The applicant argued that since these assets were used in the pre-GST regime without availing CENVAT/VAT credit, their disposal should not amount to a supply under GST. They also contended that treating such transactions as 'Supply' could lead to double taxation, contrary to the spirit of the GST Law.The Authority examined Section 7(1) of the CGST Act, which includes activities specified in Schedule I, made without consideration, under the definition of 'Supply.' Schedule I covers the permanent transfer or disposal of business assets where input tax credit has been availed. However, since no input tax credit was claimed on these assets, the transaction is not covered under Schedule I.Further, Schedule II, entry 4(a), states that the transfer or disposal of business assets, whether or not for consideration, constitutes a supply of goods. The Authority concluded that the assets, being part of the business assets and disposed of by the applicant, qualify as a supply of goods under entry 4(a) of Schedule II, irrespective of consideration.The Authority also noted that the amendment to Section 7(1A) effective from 01.02.2019, which differentiates supply as either goods or services, applies only to transactions post-amendment. Hence, the disposal of assets before this date constitutes a supply under the CGST Act and is liable to tax.2. Valuation of Supply:For determining the value of such supply, Section 15 of the CGST Act was referenced, which states that the value of supply is the transaction value where the price is the sole consideration. Since no price is paid or payable, Section 15(4) applies, requiring the value to be determined as prescribed.Rule 27 of the CGST Rules, 2017, which deals with the value of supply where consideration is not wholly in money, was examined. The rule outlines a hierarchy for determining the value:- Open market value.- Sum total of consideration in money and any additional amount equivalent to consideration not in money.- Value of supply of goods or services of like kind and quality.- 110% of the cost of production or acquisition.- If none of the above, a reasonable means consistent with Section 15 and the rules.The Authority concluded that the value of the supply should be determined in the following order:- Open market value.- Value of goods of like kind and quality.- 110% of the book value in the accounts.- If none of the above is possible, as per Rule 31.Ruling:1. The transfer of assets fastened to the building on delivering possession to the lessor free constitutes a 'Supply' under Section 7 of the CGST Act, 2017, and is chargeable to tax.2. The value of such supply should be determined by:- Open market value.- Value of goods of like kind and quality.- 110% of the book value in the accounts.- If none of the above is possible, as per Rule 31.