GST-Meaning and Scope of Supply: EximGuru.com

THE MEANING AND SCOPE OF SUPPLY

The taxable event in GST is supply of goods or services orboth. Various taxable events like manufacture, sale, renderingof service, purchase, entry into a territory of state etc. havebeen done away with in favour of just one event i.e. supply.The constitution defines “Goods and Services Tax” as any taxon supply of goods, or services or both, except for taxes onthe supply of the alcoholic liquor for human consumption.

The Central and State governments will have simultaneouspowers to levy the GST on Intra-State supply. However, theParliament alone shall have exclusive power to make lawswith respect to levy of Goods and Services Tax on Inter-Statesupply.

The term, “supply” has been inclusively defined in the Act. Themeaning and scope of supply under GST can be understood interms of following six parameters, which can be adopted tocharacterize a transaction as supply:

1. Supply of goods or services. Supply of anything otherthan goods or services does not attract GST
2. Supply should be made for a consideration
3. Supply should be made in the course or furtheranceof business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. Supply should be made within the taxable territory

While these six parameters describe the concept of supply,there are a few exceptions to the requirement of supply beingmade for a consideration and in the course or furtheranceof business. Any transaction involving supply of goods orservices without consideration is not a supply, barring fewexceptions, in which a transaction is deemed to be a supplyeven without consideration. Further, import of services for aconsideration, whether or not in the course or furtherance ofbusiness is treated as supply.

Supply of Goods or Services or Both

Goods as well as services have been defined in the GST Law.The securities are excluded from the definition of goods aswell as that of services. Money is also excluded from thedefinition of goods as well as services, however, activitiesrelating to the use of money or its conversion by cash or byany other mode, from one form, currency or denomination, toanother form, currency or denomination for which a separateconsideration is charged are included in services.

Schedule II to the CGST Act, 2017 lists a few activities whichare to be treated as supply of goods or supply of services.For instance, any transfer of title in goods would be a supplyof goods, whereas any transfer of right in goods withouttransfer of title would be considered as services.

Further Schedule III to the CGST Act, 2017 spells out activitieswhich shall be treated as neither supply of goods nor supplyof services or outside the scope of GST. This includes:

1. Services by an employee to the employer in the course ofor in relation to his employment.
2. Services of funeral, burial, crematorium or mortuaryincluding transportation of the deceased.
3. Sale of land and sale of building where the entireconsideration has been received after completioncertificate is issued or after its first occupation.

Actionable claims are included in the definition of goods,however, Schedule III provides that actionable claims otherthan lottery, betting and gambling shall be neither goods norservices.

Supply for Consideration

Consideration has specifically been defined in the CGST Act,2017. It can be in money or in kind. Any subsidy given by theCentral Government or a State Government is not consideredas consideration. It is immaterial whether the payment ismade by the recipient or by any other person.

A deposit given in respect of the supply of goods or services orboth shall not be considered as payment made for such supplyunless the supplier applies such deposit as consideration forthe said supply.

Further, when there is barter of goods of services, the sameactivity constitutes supply as well as a consideration. When abarber cuts hair in exchange for a painting, hair cut is a supplyof services by the barber. It is a consideration for the paintingreceived.

However, there are exceptions to the requirement of‘Consideration’ as a pre-condition for a supply to be called asupply as per GST. As per schedule to CGST Act, 2017, activitiesas mentioned below shall be treated as supply even if madewithout consideration:

1. Permanent transfer or disposal of business assets whereinput tax credit has been availed on such assets.
2. Supply of goods or services or both between relatedpersons or between distinct persons as specified insection 25, when made in the course or furtherance ofbusiness: Provided that gifts not exceeding fifty thousandrupees in value in a financial year by an employer to anemployee shall not be treated as supply of goods orservices or both.
3. Supply of goods— (a) by a principal to his agent wherethe agent undertakes to supply such goods on behalf ofthe principal; or (b) by an agent to his principal where theagent undertakes to receive such goods on behalf of theprincipal.
4. Import of services by a taxable person from a relatedperson or from any of his other establishments outsideIndia, in the course or furtherance of business.s

Supply in the Course or Furtherance of Business

GST is essentially a tax only on commercial transactions.Hence, only those supplies that are in the course orfurtherance of business qualify as supply under GST. Hence,any supplies made by an individual in his personal capacity donot come under the ambit of GST unless they fall within thedefinition of business as defined in the Act. Sale of goods orservice even as a vocation is a supply under GST. Therefore,even if a famous politician paints paintings for charity andsells the paintings even as a one-time occurrence, the salewould constitute supply.

However, there is one exception to this ‘Course or Furtheranceof Business’ rule i.e., import of services for a consideration.

Supply by a Taxable Person

A supply to attract GST should be made by a taxable person.Hence, a supply between two non-taxable persons does notconstitute supply under GST. A “taxable person” is a personwho is registered or liable to be registered under section 22 orsection 24. Hence, even an unregistered person who is liableto be registered is a taxable person. Similarly, a person notliable to be registered but has taken voluntary registrationand got himself registered is also a taxable person.

It should be noted that GST in India is State-centric. Hence, aperson making supplies from different States needs to takeseparate registration in each State. Further, the person maytake more than one registration within a State if the personhas multiple business verticals. A person who has obtained oris required to obtain more than one registration, whether inone State or Union territory or more than one State or Unionterritory shall, in respect of each such registration, be treatedas distinct persons for the purposes of GST. Hence, a supplybetween these entities constitutes supply under GST.

Taxable Supply

For a supply to attract GST, the supply must be taxable.Taxable supply has been broadly defined and means anysupply of goods or services or both which, is leviable to taxunder the Act. Exemptions may be provided to the specifiedgoods or services or to a specified category of persons/entities making supply.

Supply in the Taxable Territory

For a supply to attract GST, the place of supply should be inIndia except for the State of Jammu and Kashmir. The placeof supply of any goods or services is determined based onSections 10, 11, 12 and 13 of IGST Act 2017.

Inter/Intra State Supply

The location of the supplier and the place of supply determineswhether a supply is treated as an Intra State supply or anInter State supply. Determination of the nature of supply isessential to ascertain whether integrated tax is to be paidor Central plus State tax are to be paid. Inter- State supplyof goods means a supply of goods where the location of thesupplier and place of supply are in different States or Union territories. Intra State supply of goods means supply of goodswhere the location of the supplier and the place of supply arein the same State or Union territory. Imports, Supplies fromand to SEZs are treated as deemed Inter-State supplies.

Composite/Mixed Supply

A composite supply means a supply made by a taxable personto a recipient comprising two or more supplies of goods orservices or any combination thereof, which are naturallybundled and supplied in conjunction with each other in theordinary course of business, one of which is a principal supply.For instance, a travel ticket from Mumbai to Delhi may includeservice of food being served on board, free insurance, and theuse of airport lounge. In this case, the transport of passenger,constitutes the pre-dominant element of the compositesupply, and is treated as the principal supply and all othersupplies are ancillary.

The GST Law lays down the tax liability on a composite ormixed supply in the following manner.
1. Composite Supply comprising two or more supplies oneof which, is a principal supply, shall be treated as supplyof such principal supply.
2. Mixed Supply comprising two or more supplies, shall betreated as supply of that particular supply which attractsthe highest rate of tax.