Brief about Supply under MGL
The foremost important and crucial definition under MGL is of SUPPLY. The taxable event under GST shall be the supply of goods and /or services made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘SUPPLY’. This is our 7th article on GST Updation, for our previous articles please refer earlier blogs on taxguru.
The definition of supply provided under the MGL is an inclusive definition and hence the meaning of Supply is very wide. The whole law revolves around this definition and hence it is important to understand first that what is SUPPLY and what is not a SUPPLY. The definition has been provided under section 3 of MGL.
Meaning and Scope of SUPPLY
What is Supply?
Statutory definition under MGL
(1) Supply includes—
(a) 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 or furtherance of business,
(b) importation of services, for a consideration whether or not in the course or furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
A supply made or agreed to be made without consideration shall be deemed as Supply. The list of such supplies is being covered under Schedule I which includes supply between related persons in the course or furtherance of business.
Further, schedule II has been referred under the definition of supply to define the list of supplies as Supply of goods or Supply of services. For instance, any transfer of the title in goods is a supply of goods however; any transfer of goods or of right in goods or of undivided share of goods without the transfer of title thereof, is a supply of services.
The schedule III has been referred under the definition of supply to define activities or transactions which shall be treated neither as Supply of goods nor Supply of services. The list of supplies includes supply of goods and/or services like employee to employer services, services by foreign diplomat mission, health care and education services provided by government, etc., which are specifically excluded from the definition of Supply, i.e. they shall not be called as supply under GST law.
The schedule IV has been referred in the definition of supply to define the list of activities or transactions undertaken by Central Government, State Government or any local authority which shall not be treated as Supply.
What is Composite supply and Mixed Supply ?
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; Eg. 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 the principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax. E.g a supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink 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
What is meant by ‘Supply made in the course or in furtherance of business’ ?
In the CBEC FAQs, the same concern has been addressed and resolved that No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:
1. Is the activity, a serious undertaking earnestly pursued?
2. Is the activity is pursued with reasonable or recognizable continuity?
3. Is the activity conducted in a regular manner based on sound and recognized business principles?
4. Is the activity predominantly concerned with the making of taxable supply for consideration/ profit motive?
The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.
If the above tests are passed then it can be resolved that the supply made is in the course or furtherance of business.
What is meant by Consideration?
“consideration” in relation to the supply of goods or services includes
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods or services, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:
PROVIDED that a deposit, whether refundable or not, given in respect of the supply of goods or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;
The definition of consideration is also very wide to include any payment, whether in money or otherwise for the inducement and any monetary value of any act or forbearance whether or not voluntary in respect of or for inducement of supply of goods or services.
Q. 1 Are self-supplies taxable under GST?
A. Inter-state self-supplies such as stock transfers will be taxable as a taxable person has to take state wise registration in terms of Schedule V. Such transactions have been made taxable even if there is no consideration. However, intra-state self-supplies are not taxable.
Q. 2 An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of MGL?
A. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.
Q. 3 A dealer of air-conditioners transfers an air conditioner from his stock in trade, for personal use at his residence. Will the transaction constitute a supply?
A. No, however the same was included in the definition of supply in the original model GST law. However, input tax credit related to purchase of such air-conditioner will not be allowed.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST.
(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at [email protected], 9999836182/9818449179)