An Article related to brief analysis of Section 7(1)(a) of Scope of Supply under chapter III (Levy and Collection of Tax) under CGST Act 2017.
GST means a tax on supply of goods or supply of services. It is the destination-based consumption tax. It eliminates the cascading effect of a tax. It applicable whole of India including the state of Jammu and Kashmir.
Supply of goods and services or both under GST Law is Taxable Event. If there is no supply than no GST levied on it.
- GST is levied on a supply of goods or services. Supply of anything other goods or services does not attract GST.
- GST should be made for Consideration.
- GST should be made in the course or furtherance of business.
- GST should be made by the taxable person. (Taxable person as per section 2 (107) means person who is registered or liable to be registered under section 22 (person liable for registration) and section 24 (Compulsory registration in certain cases)
- GST should be made within a taxable territory. (Taxable Territory as per section 2(109) means territory to which provisions of this Act apply.
Scope of Supply under section 7 of CGST Act 2017
As per section 7(1) supply include
| Section 7(1)(a) | All forms of supply of goods or services or both as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by person in the course or furtherance of business. |
| Section 7(1)(b) | Import of services for a consideration whether or not in the course or furtherance of business. |
| Section 7(1)(c) | The activities specified in Schedule I, made or agreed to be made without a consideration and |
| Section 7(1)(d) | The activities to be treated as supply of goods or supply of services as referred to in Schedule II. |
Brief Analysis of Section 7(1)(a) of CGST Act 2017:
Here I would like to discuss about all forms of supply of goods or services along with one illustration for each for easy understanding purpose. Without understand all terms related to supply its very difficult for all of us to decide GST levied or not.
| Forms of Supply | Illustrations |
| Sale:
Sale means sale of goods and It involves transfer of property in goods from one person to another person for consideration. Mortgage, Hypothecation, charge or pledge is not supply, and GST is not levied on it. |
Mistry sold computer Rs. 10,000 and issued invoice to Shah. Now, ownership of computer transferred to shah. This transaction shall be covered in sale and subject to levy to GST.
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| Transfer:
Transfer means where the ownership may not be transferred but the right in use of the goods is transferred. |
Mr. Chetan is the owner of machine transferred right to operate machine to Mr. Hitesh for a consideration of Rs. 50,000 per month for 3 months. Ownership of machine not transferred but the right to use of machine is transferred and its subject to levy under GST.
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| Barter:
Barter means exchange of goods and services for other goods and services without use of money. |
Mrs. Ruchita is a practicing cost accountant provided services to Dharmesh Ltd, dealer of computers in return Dharmesh Ltd given to Mrs. Ruchita 2 computers. In this case Mrs. Ruchita making taxable supply of service to Dharmesh Ltd and hence tax is payable by both.
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| Exchange:
Exchange means when two or more persons with mutual understanding transfer the ownership of one thing for the ownership of another, neither thing nor both things being money only transaction is called an exchange. Exchange offers on product such as televisions, mobile phones, refrigerators are leviable under GST |
Mr. Sunny is a dealer of new phones. He supplied for Rs. 20,000 to Mr. B along with exchange of an old phone and if the price of the new phone without exchange is Rs. 24,000, the open market value of the new phone is Rs. 24,000. Mr. Lalu is liable to pay GST on Rs. 24,000. Mr. Lalu also liable to pay GST on Rs. 4,000 if he is registered person.
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| Licence:
Licence means where one-person grants to another or to a number of other persons a right do or continue to do in or upon the immovable property of the granter the right is called a licence. |
Mr. Hemant a developer of information technology software and holder of license thereon. License to use software was given to different clients for Rs. 18 lakhs; hence, Mr. Hemant is liable to pay GST whether he transfer such right permanently or temporarily as the case may be.
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| Rental:
Rental means Periodical payment for use of another’s property and rent paid on monthly, quarterly basis. |
Mr. Anil owns a residential building in a prime commercial locality. Large vacant land in the backyard is given on rent of Rs. 1,50,000 per month to a parking contractor, Mr. Akash who has set up a parking facility on the said land. It is a taxable supply of service and hence, Mr. Anil is liable to pay GST.
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| Lease:
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment the right to use an asset for an agreed period of time. Lease may be two types: (1) Operating lease (2) Finance Lease |
M/s BOB Bank Ltd., given an asset under financial lease to M/s BVC Ltd. Repayment of financial lease made by the customer to the bank Rs. 80 lakhs which includes a principal amount of Rs. 50 lakhs.
Financial leases shall be taxed as supply of services. M/s BOB Bank Ltd., is liable to pay GST.
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| Disposal:
Disposal means normally considered as selling of assets when the organization is about to close down, and various assets are required to be disposed of. Transactions will also be considered as supply of liable to tax under GST Law. |
Consideration:
Section 2 (31) of the CGST Act, “Consideration” means in relation to supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise in respect of, in response to or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.
(b) The monetary value of any act or forbearance in respect of, in response to or for the inducement of the supply of goods or services or both whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or State Government.
Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.
Following are not considered as Consideration:
(1) Grant of pocket money
(2) Gift or reward (which has not been given in terms of reciprocity)
(3) Amount paid on alimony for divorce
(4) Subsidy given by the Government to benefit the farmers
(5) Deposit amount received as refund
(6) Any instrument or equipment send to manufacturers factory for repair within India on returnable basis because it’s not supply
(7) Spare parts freely replace during warranty period
(8) Amount paid as fine or penalty for violation of statutory provisions
Any Transaction involving supply of goods or services or both without consideration is not a supply. It is not subject to levy of GST.
| In the course of business:
Person carrying on activities for running of its business |
Mr. Sanjay a practicing Chartered Accountant carries out activities of Auditing, Accounting, Taxation, Due diligence, etc. All these activities considered as performed in the course of business. |
| Furtherance of business:
Any activities done by person for developing his own business or carrying out any new activities. |
Reliance Company intended to establish manufacturing plant in Assam. Reliance company appointed Mr. Dharmesh as consultant for evaluating and shorting place for its activities. Company decided to establish plant in Assam and Mr. Dharmesh carried out various activities is in furtherance of business of Reliance Company. |
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice. Neither the authors accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.
Author Bio
Dear Experts,
Whether construction of 3 Storey house and giving one storey to Builder in lieu of construction cost, comes under the ambit of ‘supply’? Intention is not to do business but for own use.