The event of GST starts where there is a case of Supply. If there is no case of Supply, GST is not required and not to be considered. A word sale has not been taken under GST Act. In place of sale there is a word Supply. Various taxable events in pre-GST regime such as purchase, sale, manufacturing, service, entry tax etc.. have been subsumed in GST in a single taxable event i.e. Supply.
Index for this Article:
A. Section 7 (1)
B. Section 7 (1)(a)
C. Section 7 (1)(b)
D. Section 7 (1)(c) – Schedule I
E. Section 7 (1A) – Schedule II
F. Section 7 (2) – Schedule III
G. Composite Supply
H. Mixed Supply
I. Tax liability on composite and mixed supplies – Section 8
J. Nature of Supply
K. Time of Supply
L. Ciculars clarify about supply
A. Section 7 (1) – Supply
The term Supply has been defined under section 7 (1) of the CGST Act by way of Scope of Supply which 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; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration.
B. Section 7 (1)(a)
To constitute a Supply, two conditions subject to exceptions stated under the Act must be fulfilled simultaneously.
1. Supply shall have been made for a consideration and
2. Supply shall have been made in the course or furtherance of business.
For example if a person sells his old TV to the kabariwala for Rs. 3000.00 then such Supply shall not be considered supply for the purpose of GST though such Supply has been made for consideration but such Supply has not been made in course of business.
Further example a businessman distributes free gifts in general public without any condition. Such activity shall not be treated as Supply for the purpose of GST though such activity has been made in course and furtherance of the business but such Supply has been made without consideration.
Press Release dated 13-07-2017 by the Government clarifies “the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a Supply.”
C. Section 7 (1)(b) – Supply made for consideration but, not in of the course of Business.
The activity where element of consideration is available but other element as “ in the course of business or furtherance of business” is not available, shall be treated as Supply.
Such activity is “Import of services for a consideration whether or not in the course or furtherance of business.”
D. Section 7 (1)(c) – Supply made in the Course of business butwithout consideration – Schedule I
Transaction without consideration – The Legislature empowers the law-makers to notify activities in schedule I which shall have been made or agreed to be made without a consideration. Such activities shall be treated as Supply and GST be charged on such Supply. Schedule I is provided as under:
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.
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. 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.
In Advance Ruling upheld by AAAR-Karnataka in the case of Columbai Asia Hospitals P. Ltd; wherein the Hon’ble Court held that administrative services provided by Head Office to their branches situated in other States shall be treated as supply of services. Last para of the judgment is that “The India Management Office (IMO) of the Appellant is providing a service to its other distinct units by way of carrying out activities such as accounting, administrative work, etc with the use of the services of the employees working in the IMO, the outcome of which benefits all the other units and such activity is to be treated as a taxable Supply in terms of the entry 2 of Schedule I read with Section 7 of the CGST Act.”
E. Section 7 (1A) – Schedule II for Treatment of Activity as Supply of Goods or Supply of Services
To avoid any litigation in regard of that a particular activity is a Supply of goods or a Supply of services the Legislature makes provisions in this respect. Schedule II has been prescribed wherein (Schedule II) it has been fixed that a particular activity shall be treated either as Supply of goods or as Supply of services. Schedule II is reproduced as under:
ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES
(a) any transfer of the title in goods is a Supply of goods;
(b) any transfer 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 shall 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
Any treatment or process which is 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. Supply of services
The following shall be treated as Supply of services, namely:—
(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 after its first occupation, whichever is earlier.
Explanation.—For the purposes of this clause—
(1) the expression “competent authority” means the Government or any authority authorised 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 (20 of 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 remodelling 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; and
(f) 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
The following composite supplies shall be treated as a Supply of services, namely:—
(a) works contract as defined in clause (119) of section 2; and
(b) 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.
7. Supply of Goods
The following shall be treated as Supply of goods, namely:—
Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
F. Section 7 (2) – Neither a Supply of Goods nor a Supply of services –
(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.
Schedule III is reproduced:
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. (a) Supply of warehoused goods to any person before clearance for home consumption;
(b) 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.]
Explanation 1.—For the purposes of paragraph 2, the term “court” includes District Court, High Court and Supreme Court.
Explanation 2.—For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962 (52 of 1962).
Notification No. 14/2017-Central Tax (Rate) Dated 28/06/2017 issued for section 7(2) for neither Supply of goods nor Supply of services. Following activity has been prescribed:
“Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution.”
Notification No. 25/2019-Central Tax (Rate) Dated: 30/09/2019 issued for section 7(2) for neither Supply of goods nor Supply of services. Following activity has been prescribed:
“Service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called.”
Section 2 (30) defines “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.
Illustration: Where goods are packed and transported with insurance, the Supply of goods, packing materials, transport and insurance is a composite Supply and Supply of goods is a principal Supply;
Section 2(74) defines “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:
Illustration : A Supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed Supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed Supply if these items are supplied separately;
I. Tax liability on composite and mixed supplies – Section 8
(a) – Rate of Tax in composite supply shall be the rate of tax which is applicable to the Principal Supply and
(b) – Rate of Tax in mixed supply shall be the rate of tax which attracts higher rate of tax in mixed supply.
Example for composite Supply – A person sells Furniture to the customer. To deliver the furniture he incurs amount on account of packing material and transport charges. The charges for packing material and charges for transport are separately shown in Tax Invoice. Such transaction is a combination of three supplies i.e. supply of furniture, supply of packing material and transport charges. Principal Supply is furniture, therefore, tax at the rate applicable to the furniture shall be charged for this composite/all supplies.
Example for mixed Supply – There is a basket of goods comprising goods say A,B,C and D. Rate of tax for A is 5, for B is 12, for C is 18 and for D is NIL rate. In this case the maximum rate is 18, therefore, tax be charged @ 18 for this mixed Supply.
The person may sell such goods separately instead of mixed Supply. If he sells goods separately then rate of tax be charged separately according to rate of tax apply on each Supply.
J. Nature of Supply
The tax is paid according to the nature of supply. If supply pertains to intrastate the Central GST and State GST are paid and if supply pertains to interstate the IGST is paid.
Location of Supplier and the place of supply determine whether a supply is intrastate supply or interstate supply.
Section 7 of the IGST Act is for interstate of supply.
Section 8 of the IGST Act is for intrastate of supply.
Sections 10,11,12 and 13 of the IGST Act are for place of supply.
Refer Article “ Place of Supply under GST – Detailed Analysis” to more understand this topic.
K. Time of Supply
The Time of Supply fixes date when the Supply has been done. Tax Liability to pay tax arises from the Time of Supply.
Section 12 of CGST Act is for Time of Supply of Goods
Section 13 of CGST Act is for Time of Supply of Services.
Section 14 of CGST Act is for Time of Supply for Change in rate of Tax in respect of Supply of Goods or Services
Refer Article “Time of Supply under GST” for detailed law.
L. Ciculars clarify about supply
Circulars clarify about following supplies
|1||Circular No. 34/8/2018-GST Dated: 01/03/2018||Bus Body Building|
|2||Circular No. 34/8/2018-GST Dated: 01/03/2018||Retreading of Tyres|
|3||Circular No. 47/21/2018-GST Dated: 08th June, 2018||Servicing of Car where spare parts and labour involved|
|4||Circular No. 109/28/2019-GST dated: 22/07/2019||Goods sent/taken out of India for exhibition or on consignment basis for export promotion|
To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is firstname.lastname@example.org.