written by Keshav Sharma | December 15, 2021

Meaning and Scope of Supply under GST

According to Section 2(108) of the Central Goods and Services Tax or CGST Act 2017, Taxable Supply under GST means a supply of goods or services or both leviable to tax under this Act. Therefore, let's delve deeper into understanding what is the taxable event under GST along with the concept of supply under GST.

Definition of Supply under GST: ‘Supply’ as a taxable event

For any indirect taxes to be levied in India, it is important to pinpoint the taxable event. A Taxable event is an occurrence that attracts the tax provisions. In the former tax regime, ‘Sale’ used to be a taxable event for VAT or Value Added Tax, ‘Manufacture’ was a taxable event for ‘Excise Duty’, ‘Supply of Service’ was a taxable event for ‘Service Tax’. Similarly, when Goods and Service Tax (GST) came into the picture, and most of the indirect taxes of various natures were subsumed under a single tax regime, the GST became important to determine the Taxable event under GST.

 Under GST, ‘Supply’ is considered a taxable event. A transaction that consists of ‘Supply’ of either Goods or Services attracts the provisions of GST. 

Section 7 of the CGST Act, 2017 is amended to include a new clause under the definition of Supply. Earlier it applied only to goods. Activities involving the supply of goods or services by any person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment, or other valuable consideration.

The amendment states that where any supply is made by any person, other than an individual (meaning, an entity like an Association of Persons (AOP), a partnership firm, a Company, a co-operative society, etc.), to its members or constituents (meaning, members of such entities, like the members of the club, or the members of a co-operative society), if done for cash or deferred payment or any other valuable consideration, then such supply is also covered in the definition. 

The base here is that the entity and its members are considered as different persons under the law and hence, any supply of goods or services by the entity to its members is also considered as 'Supply' under GST.

What is Supply under GST?

Supply under GST includes all forms of supply of Goods and Services or both such as sale, transfer, exchange, barter, license, rental, lease, or disposal made or agreed to be made for a consideration in the course or furtherance of business.

Understanding the terms mentioned above:

  • Sale and Transfer: A Sale is a transaction where the possession and ownership or the title of goods is transferred from one person to another. 
  • Exchange and Barter: A Barter is a contract wherein transfer occurs in exchange for other goods or services or partially for money. The consideration can be in terms of supply as well as money.
  • License, Lease, Rental, and Disposal: These are the events wherein the title in the property, land, equipment, assets are not transferred. Only the right to use for a specific period is granted for any business or activity that is lawful. A consideration is charged according to the agreement for a specified contract term.

Parameters of Supply under GST

There are a few important parameters to be clarified for the determination of Supply.

Supply must be of Goods and Services

 Under GST, Goods and Services are well-defined terms. Goods, under section 2(52), means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

 Services, under section 2(102), means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination, for which, a separate consideration is charged. Hence, Supply other than goods or services won’t be considered as a taxable event.  

Supply should be made for a consideration

Consideration under section 2(31) says that any monetary value for the act or forbearance of supply of Goods and services under GST or both, whether by the recipient or by any other person, but shall not include any other subsidy given by the Central Government or a State Government. However, a refundable deposit is not considered under supply unless the supplier applies such deposit as consideration towards pending dues. Hence, for a supply to be considered as a taxable event, consideration is a must.

 However, schedule I specifies some exceptions to this parameter. That means, Schedule I specifies certain events considered as supply even without consideration, i.e. Deemed Supply. 

  • Permanent Transfer/ Disposal of Business Assets

 When there is a permanent transfer or disposal of business assets, it is treated as Supply under GST when the following conditions are met: 

  1. There is a permanent transfer or disposal of business assets.
  2. Input Tax Credit (ITC) must have been availed on such business assets. Hence, assets on which ITC is blocked or available but not availed are not eligible to be treated as deemed supply even if transferred permanently without consideration.

Supply between Related Persons or distinct persons

‘Related Persons’ and ‘Distinct Persons’ are defined under GST. A related person can influence decisions. Whereas a distinct person owns multiple GST entity registrations in or outside India under the same PAN. If a supply occurs between such two entities without any consideration, it is treated as a deemed supply.  

For further clarifications, stock transfer between two entities with separate registration as distinct persons is treated as Deemed supply. However, stock transfer between two entities with a single registration cannot be treated as a supply.

  • Principal-Agent Relationship

Under these provisions, where a supplier supplies goods to the agent and agent further sells the goods on behalf of the supplier by issuing an invoice in their name, i.e. the agent has the right to transfer the title in the goods to the buyer. Such a supply by the principal to the agent will be considered as a Deemed Supply. Agents merely providing agency services by issuing an invoice in the name of Principle are not considered as Agents for this provision.

  • Importation of Services

Import of services from a related person or his establishments located outside India shall be treated as' Supply' in the course or furtherance of business.

Also Read: Know About ITC reversal under GST

Supply should be in the course of Furtherance of Business

Supply must be made for the continuation of the business for the furtherance of business with consideration. However, import of services for a consideration, whether or not in the course or furtherance of business, is an exception to this rule and is considered as supply.

What are the Types of Supply

Supplies are classified into Mixed Supplies and Composite Supplies.

Where bundled supplies are made, they are classified as Mixed or Composite Supplies based on the nature of the goods sold or services provided. This is essential to determine the rates of such supplies.

Composite Supplies

When goods and services are supplied as a bundle, in conjunction with each other, in the ordinary course of business, one of which is a principal supply, it is considered a composite supply. These are generally the necessities combined, and even the customer perceives to receive such goods and services as a package. Composite supplies are generally advertised as a package, and the supplies cannot be sold individually. In the case of composite supplies, the rate of supply is the rate applicable to the Principal Supply. For example, a charger supplied with a mobile phone or a laptop.

Mixed Supplies

Mixed Supplies are when two or more taxable individual supplies are supplied in combination. Such supplies are individual and are not naturally bundled. The supply that attracts the highest tax rate for Mixed Supplies is applied to the entire mixed supply. For example, a Diwali gift package consisting of Chocolates, candies, dry fruits, sweets, balloons.

Scope of Supplies

 Activities treated as neither Supply of Goods nor as Supply of Services (Schedule III). 

  1. Services by an employee to the employer in the course of the relation of employment.
  2. Services by any court or Tribunal established under any law for the time being in force.
  3. Functions performed by members of Parliament, State Legislatures, Panchayats, Municipalities, Local Authorities, in pursuance of the Constitution.
  4. Sale of land or building.
  5. Services of funeral, burial, crematorium, or mortuary, including transportation of the deceased.
  6. Actionable claims other than lottery, betting, and gambling.
  7. Supply of Goods from one non-taxable territory to another taxable territory without the goods entering into India.
  8. Supply of goods from the port to any place before clearance for Home Consumption.

Activities treated as non-supplies vide Notification

  1. Activities by the Panchayat under Article 243G and by the Municipality under Article 243W of the Constitution.
  2. Services by the Government in the form of a grant of Alcoholic liquor license.

Activities treated as Non-supplies by way of clarification

  1. Inter-state movement of various modes of conveyance between distinct persons including trains, buses, trucks, aircraft, containers, trailers, vessels, tankers, for either carrying goods or passengers or both or for repairs and maintenance.

Activities or Transactions to be treated as Supply of Goods or Supply of Services (Schedule II)

Once a transaction is determined as a Supply under GST, the next task is to classify it as a Supply of Goods or a Supply of Service. Here are a few examples to understand the theme better.

Sr. no.

Transaction

Supply of Goods/ Supply of Service

1

Transfer of title in goods

Supply of Goods

2

Transfer of rights in goods without the transfer of title

Supply of Services

3

Lease, tenancy, rental, easement of land or equipment

Supply of Services

4

Treatment or process applied on goods

Supply of Services

5

Goods of business are transferred or disposed of so that they don’t form part of the business anymore.

Supply of Goods

6

Goods are made available to another person for any purpose other than business under the person's directions carrying on a business.

Supply of Services

7

Development, designing, programming, enhancement of any IT software

Supply of Services

8

Temporary transfer of rights to immovable properties

Supply of Services

Also Read: All About Reverse Charge Under GST

Conclusion

 The understanding of the provisions becomes imperative to understand the GST Law. Whether an event is treated as supply or not, forms the base for the charge of GST. Hence, if this is determined wrong, then the entire conception turns out to be wrong. A deep understanding of the intricate concepts like principal-agent relationships, the negative list, the parameters of supply, the Schedule I, Schedule II, and Schedule III is of utmost importance to proceed further for the levy of GST. ‘Supply’ is considered as the triggering event for the GST taxability, which ultimately decides whether the GST applies to the event in the first place. Therefore, we hope the concept of Supply under GST is now clear to you. 

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FAQs

Q.: Are supplies without consideration considered as Supply under GST?

 Ans.: Consideration is an important parameter for the determination of Supply under GST. Any transaction has to involve Consideration to be treated as a Supply. However, Schedule I consists of cases that are deemed as supply even without consideration. These exceptions are - Supply between related or distinct persons, permanent transfer or disposal of business assets, supply between principal and agent, import of services. 

Q.: Is the Import of services for consideration for personal use treated as supply?

 Ans.: Import of Services for consideration and not in the course or furtherance of business is an exception, and treated as supply under GST even if for personal use. 

Q.: Is the supply of goods from a warehouse in one state to another treated as supply in another state?

Ans.: The Supply of goods between distinct persons is treated as supply. In India, under GST a dealer operating in multiple states has to get separate registrations under the same PAN for each such state. Also, separate registrations in the same state are considered distinct entities. When a stock transfer occurs between such distinct persons, it is considered as supply.

Q.: Are ‘buy one get one free’ offers classified under Composite or Mixed Supplies?

Ans.: Buy one Get one free offer are considered under Mixed Supplies as such goods can be usually sold individually.

Q.: Do the Ministers make a supply in the parliamentary capacity treated as supply?

Ans.: Supplies by any Government members in their Parliamentary capacity are not considered as supplies.

Q.: Is the import of services without consideration treated as supply under GST?

Ans.: Import of services without consideration from related or distinct persons and in the course or furtherance of business are only considered as supply. For all other cases, such services are not considered as a

 

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