This article delves into the intricacies of the scope of supply under GST, focusing on Section 7 of the CGST Act, 2017. It examines what constitutes supply, its exceptions, and the activities included and excluded as per the Act. Additionally, it analyzes Schedules-I, II, and III to gain a comprehensive understanding of taxable and non-taxable supply scenarios.
Section 7 of the CGST Act defines supply as a taxable transaction involving the provision of goods or services or both for a consideration, in the course or furtherance of business, by a taxable person within the taxable territory. However, certain exceptions apply, such as the import of services and activities listed in Schedule-I made without consideration.
The Act includes various activities as part of supply, such as sale, transfer, disposal, barter, and more. Import of services, even without business intentions, falls within the purview of supply. Additionally, Schedule-I lists activities considered supply, regardless of consideration, including the permanent disposal of business assets and the supply of goods between related persons.
On the other hand, Schedule-II outlines activities treated as supply of goods or services, like the transfer of title or right in goods, lease of land and buildings, and treatment or processing of goods.
Schedule-III lists activities that are not treated as supply, such as services provided by employees to employers in the course of employment and functions performed by public authorities.
Detailed Analysis of Scope of Supply under Section 7 of CGST Act, 2017 is as follows:-
As per Section 7 of the CGST Act, Supply includes, “Taxable supply of goods or services or both, made by a taxable person, within taxable territory, in the course or furtherance of business, for a consideration.”
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Exceptions to Supply under GST:
i. Import of Services for a Consideration: Import of services into India, whether or not in the course or furtherance of business, is considered as supply. Even if the transaction doesn’t involve consideration, it still falls under the scope of supply.
ii. Activities mentioned under Schedule-I: Schedule-I of the CGST Act enlists certain activities that are treated as supply, even if made without consideration. Notable examples include the permanent disposal of business assets on which Input Tax Credit (ITC) is availed and the supply of goods or services between related persons or distinct persons.
Activities Included in Supply under Section 7(1):
Section 7(1) of the CGST Act elaborates on the activities included as supply under GST:
1. All Forms of Supply of Goods or Services or Both: This encompasses a wide range of activities, such as sale, transfer, disposal, barter, exchange, license, lease, or rental made or agreed to be made for a consideration. These activities, when conducted in the course or furtherance of business, fall within the scope of supply.
2. Import of Services for a Consideration: Irrespective of whether or not in the course or furtherance of business, the import of services is treated as supply under GST.
3. Activities Specified under Schedule-I: Certain activities listed in Schedule-I are considered supply, even if conducted without any consideration. These activities include permanent disposal of business assets, supply between related persons or distinct persons, and others.
4. Activities Specified under Schedule-II: Schedule-II classifies activities that are treated either as supply of goods or supply of services. These activities include the transfer of title or right in goods, lease of land and buildings, treatment or process of goods, and more.
Activities Excluded from Supply under Section 7(2):
Section 7(2) of the CGST Act specifies activities that are excluded from the definition of supply:
1. Activities Specified under Schedule-III: Schedule-III lists activities that are not considered supply under GST. These activities include services provided by employees to employers in the course of employment, services by courts or tribunals, and functions performed by Members of parliament, Members of State legislator, and Members of local authorities.
2. Activities Undertaken by Government Authorities: Activities carried out by the Central government, State government, Union territory, or Local authority in their capacity as public authorities are not treated as supply for GST purposes, as per the government’s notifications on recommendations of the council.
Schedule-I of CGST Act 2017:
Schedule-I gives a comprehensive list of activities treated as supply, even if made or agreed to be made without consideration. The list of such activities is given below:
i. Permanent disposal of business assets on which ITC is availed.
ii. Supply of goods or services between related persons, or distinct persons (as per section 25), made in the course or furtherance of business.
Definition of related persons as per Section 25 (4): A person who has obtained or required to obtain more than one registration, whether in one state/union territory or more than one state/union territory, shall be treated as a distinct person in respect of each such registration.
Definition of distinct person as per Section 25(5): Where a person, who has obtained or is required to obtain registration in a State or UT in respect of an establishment, has an establishment in another State or Union Territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.
Exception – Goods not exceeding Rs. 50.000 in a financial year, from an employer to his employee shall not be treated as a supply of goods or services.
iii. Supply of goods by a principal to his agent, where the agent undertakes to supply such goods on behalf of the principal.
iv. Supply of goods by an agent to his principal, where the agent undertakes to receive such goods on behalf of the principal.
v. Import of services by a person from a related person or any of his establishments outside India, in the course or furtherance of business.
Schedule-II of CGST Act 2017:
This schedule gives a comprehensive list of activities which are either treated as supply of goods or supply of services. The list of such activities is given below:
1. Title or right in goods: (a) Transfer of title in goods is treated as supply of goods; (b) Transfer of right in goods or undivided share in goods without transfer of the title thereof is treated as supply of services; (c) Transfer of title in goods by an agreement, which stipulated that the property in goods shall pass on a future date upon discharge of full consideration as agreed, is treated as supply of goods.
2. Land & Building: (a) Lease, tenancy, easement or license to occupy land, is supply of services. (b) Lease or tenancy of building (commercial/residential) either wholly or partly, for business purpose, is supply of services.
3. Treatment or process of goods: Treatment or process applied to goods of another person is a supply of services.
4. Transfer of Business assets: (a) Transfer or disposal of goods forming part of assets of a business, by or under direction of the person carrying on the business, so as no longer to form part of those assets, whether or not with a consideration, is a supply of goods; (b) Goods held or used for business purposes, when put to a private use or made available to any person for a use other than business, either by or under direction of the person carrying on the business, is treated as a supply of services; (c) If a person ceases to be a taxable person, goods forming part of his business assets shall be deemed to be supplied in course or furtherance of business (supply of goods), immediately before he ceases as a taxable person, unless the business is transferred to another person as a going concern, or his personal representative deemed as a taxable person.
5. Supply of Services: (a) Renting of an immovable property; (b) Construction of a building, complex, civil structure, including those intended for sale either wholly or partly, unless the entire consideration received after getting completion certificate if required or its first occupation, whichever is earlier; (c) Temporary transfer or permitting the use of an intellectual property right; (d) Development, design, programming, customization, adaptation, up-gradation, enhancement or implementation of IT software; (e) Agreeing to the obligation to refrain from an act, or to tolerate an act/situation, or to do an act; (f) Transfer of right to use any goods for any purpose (whether or not for a specified period) for cash or deferred payment or any other consideration.
6. Composite Supply of services: (a) Works contract as defined under clause 119 of section 2 of CGST Act; (b) Supply, by way of or as part of a service or any other manner whatsoever, of goods, being food or any other article for human consumption or drinks other than alcoholic liquor for human consumption, whether for cash or deferred payment or any other consideration.
Schedule III of CGST Act 2017:
Schedule III gives a comprehensive list of activities not treated as supply. List of such activities is given below:
1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by a court or tribunal.
3. Functions performed by the Members of parliament, Members of State legislator, Members of Municipalities, Members of Panchayats or Members of any local authorities.
4. Duties performed by any person who holds any post in pursuance of any provisions under the constitution in that capacity.
5. Duties performed by any person as a chairperson or a member or director in a body, established by the central government or state government or local authority and who is not deemed as an employee before commencement of this clause.
6. Services of funeral, burial, crematorium, or mortuary including transportation of the deceased.
7. Sale of land and subject to clause b of paragraph 5 of schedule II, sale of building.
8. Actionable claims, other than lottery, betting and gambling.
9. Supply of goods from a non-taxable territory to another non-taxable territory, without entering into India.
10. Supply of goods by the consignee to any other person, by endorsement of documents to title of goods, after the goods being dispatched from the port of origin outside India but before clearance for home consumption.
11. Supply of warehoused goods to a person before clearance for home consumption.
Conclusion:
Supply is the main deciding factor on which taxation of a transaction under GST system is based. If a transaction is treated as a ‘supply’, then only the question of taxing the transaction arises. So ‘supply’ is the most crucial factor under GST system and it is the taxable event on happening of which the charge of GST is determined. Supply holds the greatest significance and shall be an important event in determining the taxability of all transaction whether commercial or otherwise. Therefore, determining whether or not a transaction falls under the scope of supply, is most important to decide the GST applicability of the transaction.
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