Section 7 of CGST ACT 2017– There are so many articles related to concept supply already available to all of us so I have tried to sum-up important points to kept in mind related to ‘supply’ –milestone of GST ACT.
Section 7 (1)- (a)- Three points to remember- For purpose of this Act-
√ Supply includes- all forms of supply of Goods or services or both such as sale, transfer, barter, exchange,licence,rental,lease,or disposal
√ In course or furtherance of business
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration
(1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either 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.
√ (a) Supply includes all forms of supply (goods and / or services) and includes agreeing to supply when the supply is for a consideration and in the course or furtherance of business (as defined under Section 7 of the Act). It specifically provides for the inclusion of the following 8 classes of transactions:
For the purpose of this Act”, which means that wherever the term supply has been used anywhere in the Act, the meaning should always be derived from this section 7 and cannot be substituted by any other understanding of the term supply. ‘Supply’ is but an amalgam of these 8 forms of supply.
√ (b) Import of services even for personal consumption would qualify as ‘supply’ and therefore, would be liable to tax. This would not be subject to the threshold limit for registration, as tax would be payable in case of import of services on reverse charge basis, requiring the importer of service to compulsorily obtain registration in terms of Section 24(ii) of the Act.
√ (c) Transactions without consideration: The law lists down, exhaustively, cases where a transaction shall be treated as a ‘supply ‘even though there is no consideration. Such transactions are listed in Schedule I.
Schedule I -Following activities to be treated as Supply even if made without consideration :-
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets-
2. Supply of goods or services or both between related persons, or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both
Let us take instances of transactions between distinct persons that are not traceable in the books of account, but requires attention from the perspective of this paragraph in the Schedule:
i Stock transfers e.g., transfer of sub-assemblies, semi-finished goods or finished goods;
ii. Transfer of new or used capital goods/fixed assets – including movement of laptops when employees are transferred from one location to another;
iii. Bill-to ship-to transactions wherein the vendor issues the invoice to the corporate office and ships the goods to the branch office;
iv Permitting employees to make use of the office assets for personal use – say usage of motor vehicles, laptops, printers, scanners, etc.
Further, The explanation appended to Section 15 of the CGST Act provides that an employer and employee will be deemed to be “related persons”. Accordingly, supplies by employer to employees would be liable to tax, if made in the course or furtherance of business, even though these supplies are made without consideration, except:
Gifts by an employer to an employee of value up to Rs 50,000 (to be understood as inclusive of taxes, as read with Rule 35 of the CGST Rules) in a financial year . The question that arises as to what constitutes a gift – In common parlance, gift cannot be demanded as matter of right by employee and is normally made occasionally.
It may also be noted that a gift need not always be in terms of goods. A service can also constitute a gift, such as gift vouchers for a beauty treatment . CBEC Press Release on 10.07.2017,giving clarification on applicability of GST on gifts/ perquisites by employer to employees
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.
It is a supply if the agent undertakes to supply such goods on behalf of principal.
4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
For instance, say A Ltd is a holding company in USA and B Ltd a subsidiary in India. Many business operations are centralized in the USA such as accounting, ERP and other software, servers for the backup, legal function, etc. For the purpose of this clause, the back-end support provided by the holding company to the subsidiary company in India shall be regarded as a supply, whether or not there is a cross charge, even if the same is not recognised in the books, or any contracts, since it is categorized as an import of service by a person from a related person without consideration, in the course of business.
Section 7(1A)- Section 7(1A) creates a fiction under the statute and specifies ‘what is’ and ‘what is not’ to be treated as a transaction of supply of goods or a transaction of supply of service. There are 18 classes of transactions enlisted Schedule II of which 5 classes of transactions are listed out as supply of goods while 13 others would tantamount to supply of services. By shifting the ‘placement’ of schedule II from clause (d) of section 7(1) to a separate section 7(1A), it is made clear that firstly, a transaction must already be determined to be ‘supply’ and then, for the limited purposes of ‘treatment’ by fiction, entries in schedule II must be referred. This amendment was introduced with retrospective effect from 1 Jul 2017 vide CGST Amendment Act 2018.
Matters to be treated as supply of goods
1. Transfer of title in goods
2. Transfer of future goods (i.e. property therein will pass at future date)
3. Transfer/disposal of business assets with or without consideration
4. Goods forming part of business assets on ceasing to be a taxable person
5. Supply of goods by an unincorporated association/body of persons to its members
Matters to be treated as supply of services
1. Transfer of right to use goods without transfer of title
2. Lease, tenancy, easement, licence to occupy land
3. Lease or letting out of building
4. Job work on others’ goods
5. Personal use/making available business goods for non-commercial/business usage whether or not for consideration
6. Renting of immovable property
7. 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
8. Temporary transfer or permitting the use or enjoyment of any intellectual property right
9. Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software
10. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act
11. 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
12. Works contract (Composite Supply)
13. Supply (Composite 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
Schedule III- Activities or transactions which are neither supply of goods nor supply of services
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.
3. (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 of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
8. Supply of warehoused goods to any person before clearance for home consumption;
Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption (inserted vide CGST (Amendment) Act, 2018, w.e.f. 1-2-2019)