CA Abhishek Chopra*
As we all are aware that GST is now a reality and it’s a matter of few days to come in full swing. Arguably, GST is not just only a new taxation reform but it is business reform that will change the way of doing business. Further GST, has wide implications on entities operations like Finance, HR policy, Vendor management, Banking, Selling arrangement etc.
As we know GST will subsume many State and Central taxes like Service tax, Central Excise and Sales tax etc. Presently, the Service tax is leviable on rendition of service, the Excise Duty is leviable on the manufacturing of Goods and Sales tax is leviable on Sale of Goods. Under GST regime taxable event has been codified as Supply.
The term Supply has been defined under Section 7 of Central Goods and Services Tax Act, 2017 (“CGST”) and same is reproduced below for ease of reference.
“7. (1) For the purposes of this Act, the expression “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 aconsideration; and
(d) the activities to be treated as supply of goods or supply of services asreferred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.”
Further supply can be understood with the help of table mentioned below:
|Particulars||With Consideration||Without Consideration||In the course of or Furtherance of business|
|Sale, transfer, barter, exchange, licence, rental, lease or disposal||Yes||No||Yes|
|Import of Services||Yes||No||No|
|a) Permanent Transfer or disposal*||No||Yes||No|
|b) Supply of Goods or services between related or distinct person||No||Yes||Yes|
|c) Supply of goods by Principal to Agent or Supply of goods by Agent to Principal*||No||Yes||No|
|d) Import of service by a taxable person from related person or any of his establishment outside India||No||Yes||Yes|
* From reading of section 7(1)(c) a possible view may be entertain that as long as a activity is falling under Schedule I the same may be covered under scope of supply regardless of the fact that it is in the course or furtherance of business
As per above definition, it can be said that the sub clause (a) (b) and (c) defines the supply and clause (d) deals with the activities which shall be treated as Supply of goods or supply of services and same is listed in Schedule II. Further clause d of subsection 1 of section 7 deals with activities which are neither supply of service nor supply of services and same is listed in Schedule III. Hence, the activities listed in Schedule III are not a supply and hence they are not subject to levy under GST.
Since the concept of supply is very vital under GST. The Act provides for various types of supplies and all different types of supplies have different tax implications in terms of taxability and reversal of ITC. Therefore, one need to understand various type of supply under GST. Following are various types:
1. Non-Taxable Supply:
The term Non-Taxable Supply has been defined in section 2(78) of CGST Act as under
Non-Taxable supply “means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
From the reading of the above definition it is evident that the non-taxable supply is supply in terms of Section 7 of CGST Act as it satisfies all the parameters of the term supplies however, at the same time it is not subject to levy in terms of Section 9 of CGST Act.
Example: Alcoholic Liquor for human consumption is Non-Taxable Supply.
2. Exempt Supply:
The term Exempt Supply has been defined in section 2(74) of CGST Act which says,
Exempt supply “means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply”.
Thus Exempt supplies are supply in terms of section 7 of CGST Act but tax is not payable on such supply either by virtue of exemption notification under Section 11 or the said supply attract NIL rate of tax under the schedule. Here, it is important to note that Exempt supply includes Non-taxable supply. Thus, the scope of exempt supply is wider than Non-Taxable supply.
The activities which are not a non-taxable supply but are exempt supply are petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
3. Taxable supply:
In terms of Section 2(108) “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;
The taxable supply is supply of either goods or services or both in terms of Section 7 and same is also subject to levy of GST in terms of Section 9. Here, it is important to note that Exempt supply is taxable supply but same is exempt by virtue of exemption or which attract NIL rate of tax.
4. Zero rated Supply:
The term Zero rated Supply has been defined in section 2(23) of IGST Act which says, Zero rated supply shall have the meaning assigned to it in section 16;
The concept of Zero rated supply applies on certain taxable supplies which are taxed at the rate of 0% rather than at the standard rate and same is termed as Zero rated supply. The significance of the term zero rates supply is that the assessee would be eligible to avail Input Tax Credit (ITC), thus credit chain would continue.
Example of zero rated supply is “exported goods”.
5. Non Supply:
The term Non Supply has not been defined under the Act nor it is mentioned anywhere in the Act. However, it is important to understand the implications on the activity which is Non-Supply. For sake of understanding, the Non Supply means that an activity which is neither a supply of goods or services or both, nor same is included in your GST return.
The examples of such Non Supply are:
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 established under any law for the time being in force.
c. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
6. Composite Supply
The term composite supply has been defined in section 2(30) of CGST Act which says “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
7. Mixed Supply
The term mixed supply has been defined in Section 2(74) of CGST Act which says “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
The concept of “Composite Supply” and “Mixed Supply” are not new as the same was their under Service tax regime, wherein these were termed as naturally bundle services and unnaturally bundle. The same concept has been extended to goods as well.
For instance, installation service provided with Air Conditioner is an example of Composite Supply and supply of inverter with Air conditioner will be an example of Mixed Supply.
The concept carry vital importance, if any bundle of supply is not a composite supply (Matter of interpretation) then same will be classified as mixed supply and shall be subject to tax at the highest rate applicable to supply among the bundle. Though their cannot be thumb rule for differentiating Composite and Mixed Supply.
From the above, it can be seen that the current GST Acts provides for various types of supplies and understanding of each type of supply is vital from assessee point of view as each type of supply will have different tax implication including but not limited to registration, filling of returns, availment of credit and reversal thereof and outward tax liability. This would have direct and proximate liability implication on financials of assessee.
(CA Abhishek Chopra* is a practising Chartered Accountant in the field of indirect taxes. In addition to being an avid reader, writer and meticulous consultant; he has been part of various professional forums responsible for GST knowledge dissemination and implementation guidance. He can be reached at firstname.lastname@example.org)