Supply under GST

Under the GST framework, taxable event is supply of goods or services or both. GST would be leviable on all forms of supply of goods or services or both made for a consideration in the course or furtherance of business. All the taxable events such as manufacture, sale, provision of services etc. prevailing under pre-GST era have subsumed into one taxable event which is ‘supply’.

Definition and Scope of Supply

The term supply has been defined under GST law in an inclusive manner. Section 7 of the CGST Act, 2017 defines supply as below: –

‘7 (1) For the purposes of this Act, the expression “supply” 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;

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice versa, for cash, deferred payment or other valuable consideration.

Explanation—For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;

(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.

(d) ***

(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.

(3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as —

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.’

On reading of the aforesaid definition, it emerges that GST would be leviable on all forms of supply of goods or services or both. Anything which is neither goods nor services does not fall under the scope of supply. Further, the 8 terms (sale, transfer, barter, exchange, licence, rental, lease, disposal) used in the definition are exemplary in nature and not exhaustive.

Supply should be of Goods or Services

GST would be leviable on the supply of goods or services. Therefore, it is necessary to understand what is goods and what is services.

What is Goods?

Goods has been defined under section 2(52) of the CGST Act, 2017 as below:-

‘(52) “goods” 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;’

The expression ‘movable property’ has not been defined under the GST law. Section 3(36) of the General Clauses Act 1897 has defined movable property to mean property of every description, except immovable property. As such, immovable property is not goods under the GST law. Accordingly, no GST is applicable on the immovable property.

Further, the definition of goods does not cover securities and money. As per section 2(101) of the CGST Act, 2017 the term securities shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Money has been defined under section 2(75) of the CGST Act to mean the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value. It is pertinent to note that in terms of section 2(102) of the CGST Act, 2017, GST would be applicable on the 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.

The definition of goods as provided in the CGST Act includes actionable claim. Section 2(1) of the CGST Act, 2017 defines actionable claim to have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882. Section 3 of the Transfer of Property Act, 1882 has defined actionable claim as below:

‘(3) “actionable claim” means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affordable grounds for relief, whether such debt or beneficial interest be existence, accruing, conditional or contingent;’

Further, Schedule III mentioned under section 7 of the CGST Act, 2017 lists certain activities or transactions to be treated neither as a supply of goods nor a supply of services. As per Schedule III actionable claims other than lottery, betting and gambling shall be treated neither as a supply of goods nor a supply of services. Accordingly, only lottery, betting and gambling would be treated as supply and all other actionable claims would not be treated as supply under GST.

What is Services?

Section 2(102) of the CGST Act, 2017 has defined the term services as below: –

‘(102) “services” 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;’

Therefore, the definition of service includes anything that is not goods, money and securities. However, 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 would constitute a service.

Is it Supply of Goods or Supply of Services?

Section 7(1A) of the CGST Act, 2017 provides that where certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. Therefore, when a particular transaction qualifies to be a supply under the GST law, Section 7(1A) tells us whether such supply should be treated as a supply of goods or supply of services. Under the pre-GST era, there was a lot of controversy in respect of certain transactions whether they should be treated as a sale of goods or as a provision of services. Section 7(1A) removes such ambiguities.

Supply should be made or agreed to be made for a consideration

The supply should be made for a consideration. If no consideration is involved it can not be treated as supply. Consideration may be given by the recipient or any other person on behalf of the recipient. Consideration does not include any subsidy given by the Central Government or a State Government. Section 2(31) of the CGST Act, 2017 has defined consideration as below: –

‘(31) “consideration” in relation to the supply of goods or services or both 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 or both, 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, in respect of, in response to, or for the inducement of, the supply of goods or services or both, 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 given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;’

However, activities or transactions as specified in Schedule I read with section 7 of the CGST Act, 2017 shall be treated as supply even if made without consideration. Accordingly, GST would be applicable on those activities or transactions. Further, a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply. It is not necessary that consideration should be in money.

Example:

• Mr. Y provided certain services to Mr. X. Instead of paying money, Mr X gave some goods from his shop to Mr Y as consideration for his services. Though in this transaction, there is no exchange of money, still the same is covered within the ambit of supply.
• Mr A purchases certain goods from M/s X. However, payment for the same has been given by his father Mr B. Although Mr B has made the payment Mr A would be the recipient in this transaction.

Supply should be made by a taxable person

The supply should be made by a taxable person. The term person has been defined under section 2(84) of the CGST Act, as below: –

‘(84) “person” includes—

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

(d) a firm;

(e) a Limited Liability Partnership;

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(h) any body corporate incorporated by or under the laws of a country outside India;

(i) a co-operative society registered under any law relating to co-operative societies;

(j) a local authority;

(k) Central Government or a State Government;

(l) society as defined under the Societies Registration Act, 1860;

(m) trust; and

(n) every artificial juridical person, not falling within any of the above;’

Further, CGST Act, 2017 defines taxable person under sub-section 107 of section 2 as below:-

‘(107) “taxable person” means a person who is registered or liable to be registered under section 22 or section 24;’

Section 22 of the CGST Act, 2017 specifies the persons liable for registration and section 24 of the CGST Act, 2017 specifies the category of persons for whom registration is compulsory.

Supply should be made in the course or furtherance of business

The supply must be made in the course or furtherance of business. Any activity or transaction made for personal purpose would not be treated as supply under GST law and accordingly does not attract GST. However, import of services for a consideration amounts to supply, even if received for personal purpose.

The term business has been defined under section 2(17) of the CGST Act, 2017 as below: –

‘(17) “business” includes ––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;’

On reading of the aforesaid definition, it emerges that business includes any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit. Therefore, pecuniary benefit is not essential to constitute a business. Further, business includes any activity or transaction which is incidental or ancillary to those specified activities. Moreover, transactions to qualify as business, the volume, frequency, continuity or regularity of such transactions are also not essential.

Example

• Mrs A sold her old jewellery to a jeweller for a consideration. This transaction does not constitute a supply as it is not made in the course or furtherance of business. However, when the jeweller sells the said jewellery to his customer, the same would constitute a supply as it is made in the course or furtherance of his business. Accordingly, he would have to charge GST on the transaction value.
• M/s XYZ purchased 10 computers for business use and availed ITC in respect of them. After two years of use, M/s XYZ donated the said 10 computers to an NGO without any consideration. Even if made without consideration, this activity amounts to supply in terms of para 1 of Schedule I of the CGST Act. As M/s XYZ had availed ITC at the time of purchase of the computers, permanent disposal of the same even without consideration amounts to supply.

Schedules under Section 7 of the CGST Act, 2017

Schedule I-  It specifies the activities to be treated as supply even if made without consideration.

Schedule II-  It specifies the activities or transactions to be treated as supply of goods or supply of services.

Schedule III-  It specifies the activities or transactions which shall be treated neither as a supply of goods  nor a supply of services.

Types of Supply

Taxable Supply

Section 108 of the CGST Act, 2017, defines taxable supply to mean a supply of goods or services or both which is leviable to tax under this Act.

Exempt Supply

As per section 47 of the CGST Act, 2017, exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.

Intra-state supply/Inter-state supply

Supply of goods or services where the location of the supplier and the place of supply are in two different states would be treated as inter-state supply. Supply of goods or services where the location of the supplier and the place of supply are in the same state would be treated as intra-state supply. It is essential to determine whether it is intra-state supply or inter-state supply as which type of tax (e.g., CGST/SGST or IGST) would be applicable depends on it.

Zero Rated Supply

As per section 16 of the IGST Act, 2017, zero rated supply means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Subject to the provisions of sub-section (5) of section 17 of the CGST Act, 2017, credit of input tax can be availed for making zero- rated supplies.

Composite Supply/Mixed Supply

As per section 30 of the CGST Act, 2017, 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.

As per section 74 of the CGST Act, 2017, 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;

Continuous supply of goods/services

As per section 32 of the CGST Act, 2017, continuous supply of goods means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify.

As per section 33 of the CGST Act, 2017, continuous supply of services means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify.

There are different provisions in the Act for determination of time of supply in case of continuous supply of goods and continuous supply services.

Outward Supply/Inward Supply

As per section 83 of the CGST Act, 2017, outward supply in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.

As per section 67 of the CGST Act, 2017, inward supply in relation to a person, shall mean receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration.

Deemed Supply

Schedule I as referred to in Section 7 of the CGST Act, 2017, specifies certain activities which are treated as supply even if made without consideration. As such, GST would be leviable on those activities even when made without consideration.

Conclusion

If any transaction or activity qualifies to be a supply then only GST is applicable on it. Under the GST regime, a supply can partake the character of composite supply or mixed supply. There are also certain activities or transactions which are treated as deemed supply. Therefore, supply is of utmost importance in GST as chargeability depends on it.