Ch 4 - Supply of Services | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 4 - Suppl y of Servi ces 
 
 
 
 
 
CHAPTER 4 
 
Supply of Services 
 
EXECUTIVE SUMMARY 
 
?   Though tax is payable whether supply is goods or service, distinction has been made in some cases. 
This is given in Schedule II 
?   Hire or operating lease of goods is 'service'. 
?   Renting, leasing of immovable property is 'service'. 
?   Works  contract  of  immovable  property  (mainly  construction  and  erection  and  commissioning 
related) is 'service'. 
?   Supply of food by way of or as part of service is 'service'. 
?   Development of software is 'service'. However, software in physical form should sti l be 'goods'. 
?   Temporary transfer or permitting use or enjoyment of IPR (Inte lectual Property Ri ght) like patent, 
design, copyright is service. Permanent transfer of IPR should be 'goods'. 
?   Job work is 'service'. 
?   Obligation to refrain from act or tolerating an act or situation is 'service'.  This will cover Late 
Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage. 
?   Money is  neither  goods  nor  service.  Hence,  'supply of money'  i.e.  interest,  loan,  investments, 
dividend, profit distribution among partners is not subject to GST. 
?   Securities is neither goods not service. Hence, 'supply of securities' i.e. supply of shares, debentures, 
bonds, units of mutual f und, derivatives is not subject to GST. 
?   Sale of land or duly and fully  constructed building (after possession) is neither goods nor service. 
Hence, GST is not payable. 
?   Service by employee to employer is not subject to GST. 
4.1 Meaning of 'services' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India]. 
 
However, definition of 'services' in GST Act is di fferent. Section 2(102) of CGST Act defines 'services' as 
follows - 
"Services" means anything other than goods, money and securities but includes activities relating to the use of 
money or its conversion by cash or by any other mode, from one form, currency or denomination, to another 
form, currency or denomination for which a separate consideration is charged. 
Though definition of 'service' can cover even immovable property, sale of land and sale of completed building 
has been excluded from definition of goods or service. 
The definition of 'service' is so broad that practically    sky is the limit for imposing any tax by Union or 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 4 - Suppl y of Servi ces 
 
 
 
 
 
CHAPTER 4 
 
Supply of Services 
 
EXECUTIVE SUMMARY 
 
?   Though tax is payable whether supply is goods or service, distinction has been made in some cases. 
This is given in Schedule II 
?   Hire or operating lease of goods is 'service'. 
?   Renting, leasing of immovable property is 'service'. 
?   Works  contract  of  immovable  property  (mainly  construction  and  erection  and  commissioning 
related) is 'service'. 
?   Supply of food by way of or as part of service is 'service'. 
?   Development of software is 'service'. However, software in physical form should sti l be 'goods'. 
?   Temporary transfer or permitting use or enjoyment of IPR (Inte lectual Property Ri ght) like patent, 
design, copyright is service. Permanent transfer of IPR should be 'goods'. 
?   Job work is 'service'. 
?   Obligation to refrain from act or tolerating an act or situation is 'service'.  This will cover Late 
Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage. 
?   Money is  neither  goods  nor  service.  Hence,  'supply of money'  i.e.  interest,  loan,  investments, 
dividend, profit distribution among partners is not subject to GST. 
?   Securities is neither goods not service. Hence, 'supply of securities' i.e. supply of shares, debentures, 
bonds, units of mutual f und, derivatives is not subject to GST. 
?   Sale of land or duly and fully  constructed building (after possession) is neither goods nor service. 
Hence, GST is not payable. 
?   Service by employee to employer is not subject to GST. 
4.1 Meaning of 'services' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India]. 
 
However, definition of 'services' in GST Act is di fferent. Section 2(102) of CGST Act defines 'services' as 
follows - 
"Services" means anything other than goods, money and securities but includes activities relating to the use of 
money or its conversion by cash or by any other mode, from one form, currency or denomination, to another 
form, currency or denomination for which a separate consideration is charged. 
Though definition of 'service' can cover even immovable property, sale of land and sale of completed building 
has been excluded from definition of goods or service. 
The definition of 'service' is so broad that practically    sky is the limit for imposing any tax by Union or 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
State 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 4 - Suppl y of Servi ces 
 
 
 
 
 
CHAPTER 4 
 
Supply of Services 
 
EXECUTIVE SUMMARY 
 
?   Though tax is payable whether supply is goods or service, distinction has been made in some cases. 
This is given in Schedule II 
?   Hire or operating lease of goods is 'service'. 
?   Renting, leasing of immovable property is 'service'. 
?   Works  contract  of  immovable  property  (mainly  construction  and  erection  and  commissioning 
related) is 'service'. 
?   Supply of food by way of or as part of service is 'service'. 
?   Development of software is 'service'. However, software in physical form should sti l be 'goods'. 
?   Temporary transfer or permitting use or enjoyment of IPR (Inte lectual Property Ri ght) like patent, 
design, copyright is service. Permanent transfer of IPR should be 'goods'. 
?   Job work is 'service'. 
?   Obligation to refrain from act or tolerating an act or situation is 'service'.  This will cover Late 
Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage. 
?   Money is  neither  goods  nor  service.  Hence,  'supply of money'  i.e.  interest,  loan,  investments, 
dividend, profit distribution among partners is not subject to GST. 
?   Securities is neither goods not service. Hence, 'supply of securities' i.e. supply of shares, debentures, 
bonds, units of mutual f und, derivatives is not subject to GST. 
?   Sale of land or duly and fully  constructed building (after possession) is neither goods nor service. 
Hence, GST is not payable. 
?   Service by employee to employer is not subject to GST. 
4.1 Meaning of 'services' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India]. 
 
However, definition of 'services' in GST Act is di fferent. Section 2(102) of CGST Act defines 'services' as 
follows - 
"Services" means anything other than goods, money and securities but includes activities relating to the use of 
money or its conversion by cash or by any other mode, from one form, currency or denomination, to another 
form, currency or denomination for which a separate consideration is charged. 
Though definition of 'service' can cover even immovable property, sale of land and sale of completed building 
has been excluded from definition of goods or service. 
The definition of 'service' is so broad that practically    sky is the limit for imposing any tax by Union or 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
State 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Governments. 
 
4.1-1 What  is general understanding of meaning of 'service' 
 
As per Webster's Concise Dictionary, 'service' means 'a useful result or product of labour, which is not a 
tangible commodity'. Wikipedia (www.answers.com) defines service as under - In economics and marketing, 
a service is the non-material equivalent of a good. Service provision has been defined as an economic activity 
that does not result in ownership, and this is what di fferentiates it from providing physical goods. 
In UOI v. Martin  Lottery Agencies Ltd. (2009) 20 STT 203 = 24 VST 1 (SC), fo lowing dictionary 
meanings  of 'service'  were  noted  -  'Work  done  or duty performed  for another  or others; a serving;  as 
professional services, repair service, a life devoted to public service - - An activity carried out to provide 
people with the use of somethi ng, as electric power, water, transportation, telephones etc. - - Anything useful, 
as maintenance, supplies, insta lation, repairs, etc. provided by a dealer or manufacturer for people who have 
bought thi ngs from him'. 
In this case, it was observed  that State does not render any service to society while raising revenue  by 
contro ling dealing in liquor and/or by transferring privilege to manufacture, distribute, sale etc. 
Basica ly, service is 'economic activity' resulting in 'value addition', which can be perceived but cannot be seen 
as it is intangible. Another feature of 'service' is that it is perishable instantly, and it cannot be 'stored'. For 
example, service of hotel room or seat in an aircraft, if not utilised today, perishes tomorrow. Today's hotel 
room or seat in aircraft cannot be used tomorrow. Benefit of service may last longer (e.g. consultancy service, 
audit service), but the service itself perishes and cannot be stored. Service once availed cannot be 'returned' to 
service provider or transferred to another person, while goods can be returned or transferred. 
Of course, use of some goods will not mean that there is no 'service'. We have to see which is predominant 
factor. 
'Goods' also do perish, but not so instantly. 
 
In sum, characteristics of 'service' are - (a) Economic Activity (b) Value addition (c) Intangible - can be 
perceived but not seen (d) Instantly perishable  - cannot be stored, though benefit of service may last 
longer (e) Service provided/availed cannot be 'returned' to service provider or 'transferred' to another. 
4.1-2 Importation of service is 'supply' 
 
As per section 7(1)(b) of CGST Act, importation of service, for a consideration whether or not in the course 
or furtherance of business, is 'supply' and subject to GST. 
Further,  importation  of services  by a  taxable  person  from a  related  person  or  from any  of his  other 
establishments outside India, in the course or furtherance of business will be treated as 'supply' even if made 
without consideration - para 4 of Schedule I of CGST Act. 
Thus, import of service from HO or branch outside India will be subject to GST even if no payment was made 
to HO or branch outside India. 
4.1-3 Supply of SIM Card is not supply of goods but is service 
 
SIM card is a card containing computer chips with pre-recorded instructions which would, upon activation, 
enable the customer access to the service of ce lular phone. 
In Idea Mobile Communication Ltd. v. CCE &C [2011] 32 STT 262 = 12 Latest Case307 = 43 VST 1 
(SC), it has been held that SIM card does not have any intrinsic value. The value of SIM card forms part of 
the activation charges as no activation is possible without a valid functioning of SIM card. Thus it is 'service' 
and not 'goods' - fo lowed in State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd. (2011) 33 STT 553 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 4 - Suppl y of Servi ces 
 
 
 
 
 
CHAPTER 4 
 
Supply of Services 
 
EXECUTIVE SUMMARY 
 
?   Though tax is payable whether supply is goods or service, distinction has been made in some cases. 
This is given in Schedule II 
?   Hire or operating lease of goods is 'service'. 
?   Renting, leasing of immovable property is 'service'. 
?   Works  contract  of  immovable  property  (mainly  construction  and  erection  and  commissioning 
related) is 'service'. 
?   Supply of food by way of or as part of service is 'service'. 
?   Development of software is 'service'. However, software in physical form should sti l be 'goods'. 
?   Temporary transfer or permitting use or enjoyment of IPR (Inte lectual Property Ri ght) like patent, 
design, copyright is service. Permanent transfer of IPR should be 'goods'. 
?   Job work is 'service'. 
?   Obligation to refrain from act or tolerating an act or situation is 'service'.  This will cover Late 
Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage. 
?   Money is  neither  goods  nor  service.  Hence,  'supply of money'  i.e.  interest,  loan,  investments, 
dividend, profit distribution among partners is not subject to GST. 
?   Securities is neither goods not service. Hence, 'supply of securities' i.e. supply of shares, debentures, 
bonds, units of mutual f und, derivatives is not subject to GST. 
?   Sale of land or duly and fully  constructed building (after possession) is neither goods nor service. 
Hence, GST is not payable. 
?   Service by employee to employer is not subject to GST. 
4.1 Meaning of 'services' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India]. 
 
However, definition of 'services' in GST Act is di fferent. Section 2(102) of CGST Act defines 'services' as 
follows - 
"Services" means anything other than goods, money and securities but includes activities relating to the use of 
money or its conversion by cash or by any other mode, from one form, currency or denomination, to another 
form, currency or denomination for which a separate consideration is charged. 
Though definition of 'service' can cover even immovable property, sale of land and sale of completed building 
has been excluded from definition of goods or service. 
The definition of 'service' is so broad that practically    sky is the limit for imposing any tax by Union or 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
State 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Governments. 
 
4.1-1 What  is general understanding of meaning of 'service' 
 
As per Webster's Concise Dictionary, 'service' means 'a useful result or product of labour, which is not a 
tangible commodity'. Wikipedia (www.answers.com) defines service as under - In economics and marketing, 
a service is the non-material equivalent of a good. Service provision has been defined as an economic activity 
that does not result in ownership, and this is what di fferentiates it from providing physical goods. 
In UOI v. Martin  Lottery Agencies Ltd. (2009) 20 STT 203 = 24 VST 1 (SC), fo lowing dictionary 
meanings  of 'service'  were  noted  -  'Work  done  or duty performed  for another  or others; a serving;  as 
professional services, repair service, a life devoted to public service - - An activity carried out to provide 
people with the use of somethi ng, as electric power, water, transportation, telephones etc. - - Anything useful, 
as maintenance, supplies, insta lation, repairs, etc. provided by a dealer or manufacturer for people who have 
bought thi ngs from him'. 
In this case, it was observed  that State does not render any service to society while raising revenue  by 
contro ling dealing in liquor and/or by transferring privilege to manufacture, distribute, sale etc. 
Basica ly, service is 'economic activity' resulting in 'value addition', which can be perceived but cannot be seen 
as it is intangible. Another feature of 'service' is that it is perishable instantly, and it cannot be 'stored'. For 
example, service of hotel room or seat in an aircraft, if not utilised today, perishes tomorrow. Today's hotel 
room or seat in aircraft cannot be used tomorrow. Benefit of service may last longer (e.g. consultancy service, 
audit service), but the service itself perishes and cannot be stored. Service once availed cannot be 'returned' to 
service provider or transferred to another person, while goods can be returned or transferred. 
Of course, use of some goods will not mean that there is no 'service'. We have to see which is predominant 
factor. 
'Goods' also do perish, but not so instantly. 
 
In sum, characteristics of 'service' are - (a) Economic Activity (b) Value addition (c) Intangible - can be 
perceived but not seen (d) Instantly perishable  - cannot be stored, though benefit of service may last 
longer (e) Service provided/availed cannot be 'returned' to service provider or 'transferred' to another. 
4.1-2 Importation of service is 'supply' 
 
As per section 7(1)(b) of CGST Act, importation of service, for a consideration whether or not in the course 
or furtherance of business, is 'supply' and subject to GST. 
Further,  importation  of services  by a  taxable  person  from a  related  person  or  from any  of his  other 
establishments outside India, in the course or furtherance of business will be treated as 'supply' even if made 
without consideration - para 4 of Schedule I of CGST Act. 
Thus, import of service from HO or branch outside India will be subject to GST even if no payment was made 
to HO or branch outside India. 
4.1-3 Supply of SIM Card is not supply of goods but is service 
 
SIM card is a card containing computer chips with pre-recorded instructions which would, upon activation, 
enable the customer access to the service of ce lular phone. 
In Idea Mobile Communication Ltd. v. CCE &C [2011] 32 STT 262 = 12 Latest Case307 = 43 VST 1 
(SC), it has been held that SIM card does not have any intrinsic value. The value of SIM card forms part of 
the activation charges as no activation is possible without a valid functioning of SIM card. Thus it is 'service' 
and not 'goods' - fo lowed in State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd. (2011) 33 STT 553 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
= 16 Latest Case48 = 49 VST 98 (AP HC DB). 
 
Activation charges  of SIM cards  are  not liable to sales tax - 'Goods' do not include electromagnetic 
waves or radio frequencies.  Hence, activation charges of SIM cards are not liable to sales tax - Escotel 
Mobile Communications v. State of Haryana  (2008) 12 VST 443 (P&H HC DB). 
4.1-4 Electromagnetic waves transmitted through telephones is not 'goods' 
 
In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 145 STC 91 = 
282 ITR 273 = AIR 2006 SC 1383 = 3 VST 95 = 2 STR 161 (SC 3 member bench), it has been held that 
electromagnetic waves by which data is transmitted is not 'goods', since they can neither be abstracted nor are 
they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or 
possessed. Nor are they marketable. 
Transmission of voice or data by use of Artificially Created Light Energy is service and not goods - 
Transmission of voice or data by use of Artificia ly Created Li ght Energy is service and not goods. Vat will not 
be payable on this service - Bharti Airtel v. State of Karnataka  (2011) 32 STT 483 = 13 Latest Case96 
= 44 VST 486 = 7 GST 265 (Karn HC DB). 
 
4.2 Development of software is service 
 
Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of 
information technology software is 'supply of service' - para 5(d) of Schedule II of CGST Act. 
Software is the set of instructions that a lows physical hardware to function and perform computations in a 
particular manner, be in word processor, web browser or the computer's operating system. These expressions 
are in contrast with the hardware which are the physical components of a computer system - LML Ltd. v. CC 
(2010) 258 ELT 321 (SC). 
4.2-1 Software in physical form should be goods 
 
Though the GST Law defines development of software as 'service', software in physical form (branded as we l 
as tailor made) is 'goods' in Customs Tariff Act. 
Software in physical form should sti l be held as 'goods'. 
 
In Tata Consultancy Services v. State of Andhra Pradesh (2004) 141 Taxman 132 = AIR 2005 SC 371 = 
2004 AIR SCW 6583 = 271 ITR 401 = (2005) 1 SCC 308 = 137 STC 620 = 178 ELT 22 (SC 5 member 
Constitution bench), it has been held that canned software (i.e. computer software packages sold off the shelf) 
like Oracle, Lotus, Master-Hey etc. are 'goods'. The copyright in the program may remain with originator of 
programme, but the moment copies are made and marketed, they become 'goods'. 
Earlier also, in Associated Cement Companies Ltd. v. CC 2001(4) SCC 593 = 2001 AIR SCW 559 = 128 
ELT 21 = AIR 2001 SC 862 = 124 STC 59 (SC 3 member bench), it was held that computer software is 
'goods' even if it is copyrightable as inte lectual property. 
 
In State Bank of India v. Municipal Corporation  1997(3) Mh LJ 718 = AIR 1997 Bom 220, it was held 
that 'computer software' is 'appliance' of computer. It was held that it is 'goods' and octroi can be levied on fu l 
value and not on only value of empty floppy. [In this case, it was held that octroi cannot be levied on license 
fee for duplicating the software for distribution outside the corporation limits]. 
In Inventa Software India P Ltd. v. ACCT (2008) 17 VST 362 (Karn HC DB), it has been held that 
application software  development  in financial accounting,  inventory control,  sales analysis,  purchase  order 
system and other professional services is nothing but software development programme. It is 'goods'. 
Customised  and  non-customised   software  both  are  goods  -  Infosys  Technologies  Ltd.  v.  Special 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 4 - Suppl y of Servi ces 
 
 
 
 
 
CHAPTER 4 
 
Supply of Services 
 
EXECUTIVE SUMMARY 
 
?   Though tax is payable whether supply is goods or service, distinction has been made in some cases. 
This is given in Schedule II 
?   Hire or operating lease of goods is 'service'. 
?   Renting, leasing of immovable property is 'service'. 
?   Works  contract  of  immovable  property  (mainly  construction  and  erection  and  commissioning 
related) is 'service'. 
?   Supply of food by way of or as part of service is 'service'. 
?   Development of software is 'service'. However, software in physical form should sti l be 'goods'. 
?   Temporary transfer or permitting use or enjoyment of IPR (Inte lectual Property Ri ght) like patent, 
design, copyright is service. Permanent transfer of IPR should be 'goods'. 
?   Job work is 'service'. 
?   Obligation to refrain from act or tolerating an act or situation is 'service'.  This will cover Late 
Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage. 
?   Money is  neither  goods  nor  service.  Hence,  'supply of money'  i.e.  interest,  loan,  investments, 
dividend, profit distribution among partners is not subject to GST. 
?   Securities is neither goods not service. Hence, 'supply of securities' i.e. supply of shares, debentures, 
bonds, units of mutual f und, derivatives is not subject to GST. 
?   Sale of land or duly and fully  constructed building (after possession) is neither goods nor service. 
Hence, GST is not payable. 
?   Service by employee to employer is not subject to GST. 
4.1 Meaning of 'services' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India]. 
 
However, definition of 'services' in GST Act is di fferent. Section 2(102) of CGST Act defines 'services' as 
follows - 
"Services" means anything other than goods, money and securities but includes activities relating to the use of 
money or its conversion by cash or by any other mode, from one form, currency or denomination, to another 
form, currency or denomination for which a separate consideration is charged. 
Though definition of 'service' can cover even immovable property, sale of land and sale of completed building 
has been excluded from definition of goods or service. 
The definition of 'service' is so broad that practically    sky is the limit for imposing any tax by Union or 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
State 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Governments. 
 
4.1-1 What  is general understanding of meaning of 'service' 
 
As per Webster's Concise Dictionary, 'service' means 'a useful result or product of labour, which is not a 
tangible commodity'. Wikipedia (www.answers.com) defines service as under - In economics and marketing, 
a service is the non-material equivalent of a good. Service provision has been defined as an economic activity 
that does not result in ownership, and this is what di fferentiates it from providing physical goods. 
In UOI v. Martin  Lottery Agencies Ltd. (2009) 20 STT 203 = 24 VST 1 (SC), fo lowing dictionary 
meanings  of 'service'  were  noted  -  'Work  done  or duty performed  for another  or others; a serving;  as 
professional services, repair service, a life devoted to public service - - An activity carried out to provide 
people with the use of somethi ng, as electric power, water, transportation, telephones etc. - - Anything useful, 
as maintenance, supplies, insta lation, repairs, etc. provided by a dealer or manufacturer for people who have 
bought thi ngs from him'. 
In this case, it was observed  that State does not render any service to society while raising revenue  by 
contro ling dealing in liquor and/or by transferring privilege to manufacture, distribute, sale etc. 
Basica ly, service is 'economic activity' resulting in 'value addition', which can be perceived but cannot be seen 
as it is intangible. Another feature of 'service' is that it is perishable instantly, and it cannot be 'stored'. For 
example, service of hotel room or seat in an aircraft, if not utilised today, perishes tomorrow. Today's hotel 
room or seat in aircraft cannot be used tomorrow. Benefit of service may last longer (e.g. consultancy service, 
audit service), but the service itself perishes and cannot be stored. Service once availed cannot be 'returned' to 
service provider or transferred to another person, while goods can be returned or transferred. 
Of course, use of some goods will not mean that there is no 'service'. We have to see which is predominant 
factor. 
'Goods' also do perish, but not so instantly. 
 
In sum, characteristics of 'service' are - (a) Economic Activity (b) Value addition (c) Intangible - can be 
perceived but not seen (d) Instantly perishable  - cannot be stored, though benefit of service may last 
longer (e) Service provided/availed cannot be 'returned' to service provider or 'transferred' to another. 
4.1-2 Importation of service is 'supply' 
 
As per section 7(1)(b) of CGST Act, importation of service, for a consideration whether or not in the course 
or furtherance of business, is 'supply' and subject to GST. 
Further,  importation  of services  by a  taxable  person  from a  related  person  or  from any  of his  other 
establishments outside India, in the course or furtherance of business will be treated as 'supply' even if made 
without consideration - para 4 of Schedule I of CGST Act. 
Thus, import of service from HO or branch outside India will be subject to GST even if no payment was made 
to HO or branch outside India. 
4.1-3 Supply of SIM Card is not supply of goods but is service 
 
SIM card is a card containing computer chips with pre-recorded instructions which would, upon activation, 
enable the customer access to the service of ce lular phone. 
In Idea Mobile Communication Ltd. v. CCE &C [2011] 32 STT 262 = 12 Latest Case307 = 43 VST 1 
(SC), it has been held that SIM card does not have any intrinsic value. The value of SIM card forms part of 
the activation charges as no activation is possible without a valid functioning of SIM card. Thus it is 'service' 
and not 'goods' - fo lowed in State of Andhra Pradesh v. Bharat Sanchar Nigam Ltd. (2011) 33 STT 553 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
= 16 Latest Case48 = 49 VST 98 (AP HC DB). 
 
Activation charges  of SIM cards  are  not liable to sales tax - 'Goods' do not include electromagnetic 
waves or radio frequencies.  Hence, activation charges of SIM cards are not liable to sales tax - Escotel 
Mobile Communications v. State of Haryana  (2008) 12 VST 443 (P&H HC DB). 
4.1-4 Electromagnetic waves transmitted through telephones is not 'goods' 
 
In Bharat Sanchar Nigam Ltd. v. UOI (2006) 3 SCC 1 = 152 Taxman 135 = 3 STT 245 = 145 STC 91 = 
282 ITR 273 = AIR 2006 SC 1383 = 3 VST 95 = 2 STR 161 (SC 3 member bench), it has been held that 
electromagnetic waves by which data is transmitted is not 'goods', since they can neither be abstracted nor are 
they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or 
possessed. Nor are they marketable. 
Transmission of voice or data by use of Artificially Created Light Energy is service and not goods - 
Transmission of voice or data by use of Artificia ly Created Li ght Energy is service and not goods. Vat will not 
be payable on this service - Bharti Airtel v. State of Karnataka  (2011) 32 STT 483 = 13 Latest Case96 
= 44 VST 486 = 7 GST 265 (Karn HC DB). 
 
4.2 Development of software is service 
 
Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of 
information technology software is 'supply of service' - para 5(d) of Schedule II of CGST Act. 
Software is the set of instructions that a lows physical hardware to function and perform computations in a 
particular manner, be in word processor, web browser or the computer's operating system. These expressions 
are in contrast with the hardware which are the physical components of a computer system - LML Ltd. v. CC 
(2010) 258 ELT 321 (SC). 
4.2-1 Software in physical form should be goods 
 
Though the GST Law defines development of software as 'service', software in physical form (branded as we l 
as tailor made) is 'goods' in Customs Tariff Act. 
Software in physical form should sti l be held as 'goods'. 
 
In Tata Consultancy Services v. State of Andhra Pradesh (2004) 141 Taxman 132 = AIR 2005 SC 371 = 
2004 AIR SCW 6583 = 271 ITR 401 = (2005) 1 SCC 308 = 137 STC 620 = 178 ELT 22 (SC 5 member 
Constitution bench), it has been held that canned software (i.e. computer software packages sold off the shelf) 
like Oracle, Lotus, Master-Hey etc. are 'goods'. The copyright in the program may remain with originator of 
programme, but the moment copies are made and marketed, they become 'goods'. 
Earlier also, in Associated Cement Companies Ltd. v. CC 2001(4) SCC 593 = 2001 AIR SCW 559 = 128 
ELT 21 = AIR 2001 SC 862 = 124 STC 59 (SC 3 member bench), it was held that computer software is 
'goods' even if it is copyrightable as inte lectual property. 
 
In State Bank of India v. Municipal Corporation  1997(3) Mh LJ 718 = AIR 1997 Bom 220, it was held 
that 'computer software' is 'appliance' of computer. It was held that it is 'goods' and octroi can be levied on fu l 
value and not on only value of empty floppy. [In this case, it was held that octroi cannot be levied on license 
fee for duplicating the software for distribution outside the corporation limits]. 
In Inventa Software India P Ltd. v. ACCT (2008) 17 VST 362 (Karn HC DB), it has been held that 
application software  development  in financial accounting,  inventory control,  sales analysis,  purchase  order 
system and other professional services is nothing but software development programme. It is 'goods'. 
Customised  and  non-customised   software  both  are  goods  -  Infosys  Technologies  Ltd.  v.  Special 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Commissioner (2008) 17 VST 256 = 233 ELT 56 (Mad HC). 
 
4.3 Leasing or renting of land and building is 'supply of service' 
 
Any lease, tenancy, easement, licence to occupy land is a supply of services - para 2(a) of Schedule II of 
CGST Act. 
 
Any lease or letting out of the building including a commercial, industrial or residential complex for business or 
commerce, either who ly or partly, is a supply of services - para 2(b) of Schedule II of CGST Act. 
Leasing of Residential  building for purpose of business - Leasing of Residential building for purpose of 
business will be supply of service and subject to GST. 
Renting of immovable property is supply of service - Renting of immovable property is supply of service- 
para 5(a) of Schedule II of CGST Act. 
This seems to be duplication, as this activity is already covered in paras 2(a) and 2(b) of Schedule II of CGST 
Act. 
4.4 Construction Service 
 
Fo lowing is 'supply of service' as per para 5(b) of Schedule II of CGST Act. 
 
Construction of a complex, building, civil structure or a part thereof, including a complex or building intended 
for sale to a buyer, who ly or partly, except where the entire consideration has been received after issuance of 
completion certificate, where required, by the competent authority or after its first occupation,  whichever 
is earlier. 
Explanation.-   For  the  purposes  of  this  clause-  (1)  the  expression  "competent  authority"  means  the 
Government or any authority authorized to issue completion certificate under any law for the time being in 
force and in case of non-requirement of such certificate from such authority, from any of the fo lowing, namely 
- (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or ( i) 
a chartered engineer registered  with the Institution of Engineers (India); or ( i) a licensed surveyor of the 
respective local body of the city or town or vi lage or development or planning authority. 
(2) the expression "construction" includes additions, alterations, replacements or remode ling of any existing 
civil structure. 
Occupancy   certificate  granted   in  Mumbai   is  equal   to  completion  certificate   -  In  Mumbai  i.e. 
Brihanmumbai Municipal Corporation (BMC), occupancy certificate is granted. Sale after such occupancy 
certificate (even before completion certificate) will be sale of immovable property and outside service tax net - 
PIB (Press Information Bureau), Ministry of Finance dated 26-10-2015, 
4.4-1 Completion certificate not essential,  proof of occupation sufficient 
 
Provision similar to above was in earlier service tax law also in Section 66E(b) of Finance Act, 1994 (declared 
service). However, one major change is addition of words 'or before its first  occupation,  whichever  is 
earlier'. 
Thus, if occupation  is proved even before obtaining  completion certificate,  it will not be 'supply of 
service' and will not be subject to GST. 
4.4-2 Can GST apply only to that part of construction done after agreement? 
 
The present understanding of law is that GST is payable on entire value if agreement with buyer is before 
obtaining completion certificate. However, the issue is arguable. 
Para 115 of the Supreme Court decision in Larsen and Toubro v. State of Karnataka  (2013) 41 STT 113 
= 38 Latest Case98 (SC 3 member bench) reads as follows -