Supply under GST – An overview

Introduction

A taxable event is that event, the happening of which attracts liability to tax. The taxable event for attracting GST is the SUPPLY of goods or services or both. The term supply has got its significance as a deciding factor whether GST is applicable or not. Hence, the definition of supply becomes the first check point to be satisfied for any transaction to come under the purview of GST.

Supply definition under GST.

Supply has been defined under Sec-7 of the GST act as under

Sec-7(1) For the purpose of this act supply includes: –

(a). all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in course of furtherance of business,

(b). import of services for a consideration whether or not in course of furtherance of business,

(c). the activities specified in Schedule-I made or agreed to be made without consideration,

(d). the activities specified in Schedule-II to be treated as supply of goods or supply of services.

Sec-7(2) Notwithstanding anything contained in the sub section (1)-

(a). activities or transactions specified in Schedule-III or

(b). activities or transactions undertaken by the Central Government, state government, or any local authority, Shall be treated as neither supply of goods nor supply of services.

From the above definition it is pertinent to draw the following observations.

1. Definition of supply is inclusive and not exhaustive; hence the scope is much wider and the forms of supply specified in the definition are only given as examples, any other form of supply will also be included in the definition.

2. The term ‘made or agreed to be made’, implies that the transactions agreed to be made in future also comes under the definition of supply and is taxable under GST.

3. Supply should be made for consideration; hence free supplies are not taxable except for those covered under Schedule-I.

4. Supply of only Goods and services are covered, anything which are not falling under the definition of Goods and Services are not considered to be supply.

5. Supply should be in course of furtherance of business, i.e. only commercial transactions are covered, any supplies made by an individual in his personal capacity does not come under the ambit of GST unless they fall with in the definition of Business.

6. Import of services even if not for furtherance of business is taxable under GST.

Schedule I – 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.

• Transfer or disposal of asset where no input tax credit has been taken for any reason will not amount to supply.

2. Supply of Goods or Services or both between related persons or distinct persons when made in course of furtherance of business.

• Related person is defined in Explanation to Sec-15 and Distinct person in Sec-25.
• As per of definition of distinct persons in Sec-25, stock transfers or branch transfers between different locations having separate registrations of the same entity will qualify as a supply.
• By virtue of definition employer and employee are treated as related person, as per proviso to clause-2 of Schedule-I gifts not exceeding Rs.50,000/- in a financial year by an employer to an employee shall not constitute supply.

3. Supply of goods between principal and agent.

• by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal.
• 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 shall be treated as supply of service even if it is made without consideration.

• Even if non taxable person imports services from a related person in course of furtherance of business without consideration shall be treated as supply.

Schedule II – Activities to be treated as supply to be treated as supply of goods or supply of services

• Transfer

1. any transfer of title in goods is supply of goods;

• • • e. transfer of ownership of goods from one person to another is supply of goods

2. any transfer of right in goods or of undivided share in goods without transfer of title thereof, is a supply of services;

• • • transfer of right to use the goods without transfer of ownership is supply of services.
    • undivided share means share in goods/property owned by more than one person, if one person transfers only his share to any other person then it comes under supply of services.

3. 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;

• • • In sub-clause (a) transfer takes place immediately, where as in this sub-clause transfer takes place in future, it should be considered as supply of goods not supply of services.

• Land and Building
  • Any lease, licensing, letting out of land or building, is a supply of service.
• Any treatment or process which is applied to another person’s goods is a supply of services.
  • For example- if a job worker carries any process on inputs belonging to others, it will be treated as supply of services carried out by him.
• Transfer of Business Asset.

1. Where any goods forming part of the assets of the business are transferred or disposed of shall be treated as supply of goods.

2. Where any goods held for business purpose are put to any private use or made available to any person for any purpose other than a purpose of the business, the usage or making available of such goods is a supply of service.

3. Where any person ceases to be a taxable person, any goods forming part of assets of any business carried by him shall be deemed to be supplied by him in course of furtherance of business immediately before he ceases to be a taxable person, unless-

• • • The business is transferred as a going concern to another person; or
    • The business is carried on by a personal representative.

• Supply of services; the following shall be treated as supply of services, namely:

1. Renting of immovable property,

2. 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,

3. temporary transfer or permitting the use or enjoyment of any intellectual property right,

• • • Only temporary transfer is service, permanent transfer is supply of goods.

4. development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software,

5. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act,

6. 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.

1. Composite supply; the following composite supplies shall be treated as a supply of services, namely-

a. Works contract as defined in sec-2(119), 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.

2. 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.

Schedule III – Activities which shall be treated neither as supply of goods nor supply of services

• Services by an employee to the employer in the course of or in relation to his employment.
• 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.

• Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
• Sale of land and, subject to clause (b)of paragraph 5 of Schedule II, sale of building.
• Actionable claims, other than lottery, betting and gambling.
• Supply of goods from one place in the non-taxable territory to another place in the non- taxable territory without such goods entering into India. (Merchant trading)
• High Sea Sales.

1. Supply of warehoused goods to any person before clearance for home consumption.

2. Supply of goods by the consignee to any other person, by endorsement of documents of the title of the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home

Mixed Supply

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.

As per Sec-8 Mixed supplies comprising of two or more supplies shall be treated as supply of that particular supply which attracts highest rate of tax, hence shall be taxed at the highest rate.

Composite Supply

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 0dinary 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.

As per Sec-8 Composite supply comprising of two or more supplies, one of which is a principle supply, shall be treated as a supply of such principle supply, hence shall be taxed at the rate of the principle supply.