Article Explains What do not constitute “supply” under GST Law, What is “non-taxable supply”, What is “exempt supply” And What is zero rated supply?
Synopsis:
The Goods and Services Tax or GST applies on supply of all goods and services, with certain exceptions. The GST laws tries to capture these exceptions at various places, under different terminologies such as “exempt supply” or “not a supply” or “non-taxable supply” or “nil rate of tax” or “zero rated supply” or “wholly exempt from tax”. This article attempts to capture the basic nuances of these terminologies to make the readers understand their basic differences.
The Constitution of India gives power to the Union and the States to levy “goods and services tax” on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption. The Constitution defines “goods” to include all materials, commodities, and articles and “services” to mean anything other than goods.
The Constitution further constitutes the GST Council mainly to do recommendations to the Union and the States on various aspects of the GST law including rates, exemptions, etc.
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So, what is GST?
All “intra-state” supplies of goods or services or both, except supply of alcoholic liquor for human consumption, attracts CGST & SGST/UTGST (presently equally) on the value determined and at such rates not exceeding 20% (each), as may be notified by the Govt. (Union & State/UT), on the recommendations of the Council, w.e.f.1st July, 2017.
Similarly, for all “inter-state” supplies of goods or services or both, except supply of alcoholic liquor for human consumption, attracts IGST on the value determined and at such rates not exceeding 40%, as may be notified by the Govt. (Union), on the recommendations of the Council, w.e.f.1st July, 2017.
Thus, the starting point of levy of GST is that there has to be a supply of goods or services or both.
Section 7(1) of CGST Act defines what is a “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.
1. What do not constitute “supply” under GST Law?
Section 7(2) of CGST Act further defines what is not to be treated as supply of goods or supply of services. This includes:
(a) activities or transactions specified in Schedule III of CGST Act.
Schedule III of the CGST Act which includes activities or transactions which shall be treated neither as supply of goods nor a supply of services inter-alia includes:
(a) Services by an employee to the employer in the course of or in relation to his employment.
(b) Services by any Court or Tribunal.
(c) Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
(d) Sale of Land and Sale of completed Building.
(e) Actionable claims, other than lottery, betting and gambling.
and
(b) activities or transactions of Central Govt., State Govt. or Local Authority, as may be notified by the Govt.
Notification No. 14/2017-Central Tax (Rate) dated 28th June, 2017, read with Notification No. 16/2018-Central Tax (Rate) dated 26th July, 2018 notifies services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution, as neither as supply of goods nor as supply of service. (Similar notification under IGST Act)
Thus section 7(2) of CGST Act, explicitly takes the activities or transactions out of the “supply” definition, treating them as neither supply of goods nor supply of services.
2. What is “non-taxable supply” under GST Law?
Supply of alcoholic liquor for human consumption is not covered in Schedule III and hence is a supply of goods, which is not leviable to tax under this Act or under IGST Act and hence is a “non-taxable supply”. Section 2(78) of CGST Act defines “non-taxable supply” to mean, a supply of goods or services or both which is not leviable to tax under this Act or under IGST Act.
Also, GST on petroleum crude, high speed diesel, motor sprit (commonly known as petrol), natural gas and aviation turbine fuel, is deferred to a date to be recommended by the GST Council. All these items will also fall under the category of “non-taxable supply”, as of date.
3. What is “exempt supply” under GST Law?
Section 2(47) of CGST Act defines “exempt supply” to mean, supply of any goods or services or both:
(a) which attracts nil rate of tax, or
(b) which may be wholly exempt from tax u/s 11 of CGST Act or u/s 6 of IGST Act, or
(c) non-taxable supply.
We have already seen what is a “non-taxable supply”. Now let’s see which supply of goods or services is wholly exempt from tax.
Section 11 of CGST Act and section 6 of IGST Act, exempts goods or services or both from payment of tax, wholly or partly. The definition of “exempt supply” only covers “wholly exempted” goods or services.
For wholly exempted goods refer
1. Notification No.02/2017-Central Tax (Rate), dated 28th June, 2017, read with
i) Notification No. 28/2017-Central Tax (Rate), dated 22nd September, 2017
ii) Notification No. 35/2017-Central Tax (Rate), dated 13th October, 2017
iii) Notification No. 42/2017-Central Tax (Rate), dated 14th November, 2017
iv) Notification No.7/2018-Central Tax (Rate), dated 25th January, 2018
v) Notification No.19/2018-Central Tax (Rate), dated 26th July, 2018
2. Notification No.07/2017-Central Tax (Rate), dated 28th June, 2017
3. Notification No. 26/2017-Central Tax (Rate), dated 21st September, 2017
The supply of above notified goods qualifies for “exempt supply” which is wholly exempt from tax u/s 11 of CGST Act. (Similar notifications u/s 6 of IGST Act)
At present no specific services are wholly exempted from tax.
However, Notification No.8/2017-Central Tax (Rate), dated 28th June, 2017, read with
i) Notification No. 38/2017 – Central Tax (Rate), dated 13th October, 2017
ii) Notification No. 10/2018 – Central Tax (Rate), dated 23rd March, 2018
iii) Notification No. 12/2018 – Central Tax (Rate), dated 29th June, 2018
exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of CGST Act.
Hence, for the supply of taxable goods or services or both, by a non-registered supplier (being his aggregate turnover in a financial year does not exceed ` 20 lakhs, ` 10 lakhs for special category states) to a registered supplier, the said supply will not qualify as “non-taxable supply”, however will qualify as “exempt supply” which is “wholly exempt” from tax u/s 11 of CGST Act or u/s 6 of IGST Act, vide Notification No.8/2017-Central Tax (Rate), dated 28th June, 2017, and Notification No. 32/2017 – Integrated Tax (Rate), dated 13th October, 2017.
“exempt supply” also includes supply of any goods or services or both, which attracts nil rate of tax. Presently, for goods, Schedule VI has a tax rate of 0.125% and no schedule which attracts nil (0%) rate of tax. Services which attract nil rate of tax are notified in Notification No. 12/2017- Central Tax (Rate), dated 28th June, 2017, read with:
i) Notification No. 21/2017- Central Tax (Rate), dated 22nd August, 2017
ii) Notification No. 25/2017- Central Tax (Rate), dated 21st September, 2017
iii) Notification No. 30/2017- Central Tax (Rate), dated 29th September, 2017
iv) Notification No. 32/2017- Central Tax (Rate), dated 13th October, 2017
v) Notification No. 2/2018- Central Tax (Rate), dated 25th January, 2018
vi) Notification No. 14/2018- Central Tax (Rate), dated 26th July, 2018
4. What is zero rated supply?
Finally, there is a concept of “zero rated supply” which is defined u/s Section 2(23) read with section 16 of IGST Act.
“zero-rated supply” means
(a) export of goods or services or both, or
(b) supply of goods or services or both to SEZ developer or SEZ unit.
Section 2(5) of IGST Act defines “export of goods” to mean taking goods out of India to a place outside India.
Section 2(6) of IGST Act defines “export of services” to mean –
(a) Supplier of service is located in India;
(b) Recipient of service is located outside India;
(c) Place of supply of service is outside India;
(d) Payment is for service is received by the service provider in convertible foreign exchange; and
(e) Supplier and recipient of service are not merely distinct persons.
Further, section 147 of CGST Act empowers the Govt. to notify certain supplies of goods as deemed exports, where goods manufactured in India do not leave India. Notification No. 48/2017-Central Tax, dated 18th October, 2017.
5. Conclusion:
Thus, under the GST provisions we have:
a. certain activities or transactions out of the “supply” definition, treating them as “neither supply of goods nor supply of services”;
b. “exempt supply”
(1) which attracts “nil” rate of tax, or
(2) which may be “wholly exempt” from tax u/s 11 of CGST Act or u/s 6 of IGST Act, or
(3) “non-taxable supply”.
c. “zero rated supply”
i) export of goods or services or both, or
ii) supply of goods or services or both to SEZ developer or SEZ unit
Author Bio
Thank you for explainig the concept in details