This document discusses various transactions between employers and employees and analyzes whether they would constitute a supply under GST law. It summarizes the key judgements of the Authority for Advance Rulings, Kerala in the Caltech Polymers case. According to the summary, services provided by an employee to the employer in the course of employment are excluded from GST as per Schedule III. However, recovery of food expenses from employees would be taxable as consideration is involved. Transactions like transport allowance and uniform allowance would not attract GST.

1. DISCUSSION ON SCHEDULE III (CGST ACT)
Compiled and Presented
by:
CA Navya Malhotra
[B.Com (H), M.Com, ACA, DISA]
Certified GST Member- The
I.C.A.I
Contact Details
:: Mobile: 84471 37367 ::
E-Mail: navyamalhotra28@gmail.com
“Our Knowledge, Your Advantage”
April 2020

2. INTRODUCTION
 Section 2(78) of the CGST Act,
“non-taxable supply” means a supply of goods or services or both which is not leviable to tax
under this Act or under the Integrated Goods and ServicesTax Act;
Transactions specified in Schedule III which are treated as neither a supply of goods nor a
supply of services, would also qualify as non-taxable supplies.
However, supplies listed in schedule III will NOT be included as non-taxable supplies (or
exempt supplies) as they are, by express legislation, declared to be neither a supply of
goods nor a supply of services. However, for the limited purposes of section 17(2), by a
fiction, certain transactions appearing in schedule III are ‘treated’ as exempt supplies which
will be so only to that limited extent.

3. Please Note:
The word “anything” appears to convey something very vast like “everything”, i.e., services
means everything that is not goods, and is not specifically excluded (such as money,
securities, transactions specified in Schedule III, etc.)
7. Scope of supply:
(2) Notwithstanding anything contained in sub-section (1), ––
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public authorities, as may
be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.

4. As per section 17(3): (1/2)
The value of exempt supply under sub-section (2) shall be such as may be prescribed, and
shall include supplies on which the recipient is liable to pay tax on reverse charge basis,
transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule
II, sale of building.
Explanation.—For the purposes of this sub-section, the expression “‘‘value of exempt
supply’’ shall not include the value of activities or transactions specified in Schedule III,
except those specified in paragraph 5 of the said Schedule.
Explanation added to Section 17(3) is an important amendment to allow taxpayer to avail
full credit even if they are not paying GST if the activities or transactions are mentioned
in Schedule III except sale of land and completed building.As such, it is important to note
that transactions listed in schedule III are “NOT SUPPLIES” and hence they are neither
‘exempt supplies’ nor are they ‘non-taxable supplies’.

5. As per section 17(3): (2/2)
For Eg. Sale of goods on high seas or merchant trading transactions will not entail any
reversal of input tax credit as they have now been covered under Schedule III after the
amendment.
Credit related to schedule III supplies must always be allowed and cannot come in for any
reversal for the reasons that (a) items listed in schedule III are ‘no supply’ and (b)
explanation inserted in section 17(3) expressly states this with the only exception from
para 5 of sch III.Although this explanation was inserted from 1 Feb 2019, as per decision
in Sundaram Pillai v. Pattabiraman 1985 AIR 582 SC, where the date of coming into effect
of ‘explanation’ and ‘proviso’ inserted in a legislation must be examined from the context
and Hon’ble SC takes pains to laid down various circumstances and applicability of these
expressions in each case;

6. Schedule III:
Activities or transactions which shall be treated neither as a supply of goods
nor a supply of services
1. Services by employee to employer in the course/ relation to employment.
2. Services by any court or Tribunal
3. Functions performed by the Members of Parliament, etc., duties by persons holding
Constitutional office or duties performed in a body of the Government
4. Services of funeral, burial, crematorium or mortuary, etc.
5. Sale of land and sale of completed buildings
6.Actionable claims (other than lottery, betting and gambling)
7. Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.

7. Schedule III:
Activities or transactions which shall be treated neither as a supply of goods
nor a supply of services
7. Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.
8. (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 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.
Explanation 1.—For the purposes of paragraph 2, the term "court" includes District
Court, High Court and Supreme Court.
Explanation 2.— For the purposes of paragraph 8, the expression “warehoused goods”
shall have the same meaning as assigned to it in the Customs Act, 1962

9. Entry I:
Services by an employee to the employer in the course of or in relation to his
employment.
The paragraph includes only services and not goods. Further, the paragraph only covers
those services provided by an employee to the employer and not vice versa. Please note
that ‘in the course or in relation to’ does not save every transaction between employer-
employee.
Only those transactions occurring within the four corners of the ‘master-servant’
relationship will be saved. The same two persons (who have employer-employee) can
constitute another relationship and those will be taxed on their own merits.
It is also important to identify if the consideration that is claimed to be for ‘services of
employee’ can be verified and validated with the amount reported for income-tax or
provident fund purposes as ‘salary’.

10. AUTHORITY FOR ADVANCE RULINGS, KERALA
Caltech Polymers (P.) Ltd
M/s. Caltech Polymers Pvt. Ltd., Malappuram (hereinafter called the applicant or the
Company) has preferred an application for Advance Ruling on whether recovery of food
expenses from employees for the canteen service provided by the applicant/company
comes under the definition of outward supplies and are taxable under Goods & Services
Tax Act.
The company is of the opinion that this activity does not fall within the scope of 'supply',
as the same is not in the course or furtherance of its business.The company is only
facilitating the supply of food to the employees, which is a statutory requirement, and is
recovering only the actual expenditure incurred in connection with the food supply,
without making any profit.
The company also referred to the Mega Exemption Notification No. 25/2012-ST dated
20.06.2012 issued by the Government of India whereby services in relation to supply of
food or beverages by a canteen maintained in a factory covered under the Factories Act,
1948 was exempted under the Service Tax Law.

11. The term "business" is defined in section 2(17) of the GST Act, which reads like
this:—
"business" includes:- (a) any trade, commerce, manufacture, profession, vocation,
adventure, wager or any other similar activity, whether or not it is for a pecuniary
benefit:
(b) any activity or transaction in connection with or incidental or ancillary to sub-
clause (a);...
From the plane reading of the definition of "business", it can be safely concluded that
the supply of food by the applicant to its employees would definitely come under
clause (b) of section 2(17) as a transaction incidental or ancillary to the main business.

12. The term 'consideration' is defined in section 2(31) of the GST Act, 2017 which is extracted
below:
'consideration' in relation to the supply of goods or services or both includes,-
any payment made or to be made, whether in money or otherwise, in respect of, in response
to, or for the inducement of, the supply of goods or services or both, whether by the
recipient or by any other person but shall not include any subsidy given by the Central
Government or a State Government;
Since the applicant recovers the cost of food from its employees, there is consideration as
defined in section 2(31) of the GST Act, 2017.
Since the applicant recovers the cost of food from its employees, there is consideration as
defined in section 2(31) of the GST Act, 2017.
It is hereby clarified that recovery of food expenses from the employees for the canteen
services provided by company would come under the definition of 'outward supply' as
defined in section 2(83) of the Act, 2017, and therefore, taxable as a supply of service under
GST.

13. Entry I:
S.No. Transaction Schedule III-
Applicable/Not
Applicable
Remarks
1. Leased car provided by employer disclosed in Form 12BA as
perquisite (In terms of employment agreement)
Applicable NO GST
2. Gifts by Employer to employee not exceeding Rs 50,000 in a
FinancialYear
N.A., However
excluded as per Sch I*
NO GST
3. Food provided to all the employees without any charge. Applicable
Consideration for
services offered by
the employee to the
employer**
4. Deduction at concessional rate from salary towards
amenities provided. (not in agreement)
Not Applicable To be valued at
“Open Market”**
*Gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply
of goods or services or both.
**Caltech Polymers (AAR-Kerela) and also ref: Posco India Pune Processing Centre Private Limited

14. Entry I:
S.No. Transaction Schedule III-
Applicable/Not
Applicable
Remarks
5. Transport Allowance, Uniform Allowance etc. Applicable No GST
6. Reimbursements of expenses incurred by employee on behalf
of employer
N.A. Pure Agent
No GST
7. Gifts are provided in cash N.A. N.A.
8. Gifts forming part of the Employment Contract Applicable No GST
9. Notice Pay Recovery N.A. Consideration to the
employer for
“tolerating the act”
10. Retention of Laptop by employee while leaving Job N.A. Sl No 2 of Schedule I
11. Discounts offered to employees on products N.A. Open MarketValue
12. Free of cost health check-ups N.A. Open MarketValue

15. Entry I:
S.No. Transaction Schedule III-
Applicable/Not
Applicable
Remarks
13. House on rent to employee and deduction made N.A. Exempted
14. employee of an IT company acts as a DJ at an office party
and gets paid
N.A GST Applicable
15. Car Lease Policy Applicable Not Applicable
16. Providing office bus to employees on recovery of certain
amounts
N.A. GST Applicable

16. Taxability of Remuneration Paid to Directors under GST
The advance ruling of Clay Craft (P) Ltd., has created a sense of panic in the thoughts of
the assessees across the nation.The ruling stated that question sought is not about the
taxability of service, but as to whether the services are liable to be taxed under GST in
regard to RCM provisions being applicable to the company.
Notification 13/ 2017-CentralTax (Rate) dated 28/06/2017 in serial no. 6 clearly states
that the services supplied by the director of a company or the body corporate to the said
company or Body corporate is liable to be taxed as RCM in the hands of the company or
body corporate located in the taxable territory.
Taxability of director's remuneration under the GST should be determined on the basis of
the fact whether the director is WTD or Non-WTD.The clarification is soon expected
for the said anomaly and it can be concluded that the amount paid to the directors
engaged in whole time employment with the company will be treated as part of the
salary, and will be excluded from the ambit of GST.

17. Actionable Claim in general terms signifies a claim or a debt for which you can take an
action, which means there’s a claim and you can approach the court for the enforcement
of the same. Here it signifies a debt and the actionable claim holder can move to the
court for the recovery of that debt.

18. Examples
1.A lends Rs. 1, 00,000/- to B without any security. The debt given by A is an actionable
claim and in case of failure on the part of B to repay it,A can move to the court.
2.A lends Rs. 1, 00,000/- to B. B keeps his property X as a security, which is worth Rs. 10,
00,000/-. This debt is not an actionable claim. Also, there is no need on the part of A to
approach the court for the recovery of the same as he already has a security that is
worth more than the debt itself. It doesn’t mean that A cannot approach the court. But
this case will be covered under the mortgage.
In brief, it can be said that an actionable claim means a claim to an unsecured debt or any
interest in movable property which is not in the possession of the claimant.

19. Section 3 ofTransfer of Property Act, 1882:
Section 3 ofTransfer of Property Act, 1882 defines Actionable Claim.
According to Section 3, an actionable claim is a claim to:
any debt which is not secured by:
Mortgage of immovable property, or
Hypothecation, or pledge of movable property
Or
Any beneficial interest in movable property, which is not in possession of the claimant.
The possession can be actual or constructive.

20. LotteryTickets
The question as to whether lottery tickets are goods properly so-called or are actionable
claims arose in:
H.Anraj v. Govt. OfTamil Nadu
A lottery ticket is a good properly so-called and the transfer of lottery tickets was a sale.
In Sunrise Associates v. Govt. of NCT of Delhi on 28th April 2006, SC
Supreme Court held:The right to participate in a draw is a beneficial interest in movable
property.The object of the participation would be to win the prize.Transfer of right is
thus a beneficial interest in movable property not in possession. Hence, a lottery is an
actionable claim.

21. EntryVI:
Actionable claims, other than lottery, betting and gambling
A plain reading of this paragraph would mean that actionable claims are neither a supply
of goods nor a supply of services. However, the three classes of actionable claims listed in
this paragraph warrant attention.
The definition of the word ‘goods’ includes the words ‘actionable claims. It must,
therefore, be necessarily understood that the three classes of actionable claims viz.
lottery, betting and gambling, if and when subjected to tax, must be taxed as goods.
The irony is, while lottery is subject to tax as goods, betting and gambling have been
subjected to tax as services under the heading 9996. This is deliberate to cover
‘actionable claims’ involving betting and gambling to taxed as goods and ‘other than
actionable claims’ towards betting and gambling to be taxed as services.

22. EntryVI:
Actionable claims, other than lottery, betting and gambling
Refer to section 130 of Transfer of Property Act, 1882 regarding the manner of
‘transferring’ actionable claims. Transfer of actionable claim can be with consideration or
without consideration as per the Transfer of Property Act, 1882.
Actionable claim represents beneficial interest in movable property that is not in
possession. It is an entitlement to a debt and the holder of the actionable claim enjoys
the right to demand “action” against any person. Acknowledgement of liability by a
creditor to honor a claim, when made, does not constitute actionable claim in the hands
of such creditor.
Examples could be:A claim to any debt other than mortgage-factoring of debtors.Any
beneficial interest in movable property not in ones possession.

23. EntryVI:
Actionable claims, other than lottery, betting and gambling
The following aspects need to be noted:
• Assignment of actionable claim without permanently supplanting the holder of the claim
would not be supply.
• Under the GST regime, actionable claim relating to lottery, betting and gambling alone
will be regarded as ‘goods’ since the definition of goods includes actionable claim.

24. EntryVI:
Actionable claims, other than lottery, betting and gambling
In relation to actionable claims, Courts have held as follows:
(i) Actionable claims come within the definition of goods as generally understood.
(ii)VAT laws have deliberately excluded actionable claims from the definition of goods.
(iii) Actionable claims represent debt and accordingly carry a demand that can lawfully be
made by one person against another.
(iv) Actionable claims represent property in non-physical (incorporeal) form.
But in GST, unlikeVAT laws, we find that by including actionable claims within the
definition of goods, they are made liable to tax. In relation to actionable claims under GST,
please note the following key aspects:
(i) Actionable claims are included specifically in the definition of goods, but this inclusion
is by creating “an exception from an exclusion”. In other words, while excluding money
and securities from the definition of goods, actionable claims have been singled out.

25. EntryVI:
Actionable claims, other than lottery, betting and gambling
Cont..
This means such forms of actionable claims that represent property in the form of money
or securities are also excluded from the definition of goods.Therefore, from a large
population of actionable claims, tax is applicable only on the subset of actionable claims
which do not represent property in the form of money or securities and all other forms
of actionable claims representing any other property is includable in the definition of
goods.
A receipt for having made payment is not actionable claim because that receipt
represents money and not the result of a transaction resulting in debt or demand.
Similarly, promissory notes, IOU slips and all other derivatives of such instruments are
also not actionable claims for the purposes of GST because of the exclusion of money
from the definition.

26. EntryVI:
Actionable claims, other than lottery, betting and gambling
(ii) Actionable claims which are included within the definition of goods do not become
includable in the definition of services due to the accommodative and expansive language
used to define services. For this reason, the property that actionable claims represent
even if they are in non-physical form will continue to remain goods and not become
services.Actionable claims so understood may or may not be itself in any physical form. In
other words, actionable claim is not the piece of paper carrying the detailed description
of the actionable claim in question but the real property, though in non-physical form, that
is referred to in that piece of paper. In this digital age, piece of paper carrying the
description of the actionable claim can even be present in electronic form and still retain
the chart of actionable claim within the definition of goods. So, actionable claims can be in
physical or electronic form as long as they represent real property.

27. Points to Note:
Although various courts have held that the term ‘goods’ includes actionable claim under
theVAT laws, as trade practice, actionable claims were kept outside the taxation net
under the earlier laws. Now, the GST law seeks to change this understanding by including
actionable claim in the definition of goods.Thus, under GST laws, actionable claims would
be goods;
•The words ‘but includes’ is an exception to the “exclusion” of money and securities. In
other words, if the actionable claim represents property that is money or securities, it
can be held that such forms of actionable claims continue to be excluded;
• Actionable claim, other than lottery, betting and gambling will not be treated as supply
of goods or services by virtue of Schedule III (Activities or transactions which shall be
treated neither as a supply of goods nor a supply of services);
• Actionable claims which is excluded from definition of goods under Sale of Goods Act is
specifically included in the definition of goods in CGST Act.

28. Practical Insight
The tax rate notifications issued for goods states that ‘actionable claim in the form of
chance to win in betting, gambling, or horse racing in race club’ is liable to tax at the rate
of 28%. The rate notification issued for services also specifies that the gambling as an
activity involving services and accordingly, liable to tax at 28% (refer entry No. 34(v) of
Notification No. 11/2017 (Rate)).
It is also interesting to refer to the clarifications issued by TRU vide F. No. 354/107/2017-
TRU dated 04.01.2018 wherein it is clarified that the actionable claim involving betting,
gambling or horse racing would be a service. It is further clarified that the tax would be
applicable at 28% on the total value of betting which exceeds the authority to tax since,
only certain percentage of the total value of betting will be retained as commission in
providing the services of betting / gambling and balance amount forms part of the prize
money.
With the above ambiguities there may be some confusion whether to tax actionable
claims as goods or services and the rate at which such supply should be taxed.

29. Practical Insight
Ref: Circular No. 27/01/2018-GST
As is evident from the notification, “entry to casinos” and “gambling” are two different services,
and GST is leviable at 28% on both these services (14% CGST and 14% SGST) on the value
determined as per section 15 of the CGST Act. Thus, GST @ 28% would apply on entry to
casinos as well as on betting/ gambling services being provided by casinos on the transaction
value of betting, i.e. the total bet value, in addition to GST levy on any other services being
provided by the casinos (such as services by way of supply of food/ drinks etc. at the
casinos). Betting, in pre-GST regime, was subjected to betting tax on full bet value.
“Heading 9996 (Recreational, cultural and sporting services) - …
(iii) Services by way of admission to entertainment events or access to amusement
facilities including exhibition of cinematograph films, theme parks, water parks, joy rides,
merry-go rounds, gocarting, casinos, race-course, ballet, any sporting event such as Indian
Premier League and the like. - 14% (iv)…
(v) Gambling. - 14 %”

30. Extract of the CGST Rules 2017
31A.Value of supply in case of lottery, betting, gambling and horse racing.-
(1) Notwithstanding anything contained in the provisions of this Chapter, the value in
respect of supplies specified below shall be determined in the manner provided
hereinafter.
(2) (a) The value of supply of lottery run by State Governments shall be deemed to be
100/112 of the face value of ticket or of the price as notified in the Official Gazette by
the organising State, whichever is higher.
(b) The value of supply of lottery authorised by State Governments shall be deemed
to be 100/128 of the face value of ticket or of the price as notified in the Official
Gazette by the organising State, whichever is higher.

31. Explanation:– For the purposes of this sub-rule, the expressions-
(a) “lottery run by State Governments” means a lottery not allowed to be sold in any
State other than the organizing State;
(b) “lottery authorised by State Governments” means a lottery which is authorised to be
sold in State(s) other than the organising State also; and
(c) “Organising State” has the same meaning as assigned to it in clause (f) of sub-rule (1)
of rule 2 of the Lotteries (Regulation) Rules, 2010.
(3) The value of supply of actionable claim in the form of chance to win in betting,
gambling or horse racing in a race club shall be 100% of the face value of the bet or the
amount paid into the totalisator.

32. Betting, Gambling or Horse Racing – Actionable claim in the form of chance to win in
betting, gambling or horse racing in a race club shall be 100% of the face value of the bet
or the amount paid to totalisator.This implies that that the value on which GST has to be
paid will be the amount of bet placed or the amount paid to the totalisator instead of the
commission or share of revenue of the race club.
It is interesting here to refer to schedule III which states that actionable claim other than
lottery, betting and gambling would qualify as an activity or transaction which shall be
treated neither as supply of goods nor supply of services.This means that transaction in
lottery, betting and gambling would for the purpose of GST law, qualify as supply.The
terms ‘goods’ under section 2(52) includes actionable claims. Services under section
2(102) is defined to exclude goods.Accordingly, the actionable claim in the form of
chance to win betting, gambling and horse racing with reference to the above definitions
will be goods and not services.

34. Contact details are as below:
CA Navya Malhotra
Mobile: +91- 84471 37367
Email : navyamalhotra28@gmail.com
Facebook : CA Navya Malhotra (@gstwithcanavya)
Youtube: CA Navya Malhotra
Address :
V K Dhingra & Co.
Chartered Accountants
E/1/15, Block E 1, Jhandewalan Extension, Karol Bagh, New Delhi, Delhi 110005