GST in India has been implemented since 1st July, 2017. So, within a period of almost three years we are mostly accustomed with the provisions of GST Laws. This article is intended to analyse the basic principle of Levy of GST i.e the Supply.
In every taxation statutes, Levy & Collection of tax is the first and foremost thing what we need to understand. In GST, Section 9(1) of the CGST/SGST Acts and Section 5(1) of the IGST Act are the charging sections. Section 9 of the CGST Act reads as below:
“9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.”
Similarly, Section 5(1) of the IGST Act, 2017 reads as under:
“5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.”
Therefore, analysing both the provisions of the CGST/SGST Act as well as the IGST Act the following can be interpreted:
1. GST is Chargeable on Supply of Goods or Services or both
2. Supplies may be either Intra-State (within the State) or Inter-State( Outside the State)
3. CGST & SGST is leviable on Intra State Supplies and IGST is leviable on Inter State Supply.
4. Value of Supply shall be determined as per Section 15 of the CGST Act.
5. Rate of GST to be determined as per Notification issued by the Central Government in this behalf.
6. IGST is also leviable on Import of Goods into India from out of India on the value of goods determined as per the provisions of Customs Tariff Act, 1975.
7. GST is not leviable on Alcoholic Liquor for Human Consumption.
8. GST is to be paid by a Taxable Person i.e the Supplier
Therefore, analysing the Charging Section it can be concluded that the Taxable Event in GST is “Supply”. Supply may be of Goods or Services or in any combination of Goods/Services. Supplies may further be classified as either Intra-State or Inter-State. In this respect, it should be pointed out that the taxable events under erstwhile indirect tax laws were different for different kinds of State/Central laws, Like for Excise Laws, it was Manufacture of Goods, For Service Tax it was Provision of Service , For Sales Tax/VAT it was Sale of Goods and many more. Under GST all such different taxable events got subsumed into one Taxable Event across the country which is “Supply”.
Therefore, the first thing we must understand is “What is Supply”. The definition of Supply is given in Section 7 of the CGST Act, 2017 which reads as under:
“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 a consideration; and (d) the activities to be treated as supply of goods or supply of services as referred 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.”
Elements of Supply
The definition of Supply as provided in Section 7 of the CGST Act, 2017 is an inclusive definition and therefore, it is a matter of judgement for each and every individual case. However, from the aforesaid definition we can point out some elements which shall essentially be present in a transaction to call it a Supply :
√ Supply is done for Consideration
√ Transaction is done in the course of or furtherance of Business
√ Supply should be of Goods and/or Services. Transaction in money/securities etc. does not attract GST.
If the aforementioned elements are not met, the transaction should not be considered as a Supply.
RELEVANT DEFINITION w.r.t above definition of supply:
Meaning of goods [Sec. 2(52)] As per section 2(52) “goods” means
-Every kind of movable property
-other than money and securities but includes
-Actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
Meaning of services [Sec. 2(102)] As per section 2(102) “services” means
-anything
-other than goods, money and securities
-but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination
-for which a separate consideration is charged;
Example: A foreign exchange dealer exchanging one currency for another in lieu of a commission.
Consideration [Sec. 2(31)] In relation to the supply of goods or services or both includes—
(a) any payment made or to be made,
a. whether in money or otherwise,
b. in respect of, in response to, or for the inducement of,
c. the supply of goods or services or both,
d. whether by the recipient or
e. by any other person
f. but shall not include any subsidy given by the Central or state Government;
Consideration can be in monetary (Cash or Card, etc.) or non-monetary form (Barter, Doing or agreeing to do or not to do an act etc.)
Import of services for a consideration whether or not in the course or furtherance of business will be included in the scope of supply. IGST on Imports would be in addition to the Custom Duty that is leviable on the Imports of Goods and/or Services.
Activities specified in Schedule I made or agreed to be made without a consideration would be considered as supply.
- Permanent transfer or disposal of business assets where ITC has been availed on such assets.
- Supply of goods or services or both between related persons or between distinct persons. Exception: Gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply.
- Supply of goods by a principal to his agent or vice versa where the agent undertakes to supply or receive such goods on behalf of the principal;
- Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
Activities specified in Schedule II would be considered as either supply of Goods or Services:-
1. Transfer of title or rights
- any transfer of the title in goods is a supply of goods;
- any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;
- any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.
2. Land and Building
- Any lease, tenancy, easement, licence to occupy land is a supply of services;
- Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
3. Any Treatment or process which is applied to another person’s goods is a supply of services (e.g –Job work)
4. Transfer of business assets
- where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
- where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;
- where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—
-the business is transferred as a going concern to another person; or
-the business is carried on by a personal representative who is deemed to be a taxable person.
5. Supply of services The following shall be treated as supply of services, namely:—
- renting of immovable property;
- construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier
- temporary transfer or permitting the use or enjoyment of any intellectual property right;
- development, design, programming, customisation, adaptation, Upgradation, enhancement, implementation of information technology software;
- agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and
- transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
6. Composite Supply of-
- works contract ,and
- supply, by or as any service whatsoever, of goods, being food or drinks or any other article for human consumption where such supply or is for Consideration.
7. Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be considered as supply of Goods.
Activities which shall be treated as neither Supply of goods nor of Services
1. SCHEDULE III
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.
i. the functions performed by the MPs, MLAs, Members of Panchayat and Municipalities and of local authorities;
ii. the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
iii. the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
d. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
e. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building
f. Actionable claims, other than lottery, betting and gambling.
2. 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,
Concept of Composite Supply and Mixed Supply
In GST Composite Supply and Mixed Supply are two important concepts that arises when two or more supplies are given together for a single price. The Supplies can be of Supply of Goods or Supply of Services or any combination of Goods and/or services.
Composite Supply is Defined Under Section 2(30) of the CGST Act, 2017
“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.
Therefore, the essential yardstick for determining composite supply is whether two or more supplies are naturally bundled or not. It is similar to the bundled services in erstwhile service tax laws. They are generally provided together in the normal course of business and cannot be separated.
Example: (1) Supply of medicines to IPD for healthcare of admitted patients, where principal supply is Providing Healthcare Service to admitted patient and supply of medicine is part & parcel of providing healthcare services. (2)Booking of Air Tickets which involves the cost of a meal to be provided during travel will be composite supply and tax will be calculated on principal supply. (3) Where goods are packed and transported by insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. (4) A 5-star hotel provides 4-days and 3-night packages with breakfast. This is a composite supply as the package of accommodation facilities and breakfast is also provided. In this case, hotel accommodation is the principal supply and breakfast is secondary to the hotel accommodation. (6) A Laptop bag is supplied with the laptop in the ordinary course of business, the principal supply of laptop and bag is ancillary. It is composite supply and rate of tax would be applicable on a laptop.
Taxability: Composite supply shall be treated as a supply of the principal supply and the rate of GST shall be the rate as applicable to such principal supply.
Mixed Supply
Section 2(74) of CGST Act 2017, “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.
It consists of two or more individual supplies of goods or services or both or any combination thereof. Mixed supply does not fulfil the parameters of a composite supply i.e. supply is not naturally bundled and not supplied in conjunction with each other in the ordinary course of business. The supply should be made for a single price.
Examples: (1) Diwali gift hamper which consists of different Items like sweets, chocolates, cakes, dry fruits packed in one pack is Mixed supply as these items can be sold separately and it shall be treated as a supply of that particular item which attracts the highest rate of (2) Big Bazar offers a free bucket of detergent purchased. The Product which the highest rate will be applied to mixed supply. (3)A house is given on rent one floor of which is to be used as residence and the other floor to be used as a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed where only residential use of house is specified, it will be treated as a mixed supply as it is not naturally bundled and the renting of house for commercial use is a taxable supply. Thus, the said supply shall be considered as service comprising entirely of such service which attracts highest liability of GST.
Taxability: The Highest Rate of Tax amongst all supplies shall be applied on the total value of mixed supply.
In this respect, the definition of Works Contract in GST Regime may be Examined. Section 2(119) of the CGST Act, 2017 defines Works Contract in the following Manner:
“works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract”.
Works Contract essentially involves two or more supplies because both Supply of Goods and Supply of Services shall be covered to become a transaction as Works Contract. In GST, it is evident from the definition itself that Works Contract shall be in relation to immovable property only and not in relation to Movable Properties. Composite Supply of Works Contract is categorised as Supply of Services as per Clause 6 of Schedule I and therefore time of supply and place of supply provisions in regard to services shall be applicable in case of works contract.
However, for determining the tax in regard to two or more supplies in relation to any movable property, we need to determine whether the same falls under the definition of Composite Supply or Mixed Supply. If it is a Composite Supply then rate of Principal Supply shall be charged on the whole Value of Supply. But, if it is mixed supply, then the highest amongst all items shall be applied on the whole transaction value.
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