Section 7 (1) of CGST Act,2017 defines “SUPPLY”

“supply” includes–

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

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Definition has five limbs, namely:

i. Inclusive definition of supply,

ii. Schedule specifying whether it is supply of goods or supply of service with respect to matter included therein,

iii. Exclusions from the scope of supply,

iv. Power of the Govt. to notify the transaction as supply of goods or supply of service or not a supply, and

v. Taxability of composite supply and mixed supply

To determine whether a transaction is a supply or not it has to be tested with it’s nature.

This could either fall in any one from (a) to (d) or with any of its combination

Illustration –1

Supply of goods or service by A Ltd to B Ltd for Rs.100/-( consideration Rs.100/-)

Analysis

It is a transaction with consideration and fall under clause (a) of the definition. It is a supply on which tax is to be paid.

Illustration –2

Supply of goods or service by A Ltd to B Ltd who is not related to A ltd, at free of cost

Analysis

It is a free supply without consideration. Fails the test of a supply as a standalone transaction and hence is not taxable- clause (a)

But when the same transaction is read in conjunction with clause (c), it becomes supply and (value determined as Rs.100 /- ) is taxable even though without consideration – Ref sl. no 2 of schedule -I

Illustration –3

Supply of goods or service by A Ltd to C Ltd who is related to A ltd, at free of cost

Analysis

Though It is a free supply to a related party without consideration, the supply is taxable. Ref sl. no 2 of schedule I.

Illustration –4

Supply of goods or service by A Ltd to it’s employee Mr C

Analysis

This is not taxable as the activity is in the course of or in relation to his employment. Ref Sl no.1 of Schedule III

Illustration –5

Supply of goods or service by A Ltd to it’s employee Mr. C – with value cap

Analysis

The same activity, referred in illustration 3, becomes taxable if the value of activity exceeds Rs. 50,000/- as the exemption is restricted vide proviso of sl. no 2 of schedule I.

Issues resulting in conflicts:

The explanations and clarifications to the definition, which are not binding the main definition and the deeming fictions of the schedules provides scope for considerable disputes which are already witnessed in the existing Laws.

Eg: Disposal of business assets, say Air conditioner, without consideration is not taxable – Refer clause (a) of definition “Supply”

But

Same transaction can be interpreted and taxed under 4 (a) of Schedule II

Thus, the existing legacies of such conflicts are found to be inevitable under GST also. However in-depth study and analysis of such transactions, if any, the tax liability can be insulated to a great extent by making documentations available in the files of the Revenue.

Disclaimer: This compilation is for easy understanding of the provisions for the readers and is not a professional advice.

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