Goods and Services Tax (GST) is an indirect tax implemented in India from 1st July 2017. GST is a merger of 17 indirect taxes. Before GST there were different taxes for every event like sales tax for sale, excise duty for manufacturing, etc. GST was implemented to overcome the problems of multiple taxable events, double taxation, cascading effect, etc.
GST was introduced under 122nd Constitutional Amendment Bill but passed under 101st Constitutional Amendment Act.
Article 366 (12A) of Constitution of India says –
“Goods and Services Tax” means any tax on supply of goods, or services, or both. Except tax on the supply of alcoholic liquor.
GST is a tax based on consumption. It is collected from the customer but paid by the supplier. There are four models of GST namely: –
a. Australian Model
b. Canadian Model
c. Kelkar Shah Model
d. Bagchi Poddar Model
India follows Canadian model of GST i.e., dual GST model. India has the highest GST rate in the world i.e., 28%.
This article is a small attempt to understand when taxability arises i.e., scope of supply.
Section 7,CGST Act, 2017– Scope of Supply: –
“Supply” is the single taxable event of GST as mentioned in Article 366(12A). The term “supply” holds the greatest significance in GST as it is an important event in determining the taxability of any transaction (commercial or otherwise).
Section 7 has defined “Supply” in an inclusive manner. It implies that as per law, the word “Supply” has an inclusive meaning and not exhaustive. In other words, specific transactions listed in the said section are merely illustrative.
The activity of “Supply” Includes the following: –
- Sale and Transfer
- Barter and Exchange
- License, Lease, Rental, etc.
- Disposal
Following conditions are necessary for a valid supply under Section 7(1)(a) –
a. Supply shall be for CONSIDERATION (whether monetary or otherwise).
b. Supply shall be in the course or furtherance of business.
However, if import of service is done under section 7(1)(b) with consideration, it will be treated as supply even if it is not made in the course or furtherance of business. In other words, if services are imported for consideration for personal purpose, then also it will be treated as a supply.
Also, Schedule I of the act lists certain activities which will be treated as supply even if no consideration exists.
From the above points it is evident that “Supply” of Goods or Services attract GST to a particular transaction. However, the line demarcating between ‘Goods’ and ‘Services’ is very thin.
There have been many disputes as to what shall be the treatment of the transaction, whether it is to be considered as transaction of ‘Goods’ or ‘Services’. With an intent to avoid this situation Schedule II of the act is to be referred.
Apart from what shall be considered as supply of goods or services, Section 7 also tells what shall not be treated as supply of goods or services.
Section 7(2) mentions what shall not be considered as supply of goods or supply of services and are therefore, out of the ambit of GST and hence, not taxable. Schedule III also known as the NEGATIVE LIST in GST lists down such activities.
After discussing the above points of Section 7, study of Section 8 becomes necessary because in modern economies it is not unusual to supply a consumer in the market with a bundle consisting of more than one good or services. Section 8 deals with tax liability of composite and mixed supplies.
The concept of Composite and Mixed Supply has been borrowed from the service tax regime.
Section 8, CGST Act, 2017- Mixed and Composite Supply
In many cases, the transactions that fall within the scope of GST may consist of one or more element. These elements may be a mixture of goods, or services, or both.
Sometimes these elements, if supplied separately, may have different GST liabilities depending upon-
– The rates,
– Applicability of time of supply and place of supply provisions.
To avoid disputes about whether the supplier is making a single supply with one liability, or multiple supplies with different liabilities, it has to be determined whether the supply is of goods, or services, or both (Composite and Mixed Supply).
Section 8 provides for treatment of ‘bundled supply’.
Composite Supply
It is defined under section 2(30) of the CGST Act. It is a supply made by a taxable person which consists of a combination of goods, or service, or both.
This combination of goods, or services is a natural bundle i.e., it cannot be separated and is supplied in conjunction with each other in the ordinary course of business and one of the goods or services is a “principal supply”.
According to Section 8 composite supply shall be taxable at the rate of principal supply. In other words, supply of natural bundle is to be treated as a supply of principal goods/ service.
For example, where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
Also, service of a restaurant is a classic example of composite supply. Restaurant business provides a bundled supply of preparation of food and serving the same. GST act identifies it as a supply of service vide para 6 of Schedule ІІ.
Principal Supply is a supply of goods or services which comprises the primary element in a natural bundle and any other goods or service in the bundle is secondary.
Mixed Supply
It is defined under section 2(74) of the CGST Act. It means two or more distinct and individual supplies of goods or services or any combination thereof, made in conjunction with each other for a single price. In other words, each of these items can be supplied separately and is not dependent on each other.
Thus, it can be seen that if a single price is charged for an unnatural bundle then it is called a mixed supply.
According to Section 8 mixed supply shall be treated as a supply of that particular goods or services which attracts the highest rate of GST.
For example, A toiletry kit containing a toothbrush, toothpaste, face wash, etc. Each of the item is independent to each other and can be supplied individually.
Conclusion: –
From the above discussion it can be seen that supply is the most crucial and pivotal term under GST. Supply can be seen as the key point to determine levy and collection of tax. However, being such an important term “supply” has not been defined exhaustively in the act.
The act has chosen to give supply a wide meaning which can include sale, transfer, barter, etc. GST has also imposed tax liability in certain cases like supply between related or distinct persons even if made without consideration.
In case of composite supplies that are naturally bundled, principal supply will govern the taxability, while the supply attracting highest rate of tax will form the basis in case of mixed supply.
Hence, it can be concluded that one has to be very careful in analyzing and understanding supply as it sets the base of GST law.
(Author Yash Aggarwal is currently pursuing BBA LLB from VIPS (affiliated to IP University) and is in 4th Year.)
