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A business permanently gives away a piece of its equipment, free of charge, to an unrelated charity. It did not avail input tax credit on the equipment. No other deeming rule applies. How is the…

Question and options

A business permanently gives away a piece of its equipment, free of charge, to an unrelated charity. It did not avail input tax credit on the equipment. No other deeming rule applies. How is the transfer treated under the CGST Act, 2017?

  1. A supply of goods, as Schedule I treats a permanent transfer of business assets as a supply whether or not credit was availed

  2. Not a supply, as gifts of business assets to a charity are listed in Schedule III

  3. Not a supply, as Schedule I treats such a transfer as a supply when credit was availed on the asset

  4. A supply of goods, as Schedule II treats a disposal of business assets as a supply even without credit

Answer and explanation

Correct answer: C - Not a supply, as Schedule I treats such a transfer as a supply when credit was availed on the asset

Paragraph 1 of Schedule I to the CGST Act, 2017 treats a permanent transfer or disposal of business assets as a supply without consideration only where input tax credit has been availed on those assets. Without consideration or credit there is no supply under section 7, and Schedule III does not list such gifts. Schedule II does not create a supply; under section 7(1A) it only classifies an activity that is already a supply as one of goods or of services.

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