Determination of the taxable event in any tax law is of utmost significance as the levy of tax is based on occurrence of that event. In the Model GST Law, a uniform and single taxable event ‘supply’ would replace multiple taxable events i.e. manufacture, provision of service and sale, etc., as prevalent in the present regime. Thus, the constant monitoring and compliance required for keeping track of varied tax trigger points at present would fade away in GST, but, simultaneously, the term ‘supply’ will hold the greatest significance and shall be important in determining the taxability of all transactions, whether commercial or otherwise under GST regime.
1. Supply means and includes—
(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,
(b) importation of services, for a consideration whether or not in the course or furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
Meaning of Supply as per Schedule I
(1) Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.
(2) Supply of goods or services between related persons, or between distinct persons as specified in section 10, when made in the course or furtherance of business.
(3) Supply of goods—
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal, or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
(4) Importation 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.
2. Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
Matters to be treated as supply of goods and services as per Schedule II:
(a) Any transfer of the title in goods is a supply of goods.
(b) Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.
(c) Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.
(2) Land and Building
(a) Any lease, tenancy, easement, licence to occupy land is a supply of services.
(b) 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) Treatment or process
(a) Any treatment or process which is being applied to another person’s goods is a supply of services.
(4) Transfer of business assets
(a) 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.
(b) 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.
(c) 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—
(i) the business is transferred as a going concern to another person; or
(ii) the business is carried on by a personal representative who is deemed to be a taxable person.
(5) The following shall be treated as “supply of service”
(a) renting of immovable property;
(b) 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 before its first occupation, whichever is earlier.
Explanation.- For the purposes of this clause–
(1) the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non requirement of such certificate from such authority, from any of the following, namely:–
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(2) the expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d)development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
(e)agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
(f) works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(g) 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; and
(h) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
(6) The following shall be treated as supply of goods
(a) supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable
3. Notwithstanding anything contained in sub-section (1), below two categories of supply shall regarded as neither supply of goods or services
(a) activities or transactions specified in schedule III;
Below activities of transactions which shall be treated neither as supply of goods or supply of services under Schedule III:
(1) Services by an employee to the employer in the course of or in relation to his employment.
(2) Services by any Court or Tribunal established under any law for the time being in force.
(a) The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
(b) The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(c) 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.
(4) Services by a foreign diplomatic mission located in India.
(5) Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
(b) activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities as specified in Schedule IV.
Explanation to Schedule IV:
(1) Services provided by a Government or local authority to another Government or local authority excluding the following services:
(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services;
(ii) services in relation to an aircraft or a vessel , inside or outside the precincts of a port or an aircraft; or
(iii) transport of goods or passengers.
(2) Services provided by a Government or local authority to individuals in discharge of its statutory powers or functions such as-
(i) issuance of passport, visa, driving licence, birth certificate or death certificate; and
(ii) assignment of right to use natural resources to an individual farmer for the purpose of agriculture.
(3) Services provided by a Government or local authority or a governmental authority by way of:
(i) any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution;
(ii) any activity in relation to any function entrusted to a Panchayat under article 243 G of the Constitution;
(iii) health care; and
(4) Services provided by Government towards-
(i) diplomatic or consular activities;
(ii) citizenship, naturalization and aliens;
(iii) admission into , and emigration and expulsion from India;
(iv) currency , coinage and legal tender , foreign exchange;
(v) trade and commerce with foreign countries , import and export across customs frontiers , interstate trade and commerce; or
(vi) maintenance of public order.
(5) Any services provided by a Government or a local authority in the course of discharging any liability on account of any tax levied by such Government or authority.
(6) Services provided by a Government or a local authority by way of –
(i) tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract; or
(ii) assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016:
PROVIDED that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource:
(7) Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import or export of cargo on payment of Merchant Overtime Charges (MOT).
(8) Services provided by Government or a local authority by way of-
(i) registration required under any law for the time being in force; or
(ii) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force.
(1) Governmental Authority means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W or a Panchayat under article 243G of the Constitution.
(2) Health care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.
(3) Education services means services by way of—
i) pre-school education and education up to higher secondary school or equivalent;
ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force; or
iii) education as a part of an approved vocational education course.
4. Subject to sub-section (2) and sub-section (3), the Central or a State Government may, upon recommendation 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; or
(c) neither a supply of goods nor a supply of services.
5. The tax liability on a composite or a mixed supply shall be determined in the following manner —
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
Author of this article is CA Deepak Bharti who is member of ICAI and can be reached at [email protected]. Suggestions/comments are most welcome.