Mar 202017

Why there is a need to differentiate between goods and services?

  1. Different rate of tax and classification rule for goods and services: The goods are to be classified as per HSN codes and services are to be classified as per SAC terminology. These codes are to be mentioned over invoices also. Moreover the rate of taxing goods and/ or services are different and hence, difference in amount of liability to pay tax. Hence, there is a requirement to classify a supply between goods or services as per rules mentioned in sch. II of the revised model GST law.
  2. Different place of supply provisions as to goods / services: GST being destination based tax on consumption and hence tax revenue shall go to the state where goods / services are consumed and hence difference provisions are made under law for place of supply as to goods on one hand and place of supply on the other.
  3. All transaction including composite transactions has been considered either as goods or as services under schedule II of the Revised Model GST Law.

Meaning of terms Goods and Services:

Meaning of Goods Meaning of Services
Art. 366(12) of the constitution:

Good includes all materials, commodities and articles.

Sec 2(49) of Revised Model GST Law:

Goods means every kind of movable property and

  • Includes

o    Actionable claim
o    Growing crops
o    Grass

o    Things attached to or forming part of the land which are agreed to be severed before supply or under the contract of supply

Sec 2(92) of the revised Model GST law

Services means anything other than goods and


  • Does not include

o    Securities
o    Money

  • Does not include

o    Money
o    Securities

Case Study:

Trading in securities: Trading in securities is specifically excluded from the definitions of goods (Sec 2(49) and services (Sec 2(92) and hence securities are neither goods not services and hence GST is not payable on trading in securities.

Actionable claims: Actionable claims under revised law are considered to be goods. As per section 2(1) of the Revised Model GST Law – actionable claims shall have the meaning assigned to it under section 3 of the Transfer of property act 1882 (TPA). As per section 3 of TPA, actionable claims comprises two types of claims –

  1. A claim to unsecured debts and
  2. A claim to beneficial interest in movable property which is not in possession, actual or constructive – whether present or future, conditional or contingent

Immovable properties: Goods and service tax can not be levy on sale or purchase of immovable goods. However, transfer of immovable property by way of lease or right of usages therefore would be within the preview of GST law as supply of services.

Intangible goods: As per Article 366(12) of the constitution goods includes all materials, commodities and articles. This definition does not make any distinction between tangible goods and intangible goods. The term good, as observed in TCS v State of AP (2004), used in constitution is very wide. The term all materials, articles and commodities includes both tangibles and intangibles which is capable of abstraction consumption and use and which can be transmitted transferred delivered stored possessed. Thus, intangible goods shall be treated as good and supply of intangible goods shall be supply of goods.

Canned software: To minimize the litigation schedule II is inserted in Revised Model GST law to define the matters to be treated as supply of good or service As per entry no 5(d) of the same development, design programming customization adaption up-gradation enhancement implementation of software shall be treated as supply of services. However, canned software are pre fabricated software and are generally sold through a medium. Hence, such canned services shall be considered as goods and supply of the same may be treated as supply of goods.