September 28, 2021

Taxation of Goods in Exchange of Goods

What is GST

GST is Goods and Services Tax, prior to this numerous tax regimes like service tax, VAT, etc. used to prevail, after GST Act enactment all these Act came under one umbrella I.e. GST. GST replaced the terms like Sale, Provision of Service, Manufacture, Import and Export, Entry of goods with one term ‘Supply’.

Let’s see how GST defines goods under section 2 of CGST. It says all the movable properties other than money and securities but includes actionable claim, grass, growing crops and things attached or forming part of land which are to be severed before supply or under a contract of supply. GST also defines Supply (u/s 7 (1) CGST) as:

a. All form of supply which includes goods or services or both of them like sale, exchange, transfer, license, BARTER, rental, disposal made or agreed to be made for some consideration by a person in course of furtherance of his business;

b. Activities made or agreed to be made without consideration specified in Schedule I;

c. The activities referred in Schedule II, is to be treated as supply of goods and services.

Section 7 (2) states, notwithstanding anything contained in sub-section (1), —

a. Transactions or activities specified in Schedule III; or

b. Transaction or activities under taken by the Central government, State government or any local authority, shall not be treated as a Supply of Services or Supply of Goods in which they are engaged as public authority, as it is notified by the Government on the recommendations.

Section 7 (3) states, the government may, by notification, specify transaction which are to be treated as:

a. Supply of goods and not services; or

b. Supply of services and not goods.

Time of Supply and Valuation Under GST

As per the definition clause it is clear that GST talks about Barter and considers it as a transaction. Let’s see what section 12 and section 13 has to say about Time of Supply.

Section 12 tells about time of supply of goods as:

1. At the time supply, liability to pay tax on goods shall arise

2. The time of supply shall be the earliest of;

a. date of issue of invoice by supplier or the last date on which he is required to issue invoice, under sub-section (1) of section 31, to issue invoice with respect to supply;

b. date on which payment is received by the supplier with respect to the supply. (Provided where supplier receives one thousand rupees above to the amount indicated in the tax invoice, time of supply of such extent, at option of said supplier, will be the date of issue of invoice in respect to such extent.)

3. In case of supply where tax liability is on reverse charge basis, time of supply shall be: earliest of following:

a. date on which good was received;

b. date on which payment is entered in books of accounts of receipt or date on which payment is debited in his bank account, whichever is earlier; or

c. immediate date after thirty days from the date of issue of invoice or any other document, by whatever name called by the supplier (Provided where time of supply is difficult to determine under clause (a), (b) or (c), time of supply shall be entry date in books of account of the receipt of supply).

4. In case of vouchers supplied by the supplier, time of supply shall be:

a. date on which voucher was issued, if supply is identifiable; or

b. date on which voucher was redeemed.

5. When time of supply is not determinable under sub-section (2), (3) or (4), time of supply shall;

a. where a periodical return is to be filed, that date; or

b. in other cases the date on which tax is to be paid.

6. Where there is an addition in value of supply by means of late fee, interest or penalty for delay payment shall be the date on which supplier receives such increase in value will determines time of supply.

Section 13 tells about time of supply of services as:

1. Liability to pay taxes on services shall arise at time of supply:

2. The earliest time shall be time of supply services: —

a. date of issue of supplier or date of receipt of payment, if invoice is issued within period mentioned under sub-section (2) of section 31 or date of receipt of payment, whichever is earlier; or

b. date of provision of service, if invoice is not issued within period mentioned under sub-section (2) of section 31 or date of receipt of payment, or date of receipt of payment, whichever is earlier; or

c. date which shows the receipt of services on the receipt in his books of account, in case when clause (a) or (b) do not apply.

3. Supplies where tax is liable to be paid or is paid on reverse charge basis, the earlier shall be time of supply: —

a. date of receipt entered in the books of account or date on which payment is debited from bank account, whichever is earlier; or

b. date immediate after sixty days from date on which invoice was issued or any other document, by whatever name called by the supplier (Provided where time of supply is not determinable under clause (a) or (b), the time of supply shall be date of entry in books of account of the receipt of supply).

4. In case of supply of voucher:

a. date of issue of voucher; or

b. date on which it was redeemed, in all other cases.

5. When it is not possible to determine under clause (2), (3) or (4), time of supply shall be:

a. date on which return is to be filed; or

b. in other case, date on which tax is to be paid

6. Where there is an addition in value of supply by means of late fee, interest or penalty for delay payment shall be the date on which supplier receives such increase in value will determines time of supply.

Determination of value of taxes, normally paid on ad-valorem is done by provisions made by every fiscal statute. The CGST Rule holds provisions related to valuation of supply of goods and services made in various circumstances. Taxable value is transaction value, price actually paid or is payable, supplier and receipt are not related to price being sole consideration. It is clear by now that the invoice value is the transaction value. In the Transaction value there are compulsory inclusions like any taxes, fees, charges levied under any law other than GST law, expenses incurred on behalf of supplier by the receipt, incidental expenses, interest or late fees or penalty are required to be added to the price to arrive at taxable value. Discounts like quality or trade discounts etc. Are part of normal commerce and trade. Therefor pre-supply discounts are to be excluded while determining taxable value.

Is Barter A Transaction Under GST:

WHAT GST SAYS FOR BARTER VALUATION

As already covered under definition clause GST considers BARTER to be a transaction. The question is how to determine value of supply of good or services where the consideration is not wholly in money. The Valuation Rule states, where supply of good or services where the consideration is not wholly in money, the value of the supply shall be:

a. OMV (Open Market value) of such supply;

b. If OMV is not determinable then sum total of any amount in money and consideration in money equivalent to consideration not in money if such amount is known at time of supply;

c. If the value is not clear under clause (a) or (b), the value of goods or services or both be the of like kind and quality;

d. If value is not determinable under all above clauses, it will be determined by using reasonable means consistent with principles and general provisions of GST law.

Explanation

A) “Open market Value” of supply means full value in money, excluding integrated, central, state, union territory tax and cess payable in a transaction by a person, where receipt and supplier are unrelated and price is sole consideration, to obtain such supply at same time when supply being valued is made.

B) “Supply of goods or services or both of like kind and quality” means any other supply of goods or services or both made under similar circumstances and reputation of them are closely or substantially resembles.

Conclusion

It’s clear in exchange of good for goods and supply for supply or goods for supply and supply for goods is known as barter and the central GST act talks about it and how it will taxed in different scenarios. But barter is not limited to only indirect taxes. It can be seen in other from when barter leads to generation of income. It can be profits and gains from business and profession or capital gains. Still one other type of currency’s taxation is yet to be decided i.e. cryptocurrencies. In the US virtual currency is defined as property under IRS notice 2014-2021[1]. It is to be taxed as capital gain whether short or long term on how long it has been held[2]. Idea of bitcoin taxation is new to Indian market and law regulating it are also absent but it can’t be neglected by income tax laws as it is income, even if its form is different from real money. One way is Bitcoin mining, other is when bitcoin is transferred for real money in exchange and was held as investment. Bitcoins held as stock-in-trade or received as consideration on sale of goods and services.

[1] Notice 2014-21, Irs.gov, can be viewed here https://www.irs.gov/pub/irs-drop/n-14-21.pdf visited on 5 June 2020

[2] Joe Liebkind, Taxes and Crypto, Investopedia, can be viewed here at https://www.investopedia.com/tech/taxes-and-crypto/#:~:text=This%20means%20anything%20purchased%20using,long%20the%20asset%20was%20held.&text=Taxable%20transactions%20include%3A,money%2C%20or%20%E2%80%9Ccashing%20out%E2%80%9D visited on 5 June 2020.

Author Details: Deeksha Singh

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