The taxable event under GST shall be the supply of goods and or services made for consideration in the course of furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale or provisions of services shall stand subsumed in the taxable event known as ‘supply’.
The term ‘supply’ is wide in its import and includes 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 of furtherance of business. It also includes import of service. The model GST law also provides for including certain transactions made without consideration within the scope of supply.
A ‘taxable supply’ means a supply of goods and or services which is chargeable and to goods and services tax under the GST Act.
In order to constitute a ‘supply’, some of the elements are required to be satisfied i.e.
1. Supply of goods and or services
2. Supply is for a consideration
3. Supply is made in the course of furtherance of business
4. Supply is made in the taxable territory
5. Supply is a taxable supply and
6. Supply is made by a taxable person
Under certain circumstances such as importation of service as Section 3(1)(b) or supplies made without consideration, specified under Schedule I or Model GST Law where one or more ingredients specified above are not satisfied, it shall still be treated as supply under GST Law.
Importation of goods is conspicuous by its absence in Section 3. Importation of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty.
Interstate self supplies such as stock transfers will be taxable as a taxable person has to take state wise registration to terms of schedule 1(5). Such transactions have been made taxable even if there is no consideration. However, intra-state self supplies are not taxable.
Transfer of title and or possession is necessary for a transaction to constitute supply of goods. Titles as well as possession both have to be transferred for a transaction to be considered as a supply of goods. In case title is not transferred, the transaction would be treated as supply of service in terms of Schedule –II (1). In some cases, possession may be transferred immediately but titled may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.
No definition or test as to whether the activity is in the course or furtherance of business has been specified under the Model GST Law. However the business test is normally applied to arrive at a conclusion whether a supply has been made in the course of furtherance of business, they are:
1. Is the activity, a serious undertaking earnestly pursued?
2. Is the activity is pursued with reasonable or recognisable continuity?
3. Is the activity conducted in a regular manner based on sound and recognised business principles?
4. Is the activity predominantly concerned with the making of taxable supply for consideration or profit motive?
The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.
For an example an individual buys a sofa set for personal use and after a year sells it to a second hand sofa dealer. The transaction is not being a supply in terms of Model GST Law because supply is not made by the individual in the course or furtherance of business. Further no input tax credit was admissible on such sofa set at the time of its acquisition as it was meant for non business use.
Let us see another example: A dealer of Refrigerator transfers a Refrigerator from his stock in trade, for personal use at his residence. The transaction constitutes a supply. As per Schedule-I (1) business assets put to a private or non-business use without consideration will be treated as supply.
Provision of service or goods by a club or association or society to its members will be treated as supply. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of Model GST Law.
Inter-State and intra-State supplies have specifically been defined in Section 2 and 3A of IGST Act respectively. Broadly, where the location of the supplier and the place of supply are in same state it will be intra-state and where it is in difference states it will be inter-State supplies.
Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies, such transactions are specifically treated as supply of service in Schedule II of Model GST Law.
Works contract and catering services shall be treated as supply of service as specified in Schedule II of Model GST Law.
The goods supplied on hire purchase basis will be treated as supply of goods. Supply of goods on hire purchase shall be treated as supply of goods as there is transfer of title, albeit at a future date.