Section 7 – Meaning and scope of supply with analysis of Schedule I, II, and III.

Generic meaning of Supply

Supply includes—

1. (a) all forms of supply of goods and/ or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Deemed Supply

b) Importation of services, for a consideration whether or not in the course or furtherance of business.

c) An activity specified in Schedule I, made or agreed to be made without a consideration.

Clarification on “Supply”

d) The activity is to be treated as a supply of goods or a supply of services as referred in schedule II.

Negative List of “Supply”

(2) Notwithstanding anything contained in sub-section (1),

(a) activities or transactions specified in schedule III; or

(b) activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of services.

Clarification through Notification by Government.

(3) Subject to sub-section (1) and sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as—

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.

Dictionary Meaning of “Supply”

The amount of goods produced or available at the given price. “Black’s Law Dictionary”.

Make (something needed or wanted) available to someone. “Oxford Dictionary”.

To make (something) available to be used. “Medical Dictionary”.

Q 1 : Whether One person can make supply himself .

Ans. Schedule-I of CGST ACT, has provide the situations where the personal use of goods is treated as supply. But In case of personal use of goods the Input tax credit has not allowed u/s 17 of CGST Act, 2017, therefore Input tax credit has been required to be reverse.

Q 2. Whether provision of service or goods by a club or association or society to its members will be treated as supply or not?

Ans. Yes. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of CGST/ SGST Act.

Deemed Supply ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION SCHEDULE-I

1. Permanent transfer/ disposal of business assets where input tax credit has been availed on such assets

2. Supply of goods or services between related persons, or between distinct persons as specified in section 25, when made in the course or furtherance of business.

3. Supply of goods—

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal,

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. 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.

Analysis of schedule I;

1. Permanent Transfer/disposal of business assets

Para 1 of schedule I read with schedule II & sec 17 (5) (h)

Schedule I

Permanent transfer/ disposal of business assets where input tax credit has been availed on such assets.

Schedule II

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

 Sec 17(5) (h) of CGST ACT, 2017

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

Conclusion; The general principal is that where input tax credit has been availed then transfer/ disposal of business assets without consideration is treated as supply of goods. Goods destroyed/ stolen/ written off/ Gift / free sample will not be subjected to GST but input tax credit will have to be reverse.

Transfer/disposal to Personal use of goods

Para 1 of schedule I read with schedule II & sec 17 (5) (g)

Schedule I

Permanent transfer/ disposal of business assets where input tax credit has been availed on such assets.

Schedule II

(b) Goods are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, Whether or not for a consideration, the usage or making available of such goods is a supply of services;

Sec 17(5) (h) of CGST ACT, 2017

(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:

(g) goods or services or both used for personal consumption

The general principal is that where input tax credit has been availed then transfer/ disposal of business assets for personal use, without consideration is treated as supply of service.

Treatment; ; Personal use of goods will not be subjected to GST but input tax credit will have to be reverse.

Transfer/ Disposal of goods as going concern

Para 1 of schedule I read with schedule II

Schedule I

Permanent transfer/ disposal of business assets where input tax credit has been availed on such assets.

Schedule II

(c) where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—

(i) the business is transferred as a going concern to another person; or

(ii) the business is carried on by a personal representative who is deemed to be a taxable person.

Conclusion; where input tax credit has been availed then transfer/ disposal of business assets as going concern is  not treated as supply.

2. Related party Transaction

Para 2 of schedule I read with sec 25 and sec 15 of CGST Act, 2017

Para 2 of schedule I. Supply of goods or services between related persons, or between distinct persons as specified in section 25, when made in the course or furtherance of business. Provided that 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.

Explanation to sec 15 of CGST, ACT, 2017

A persons shall be deemed to be “related persons” if––

(a) (i) such persons are officers or directors of one another’s businesses; (ii) such persons are legally recognized partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family;

(b) the term “person” also includes legal persons;

(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.

Sec 25 of CGST ACT, 2017

(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

The transfer of goods/ service to related person and distinct person without consideration (branch transfer) shall be liable to GST. Provided that 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.

3.Transaction between principle or agent

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal,

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Importation of services

Para 4 of schedule I read with Section 2(26) of IGST Act

Para 4 of schedule I-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

The word ‘supply’ includes importation of a service, made for a consideration (as defined in Section 2(28)) and whether or not in the course or furtherance of business. This implies that import of services even for personal consumption would qualify as ‘supply’ and therefore would be liable to tax. This would not be subject to the threshold limit as tax is expected to be payable on reverse charge basis, and the threshold limits do not apply in case of supplies attracting tax on reverse charge basis.

Importation of services is included within the meaning of ‘supply’ under the CGST/ SGST Acts. However, it would be liable to IGST since it would not be an intra- State supply. In fact, Section 2(26) of IGST Act has adopted the meaning of ‘supply’ from CGST/ SGST Act.

Analysis of Schedule II

Schedule II specified those activity which is already a supply under generic meaning of supply, schedule II only clarify that these activity to be treated as supply of goods or supply of service, for removal of dispute arise whether the activity is a supply of service or good.

What is the logic behind the inclusion of “explanatory provisions” in main definition, the intention may be that if there is any dispute arise whether the activity mention in schedule II, is supply? Then schedule II will be refer for that and activity specified in schedule II will be treated as supply.

Second is the judgment of Ranchi High court in which it was held that “explanation” cannot override the main provision of section. Therefore activity specified in schedule II include in meaning of supply and not provide as explanation.

The Activity specified in schedule II, shall be treated either supply of goods or service even if it is a “composite supply”.

 “Activity” to be treated as supply of goods

  • any transfer of the title in goods is a supply of goods;
  • any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.
  • where goods forming part of the assets of a business are transferred or disposed of whether or not for a consideration, such transfer or disposal is a supply of goods by the person.
  • Supply of goodsby any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
  • where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—(i) the business is transferred as a goingconcern to another person; or (ii) the business is carried on by a personal representative who is deemed to be a taxable person.

“Activity” to be treated as supply of service

  • Any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;
  • Any treatment or process which is applied to another person’s goods is a supply of services.(JOB WORK)
  • Goods are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;
  • renting of immovable property; (commercial, industrial or residential complex for business or commerce)
  • construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly 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
  • temporary transfer or permitting the use or enjoyment of any intellectual property right;
  • development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software;
  • agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and
  • works contract as defined in clause (119) of section 2;
  • Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

Negative List of supply ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES –SCHEDULE III

1. Services by an employee to the employer in the course of or in relation to his employment.

2. Services by any court or Tribunal established under any law for the time being in force.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. Actionable claims, other than lottery, betting and gambling.

Types of Supply

Taxable supply means [sec 2(108)] :

  • A supply of goods and/or services
  • Which is chargeable to tax under this Act

Non-taxable supply means [sec 2(78)] :

  • A supply of goods or services or both
  • Which is not chargeable to tax under this Act and under IGST Act

Exempt Supply means [sec 2(47)]:

  • Supply of any goods and / or services or both
    • which attract nil rate ; or
    • which may be wholly exempt u/s 11 or u/s 6 of IGST and
    • Include non taxable supply.

Zero Rated Supply (Sec 16 of IGST ACT) means any of the following taxable supply of goods and/ or services –

  • Export of goods and/ or services; or
  • Supply of goods and/ or services to a SEZ developeror an SEZ unit
  • Subject to provisions of sub section (5) of section 17 of the CGST Act, credit of input tax may be availed for making zero rated supplies, even if that supply is an exempt supply

Composite Supply-Sec 2(30)
“Composite supply” means a supply made by a taxable person to a recipient consisting two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Section 2(90)

“Principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.

Example:
Indian Airlines provides passenger transportation service. They also supply food on board to passengers. Supply of transportation services would be the principal supply and the service as a whole would qualify as composite supply.

Example

 

Mixed Supply Section 2(74)

“Mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply

Examples: Supply of soap bars where soap boxes are given free of cost; supply of wheat for which a bottle of honey is given free of cost. In the above example of honey being supplied with wheat, both wheat and honey will be taxed at the rate of tax applicable for honey (being commodity taxed at higher rate).

Mixed Supply

Taxation of Composite and Mixed supply; Sec 8 of CGST Act, 

The tax liability on a composite or a mixed supply shall be determined in the following manner —
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.

Intra state Vs. Inter -state supply

Intra State-Inter State

 Conclusion: Supply has been define in inclusive manner which provide it wide import, and include the personal consumption/ permanent disposal of goods where credit has been availed. Supply also cover the transaction between related party and distinct person having separate registration. To constitute a supply the GST scheme will be as, where taxable person, has made supply, in the taxable territory, of goods or service or both, for a consideration, in the course or furtherance of business.

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Category : Goods and Services Tax (3411)
Type : Articles (13273)
Tags : goods and services tax (1968) GST (1552)

3 responses to “Meaning of “supply” in CGST Act, 2017”

  1. r.balasubramanian says:

    Please advise what is the treatment for E1 transit sale under existing CST act under GST

  2. Harsh says:

    Very beautiful article

  3. Ratish Kumar says:

    Nice attempt Amit! Keep it up!

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