Expansion of Scope of Supply under GST vide Budget 2021

The first ever digital budget was presented on 1^st February 2021 by the Finance Minister of India, Smt. Nirmala Sitharaman. The budget 2021 came up with the expansion of the scope of supply covered under section 7 of the Central Goods and Services Tax Act, 2017. The present article briefly explains the same.

Basics of the scope of supply under GST-

Before going into the budget changes, let us briefly understand the term ‘supply’ as explained under section 7(1) of the CGST Act, 2017. The main ingredients of the term ‘supply’ are highlighted hereunder-

• The supply is either of the goods or services. Accordingly, supply of anything other than goods/ services will not attract GST.
• Such supply of goods or services is a taxable supply.
• Supply is made for a consideration (here consideration includes both monetary as well as non-monetary).
• Supply is made in the course or furtherance of the business.
• Supply is undertaken by the taxable person. Accordingly, supply undertaken by a non-taxable person is not covered under GST.
• Supply is made within the taxable territory.

Expansion and deletion under the scope of supply vide Budget 2021-

A new sub-clause (aa) to section 7(1) and explanation thereof is inserted vide the Finance Bill, 2021. Both the sub-clause (aa) and explanation is explained hereunder-

• Sub-clause (aa) to section 7(1) states that-
  • Supply includes transfers of any goods or services or both by a person (other than an individual) to its members or constituents.
  • Supply also includes transfers of any goods or services or both by the members/ constituents to the person (other than an individual).
  • The transfer, referred above, is covered as supply when undertaken for cash or deferred payment or any other valuable consideration.
• Explanation to sub-clause (aa) to section 7(1) states as under-
  • It shall be deemed that the person and its members/ constituents are two separate persons.
  • Accordingly, the supply of any goods or services or both between the person and its members/ constituents shall be deemed to have been taken as supply from one person to another.
• Importantly, the provisions of newly inserted sub-clause (aa) and explanation thereof will be effective retrospectively from 1^st July 2017.

Notably, correspondingly, the Finance Bill, 2021, proposes the deletion of paragraph 7 to schedule II [activities to be treated as supply of goods or supply of services]. As per paragraph 7, the supply of goods by an unincorporated association/ body of persons to the member for cash or deferred payment or other valuable consideration will be treated as ‘Supply of goods’ under GST.

The above deletion of paragraph 7 to schedule II is also made effective from 1^st July 2017.

Reason for expansion of the scope of supply–

Evaluating both the above explained expansion and deletion under the scope of supply, we can conclude as under-

• As seen above, following two amendments are made in the scope of supply–
  • Inclusion of sub-clause (aa) to section 7(1); and
  • Deletion of paragraph 7 to schedule II.
• Paragraph 7 to schedule II covered only the supply of goods by an unincorporated association/ body of persons to its members. Notably, paragraph covered only the supply of goods and not the supply of services.
• Newly inserted sub-clause (aa) to section 7(1) ensures coverage of both supply of services and goods by any person (other than an individual) to its members/ constituents and vice-versa.
• The basic purpose of both the amendment is coverage of both supply of goods and services by clubs and/ or association to its members and vice versa under GST.