Items not covered under GST

Navigating the complex landscape of Goods and Services Tax (GST) is crucial for businesses and individuals alike. Among the various provisions, Schedule III of the CGST Act outlines activities and transactions that fall outside the purview of GST, being neither goods nor services. In this blog, we delve into the details of Schedule III, knowing in detail items not covered under GST.

What is Schedule III under GST?

Schedule III of the CGST Act identifies activities or transactions that do not qualify as the supply of goods or services. These exclusions are essential for businesses to understand, as they help delineate the boundaries of GST applicability.

Difference between exempt supplies, non-GST supplies, nil-rated supplies, and Schedule III supplies

Parameters for comparison	Exempt Supply	Zero-rated Supply	Nil-rated Supply	Non-GST Supply	Schedule III Supply
Meaning	Supplies taxable under the GST Act but are specifically exempted from GST by notification.	The supplies defined in the IGST Act under this definition are zero-rated if sales as well as the inputs or input services, used in such sales, can be free of GST.	The tax rate under the GST Act is notified as ‘0’ for these supplies.	These supplies are not finding mention in the GST law as these are constitutionally kept out of GST. Hence, are out of scope.	These supplies if not had been included in Schedule III, would have been considered as supply and would be subject to levy of GST
Does it fall in the scope of supply under GST?	Yes	Yes	Yes	No	No
ITC availability	Not available	Available	Available	Not available	Not available
Examples	Fresh fruits, Fresh milk, Curd, Bread, etc.	Exports and Supplies made to SEZ or SEZ Developers, of both goods and services.	Grains, salt, Jaggery, etc.	Alcohol used for human consumption, Natural gas, Petrol and its products, electricity, etc.	Services of a funeral and burial, certain actionable claims, e

List of Entries in Schedule III of the CGST Act

Employee Services under Employment Agreement:

The exclusion of employee services from GST implies that routine activities performed by an employee as part of their employment agreement are not considered a supply of goods or services. This is a fundamental exemption ensuring that the traditional employer-employee relationship is not burdened by additional taxation.

Exceptions:

Independent Directors: Remuneration to independent directors, who are not considered employees, falls under the reverse charge mechanism. This ensures that even non-employee roles with significant decision-making responsibilities are appropriately taxed.

Employer-Provided Services: While services rendered by employees to employers are exempt, certain services provided by the employer to employees may attract GST. For instance, cafeteria, recreation, and sports facilities provided to employees are considered taxable services under Schedule I, Entry 2.

Tax Implications:

Notice Period Pay: Notice period pay may attract GST, and it's essential to understand the specific scenarios in which GST applies to employee services.

Services by Court or Tribunal:

The exemption of services provided by Courts, including District, High, and Supreme Courts, is a recognition of the non-commercial and essential nature of justice-related activities. This exemption ensures that legal proceedings and associated services remain outside the GST ambit.

Special Considerations:

Arbitral Tribunal Services: While services provided by regular courts are exempt, services by arbitral tribunals to any business entity are subject to tax on a reverse charge basis. This is a key distinction recognizing alternative dispute resolution mechanisms.

Legal Services:

Legal services provided by Members of Parliament (MPs) or State Legislators are taxable under GST if rendered to a business entity. However, the same services are exempt if provided to individuals, highlighting the varying tax treatment based on the recipient.

MP or Person in a Constitutional or Government Post:

Entities Covered:

Duties performed by Members of Parliament, State Legislatures, Panchayats, Municipalities, and other local authorities in their official capacities are exempt from GST. This includes individuals holding posts under the provisions of the Constitution.

Clarification:

Legal services provided by MPs or MLAs are taxable under GST if provided to a business entity but are exempt if rendered to any other person. This distinction emphasizes the tax treatment based on the nature of the recipient.

Funeral and Related Services:

Exemption:

The exemption of services related to funerals, burials, crematoriums, or mortuaries recognizes the sensitive nature of these services. GST is not levied on the emotional and essential services associated with the handling and respectful disposition of deceased individuals.

Transportation Charges:

Charges for the transportation of the deceased are also covered under this exemption. This ensures that the overall cost of funeral services remains unaffected by GST, providing relief to grieving families.

Sale of Land and/or Completed Building:

Real Estate Transactions:

Proceeds from the sale of land in any form or used for any purpose, as well as the sale of completed buildings of any nature, are exempt from GST. This exemption aims to prevent double taxation, as the same transactions may attract stamp duty.

Construction Services:

While the sale of land and completed buildings is exempt, the construction services associated with the development of a new building are subject to GST. The timing of the sale agreement and issuance of the completion certificate determines the tax treatment.

Actionable Claims Apart from Lottery, etc:

Actionable claims, including book debts, bill of exchange, and beneficial interest in movable property not in possession of the claimant, are excluded from GST. These claims can only be enforced through legal action or a suit.

Exception:

Lottery, Betting, and Gambling: While most actionable claims are excluded, lottery, betting, and gambling are explicitly mentioned as exceptions. These activities attract a higher GST rate, reflecting the government's approach to regulating and taxing specific forms of recreational activities.

Sale from and to Non-taxable Territories:

Exclusion Criteria:

Supply of goods from a place in a non-taxable territory to another place in a non-taxable territory without such goods entering into India is not considered a supply under GST. This exclusion is crucial for international trade scenarios.

Notable Inclusions:

Out and Out Supplies: Transactions such as merchant trading, high sea sales, and sales of goods in customs bonded warehouses are not considered supplies under the GST Act. This ensures that certain international trade activities remain outside the GST ambit.

Transactions in Customs Port:

Supply in Customs port before home consumption* as follows:

(a) supply of warehoused goods to any person before clearance for home consumption.

(b) Supply of goods by the consignee to any other person, by an endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

*In Budget 2023, it was proposed that these entries will take retrospective effect from 1st July 2017. However, no refund will be made of all the tax that has been collected between 1st July 2017 and 31st January 2019 (date of insertion into the Act). Further, Section 17(3) of the CGST Act has also been amended in this regard restricting ITC on the “Supply of warehoused goods to any person before clearance for home consumption”, by including the value of such transactions under exempt supplies.

Conclusion:

In conclusion, understanding the nuanced details of each entry in Schedule III is essential for businesses to ensure compliance and make informed decisions. By exploring these exclusions in depth, businesses can navigate the GST landscape with confidence, recognizing the intricacies of various transactions and their corresponding tax treatments