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Unit 2: Concept of supply

SCOPE OF SUPPLY {SECTION 7 OF CGST ACT}

 Section 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;
b) import of services for a consideration whether or not in the course or furtherance
of business;
c) the activities specified in Schedule I, made or agreed to be made without a
consideration; and
d) the activities to be treated as supply of goods or supply of services as referred to in
Schedule II.
 Section 7(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.

 Section 7(3): Subject to the provisions of sub-sections (1) 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.
OVERVIEW OF SUPPLY:
INCLUSIONS EXCLUSIONS
 Supply For Consideration In Activities To Be Treated
Course Or Furtherance Of Neither As Supply Of Goods
Business {Section 7(1 )(a)} Nor Supply Of Services
 Importation Of Services For {Section 7(2) + Schedule III}
Consideration Whether Or Not In
Course Or Furtherance Of
Business {Section 7(1 )(b)}
 Supply Without Consideration
{Section 7(1 )(c)+ Schedule I}
 Activities To Be Treated As Supply
Of Goods Or Supply Of Services
{Section 7 (1 )(d) + Schedule II)}

SUPPLY FOR CONSIDERATION IN COURSE OR FURTHERANCE OF BUSINESS {Section 7(1)(a)

 of CSST Act}

Section 7(1)(a) of CGST Act provides that a supply of goods/services should be carried out
for consideration in the course or furtherance of business.

MODES OF SUPPLY:
 Section 7(l)(a) of CSST Act includes 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 consideration in the course or furtherance of business.

 Sale and Transfer:

Earlier, VAT was levied by State Governments on sale of goods within their respective
states wherein 'sale1 was defined to mean transfer of property in goods for
consideration. Under CSST Act, sale has been treated as a form of supply leviable to
GST.

 Barter and Exchange:

• Barter transactions involve only exchange of goods/services whereas exchange may
cover a situation where the goods are partly paid for in goods and partly in money.
• When there is a barter of goods or services, same activity constitutes supply as well as
consideration. By making a specific inclusion in the definition of supply, all barters and
exchanges have been made liable to GST.

 Licence, Lease, Rental etc:

• Licences, leases and rentals of goods were earlier treated as services where the goods
were transferred without transfer of right to use (effective possession and control over
the goods) and were treated as sales where the goods were transferred with transfer
of right to use.
 Under the GST regime, such licences, leases and rentals of goods with or without
transfer of right to use are covered under the scope of 'supply of services' because
'there is no transfer of title in such supplies. Such transactions are specifically treated
as 'supply of services' under Schedule II of CGST Act.

CONSIDERATION:
 One of the essential conditions for the supply of goods and/or services to fall within
the ambit of GST is that the supply should have been made for a consideration.

 However, consideration does not always mean money. It covers anything which might
be possibly done, given or made in exchange for something else.

 Further, consideration need not always flow from the recipient of the supply. It can also
 be made by a third person.

IN COURSE OR FURTHERANCE OF
 GST is essentially a tax on only commercial transactions. Hence, only those supplies
which are made in the course or furtherance of business qualify as 'supply' under GST.

 Resultantly, any supplies made by an individual in his personal capacity do not come
under the ambit of GST unless they fall within the definition of business.

Example: Rishabh buys a car for his personal use and after a year sells it to a car dealer.
Sale of car by Rishabh to car dealer is not a supply under C&ST Act because supply is
not made by Rishabh in the course or furtherance of business.

 In order to understand the term 'in the course or furtherance of business', we need to
understand the term 'business'. Business has been defined u/s 2(17) of CGST Act to
include, inter-alia, any trade, commerce, manufacture, profession, vocation etc
whether or not undertaken for a monetary benefit. Business also includes any activity
or transaction which is incidental or ancillary to the afore-mentioned listed activities.

Example: Sundaram Acharya, a famous actor, paints some paintings and sells them. The
consideration from such sale is to be donated to a Charitable Trust - 'Kind Human'. The
sale of paintings by the actor qualifies as supply even though it is a one-time
occurrence.

IMPORT OF SERVICES FOR CONSIDERATION{Section 7(1)(b)of C&ST Act}

 Section 7(1 )(b) of CGST Act expands the scope of the term 'supply' by including
importation of services for a consideration within its ambit irrespective of the fact
whether such importation is in the course or furtherance of business or not.
 Section 7(i)(b) of CGST Act (ie importation of services for consideration) is the only
exception to the condition of supply being in course or furtherance of business.
Example: Mr M, a proprietor, has received designing services for his house from an
architect located in New York at an agreed consideration of US $5,000. The import of
services by Mr M shall be treated as a supply u/s 7(lXb) of C&ST Act even though it is
not in the course of or furtherance of business.

SUPPLY WITHOUT CONSIDERATION - SUPPLY

As a general rule, for an activity to qualify as supply, the same should have been provided
for consideration. However, Section 7(1 )(c) of CGST Act read along with Schedule I of CGST
Act lists down the following four cases where existence of consideration is not a pre-
requisite for an activity to qualify as supply:
1. PERMANENTTRANSFER/DISPQSAL.OF
BUSINESS ASSETS:
 Transfer/disposal of business assets by an entity on permanent basis without
consideration shall be regarded as supply if input tax credit has been availed on
procurement of such assets.
 This clause is wide enough to cover transfer of business assets from holding to
subsidiary company or vice versa without consideration.

Example: donation of old laptops to charitable schools by XVZ & Co at the time of purchase
of new laptops will qualify as supply provided input tax credit has been availed by XYZ & Co
on such laptops.

Example- A cloth retailer gives clothes from his business stock to his friend free of cost. In
this case, transfer of business stock would amount to supply if he had claimed input tax
credit on his procurement of such business stock.

2. SUPPLY RELATED PERSONS/DISTINCT PERSONS.:

Transactions involving supply of goods/services/both without consideration between
related persons or distinct persons as specified u/s 25 of CGST Act will qualify as supply
provided such supply has been made in the course or furtherance of business.
{The meaning of 'related persons' has been discussed earlier in this topic whereas the
concept of 'distinct persons' has been discussed in detail under 'Chapter 9 -
Registration'}

 TAXABILITY OF STOCK TRANSFERS/BRANCH TRANSFERS:

Under the earlier law, no tax was applicable on stock transfers/branch transfers
since such transactions do not involve transfer of property in goods. However, under
the GST regime, stock transfers/branch transfers between different locations (with
separate GST registrations) of same legal entity will qualify as 'supply'.
Example: Kaghubir Fabrics transfers 1,000 shirts from his factory located in Lucknow
to his retail showroom in Delhi so that the same can be sold from there. The factory
and retail showroom of Kaghubir Fabrics are registered in the states where they are
located. Although no consideration is charged, supply of goods from factory to retail
showroom constitutes supply.
 EMPLOYER-EMPLOYEE TRANSACTIONS:
• The definition of 'related persons' covers employer-employee relationship
within its scope. Accordingly, all employer-employee transactions should be
regarded as supply irrespective of the fact whether consideration is involved or
not.

• However, Schedule I of C&ST Act provides that gifts given by an employer to an

 employee shall not be treated as supply if the amounts of gifts given during a
financial year does not exceed Rs 50,000. However, gifts exceeding Rs 50,000
shall be subject to GST.

• Moreover, Schedule III of CGST Act clearly states that services provided by an
employee to the employer in the course of or in relation to his employment
shall not be treated as supply of services. Therefore, any kinds of benefits
given by an employer to his employee in terms of contractual agreement
entered into between the employer and the employee will not be subject to
GST.

• Example: Where an employer provides free housing to his employee, when

the same is provided in terms of the contract between the employer and
employee and is part and parcel of the employee's remuneration package, no
GST implications should arise on such free housing.

3. SUPPLY OF GOODS BETWEEN PRINCIPAL & AGENT:

Supply of goods by a principal to his agent, without consideration, where the agent
undertakes to supply such goods on behalf of the principal is considered as supply.
Similarly, supply of goods by an agent to his principal, without consideration, where
the agent undertakes to receive such goods on behalf of the principal is also
considered as supply. Example: ABC Manufacturers Ltd engages Raghav & Sons as an
agent to sell goods on its behalf. For this purpose, ABC Manufacturers Ltd has supplied
the goods to Raghav & Sons. Supply of goods by ABC Manufacturers Ltd to Raghav &
Sons will qualify as supply even though no consideration has been recovered from
Raghav & Sons
.
4. IMPORT OF SERVICES FROM RELATED PERSONS LOCATED OUTSIDE INDIA:
Import of services by a taxable person from a related person or from any of his
establishments located outside India in the course or furtherance of business shall be
treated as supply irrespective of the presence of consideration.

Example: ABC Associates received legal consultancy services from its head office
located in Malaysia. The head office has rendered such services free of cost to its
branch office. Since ABC Associates and the branch office are related persons, services
received by ABC Associates will qualify as supply even though the head office has not
charged anything from it.
Example: Sumit, a proprietor registered in Delhi, has sought architect services from his
brother located in US, with respect to his newly constructed house in Delhi. Although
services have been received by Sumit without consideration from a related person, the
transaction will still not qualify as supply since the same has not been received in
 course or furtherance of business.

ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS/SERVICES

Section 7(l)(d) of C&ST Act read along with Schedule II of C&ST Act enlists various
matters/transactions which are to be treated as supply of either goods or services. The
matters listed under Schedule II are primarily those which had been entangled in litigation in
the earlier regime owing to their complex nature and susceptibility to double taxation.

S.No. Nature Of Transaction Nature of Supply

1. a) Transfer of title in goods Supply of Goods
b) Transfer of right in goods/undivided share in goods Supply of Goods
without transfer of title in goods
c) Transfer of title in goods under an agreement which Supply of Goods
stipulates that property shall pass at a future date

2.  Lease, tenancy, easement, license to occupy land Supply of doods

 Lease or letting out of the building including a
commercial, industrial or residential complex for
business or commerce, either wholly or partly
3. Any treatment or process which is applied to another Supply of Goods
person's goods
Example: Job work performed by a job worker like
dyeing of fabric in various colours
4. a) Goods forming part of business assets are transferred Supply of goods
or disposed-off by/under directions of person carrying
on the business so as no longer to form part of those
assets, whether or not for consideration
b) Goods held/used for the purposes of the business are Supply of Goods
put to any private use or are used, or made available to
any person for use, for any purpose other than a
purpose of the business, whether or not for a
consideration, by or under the direction of a person
carrying on a business, whether or not for consideration
Example: A director using company's car for personal
travels
c) Goods forming part of assets of any business carried Supply of Goods
on by a person who ceases to be a taxable person, shall
be deemed to be supplied by him, in the course or
furtherance of his business, immediately before he
ceases to be a taxable person
EXCEPTIONS:
 Business is transferred as a going concern to
another person; or
 Business is carried on by a personal
representative who is deemed to be a taxable
 person
5. • Renting of immovable property Supply of Goods
• Construction of a complex, building, civil structure or
a part thereof, including a complex or building
intended for sale to a buyer before its completion
provided some part of the consideration is
received before the issuance of completion
certificate
• Temporary transfer or permitting the use or
enjoyment of any intellectual property right
 Development, design, programming,
customization, adaptation, upgradation,
enhancement, implementation of information
technology
software
• Agreeing to the obligation to refrain from an act, or
to tolerate an act or a situation, or to do an act
• Transfer of right to use any goods for any purpose
(whether or not for a specified period) for cash,
deferred payment or other valuable consideration
Supply of Services
6. Following Composite Supplies'. Supply of Goods
a) Works Contract
{Works contract has been defined u/s 2(119) of CGST
Act to mean a contract for building, construction,
fabrication, completion, erection, installation, fitting
out, improvement, modification, repair,
maintenance, renovation, alteration or
commissioning of any immovable property wherein
transfer of property in goods (whether as goods or
in some other form) is involved in the execution of
such contract}
b) Supply of food or any other article for human
consumption or any drink by way of or as part of
any service or in any other manner whatsoever
7. Supply of goods by any unicorporated association or Supply of Goods
body of persons to a member thereof for cash, deferred
payment or other valuable consideration
Example : A local club supplies snacks to its members
during its monthly meeting for a nominal payment.

ACTIVITIES TO BE TREATED NEITHER AS SUPPLY OF NOR AS SUPPLY OF SERVICES

Activities covered within the scope of Section 7(2) shall be treated neither as supply of
goods nor as supply of ices. Resultantly, such activities shall not be liable to GST.

Scetion7(2)(a) – ACTIVITIES UNDER SCHEDULE III;

 fallowing activities covered under Schedule III of CGST Act can be termed as 'Negative List'
under the &ST regime:

1. Services By An Employee To His Employer In The Course Of Or In Relation To His

Employment.

 Services provided by an employee to his employer during the course of employment

are not taxable under GST law.

 Services provided outside the course of employment for a consideration would qualify
as a supply and thus liable to GST. Example: If an employee provides private coaching
to his employer's children, such services would not get covered under the above
exclusion and would be liable to GST.

 Amounts paid by the employer to the employee for premature termination of a

contract of employment are treated as amounts paid in relation to services provided
by the employee to the employer in the course of employment. Thus, such amount
would not be liable to GST.

Nature of Transaction Whether regarded as 'services carried out

during the course of employment'?
Services provided by a casual worker Yes. These are services provided by the
to employer who gives wages on daily worker in the course of employment.
basis to the worker
In case the casual workers are  Yes. Services provided by the casual
employed by a contractor, like a workers to the contractors are in the
building contractor or security agency course of employment.
services, who deploys them for  However, services provided by the
execution of a contract or for contractor to his client by deploying
provision of security services such workers would not be a service
provided by the workers to the client in
the course of employment. The
consideration received by the
contractor would therefore be taxable
if other conditions of taxability are
present.
Services provided on contract basis by No. Services provided on contract basis
a person to another (ie principal-to-principal basis) are not
services provided in the course of
employment.

2. Services By Any Court Or Tribunal Established Under Any Law For The Time Being In
Force
3. Functions/Duties Performed By Following Persons:
 the functions performed by the Members of Parliament, Members of State
Legislature, Members of Panchayats, Members of Municipalities and Members of
other local authorities;
 the duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or

 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.
4. Services Of Funeral, Burial, Crematorium Or Mortuary Including Transportation Of The
Deceased

5 . Sale of Land and Sale of Building Subject To Paragraph 5(b) Of Schedule II

6. Actionable Claims, Other Than Lottery, Betting And Gambling

ACTIVITIES NOTIFIED BY GOVERNMENT:
 Section 7(2)(b) of CGST Act provides that activities undertaken by Central
Government/State Government/Local Authority in which they are engaged as public
authorities, as may be notified by the Government on the recommendations of the
GST Council, shall be treated neither as supply of goods nor as supply of services.In
terms of the above provision, services by way of any activity in relation to a function
entrusted to a Panchayat under Article 243G of the Constitution has been notified.
===

PRACTICAL PROBLEMS
Problem 1:
R is a supplier of goods located in Mumbai. In October 2017 he has imported Consultancy
Services for Development of IT Software from U.S.A. for a stipulated consideration of $
80,000. Will the import of consultancy services be treated as supply?

Solution
The importation of service in the above case shall fall within the ambit of term
"supply” as it is for a consideration and in the course or furtherance of business and
shall be liable to IGST

Problem 2
R is a supplier of goods located in Chandigarh. In November 2017, he has imported '
Architecture Services' from a relative consultant located in Germany, without any
 consideration (monetary or non-monetary) for construction of his personal house.
(a) Will the import of architecture services for personal use be treated as supply and liable
to IGST?
(b) What will be your answer if the above services have been imported by R in the course
or furtherance of business?

Solution
(a) Since, there is no consideration and it is for personal use, importation of service in the
given case shall not fall within the ambit of term 'supply' and not liable to IGST.
However, in the above example if the import of Architecture Service is for a
consideration, it shall fall within the scope of term 'supply', although services have
been imported for personal purposes.
(b) Since the services have been imported from a related person and these are in the
course or furtherance of business, it will be treated as supply even if it is without
consideration,

Problem 3
A dealer of washing machines, who has availed input tax credit on washing machines,
permanently transfers a washing machine from his stock-in-trade, for personal use at
his residence.
Will this transfer for personal use be treated as supply and liable for GST?
Solution
Such transaction though without, a consideration shall constitute supply and be liable
to GST, as it is a permanent transfer of washing machine for his personal use.
Problem 4
R, a Chartered Accountant, purchased 3 laptops of value Rs. 2,40.000 on 1.10.2017
and paid IGST amounting Rs. 67,200 thereon. He availed ITC of Rs. 67,200 in his books
on the same day. After 3 years of using the laptops, he has donated one laptop to a
college when its fair market value is Rs. 30,000.
Will such donation be treated as supply and liable to GST?

Solution
In the above case, R shall be liable to pay an amount under GST equivalent to:
(a) The input tax credit availed on the said laptop as reduced by the input tax credit
attributable to 3 years for which asset has been used in business, Input credit availed
at the time of purchase of laptop = Rs. 22,400 (1/3 of the total input credit of
Rs.67,200)
Useful life of the laptop 5 years
Unused period 2 years
Therefore, GST amount payable (Rs. 22,400 x 2/5) Rs.8,960
(b) Tax payable on the fair market value of such capital goods as determined under section
15, i.e. 30,000 x 28% = 8,400.

Whichever is higher.
Thus, R shall be liable to pay GST amounting to Rs. 8,960 on donation of such laptop.

Problem 5
R is engaged in supply of certain goods in Delhi and Haryana. He wishes to transfer
goods worth 1,40,000 from Delhi to its branch in Haryana. Will such transfer be
treated as supply and liable for GST?

Solution
R shall be treated as distinct persons. Thus any supply of goods or services or both
between Delhi to branch at Haryana shall be subject to integrated tax in terms of IGST
Act, even though such transaction may not involve any payment of consideration.

Problem 6
Employees of a R Ltd., which is a subsidiary of G Limited, have been sent on deputation
basis to its Holding Company namely G Limited.
Will such transfer on deputation be treated as supply and liable to GST?
Solution
Such transfer of employee shall fall within the ambit of the term 'supply' even in the
absence of any consideration. As both the companies fall under the definition of
related person.
Problem 7:
R, the Principal located in Nagpur (Maharashtra) supplies certain goods to his agent G,
located in Delhi. G undertakes to supply the said goods in Delhi on behalf of R. Will the
above activity be treated as supply and liable for GST?
Solution
As per Schedule I of CGST Act, supply of goods by a principal to his agent where the
agent undertakes to supply such goods on behalf of the principal is treated as supply
even if such supply is Without any consideration. Thus, such supply of goods by R to G
shall fall within the ambit of the term ' supply' even if made without consideration and
shall be liable for integrated tax under IGST Act.
Problem 8:
R works as an agent and is located in Mumbai. G is a manufacturer located in Delhi. R
agrees to purchase certain goods from Mumbai on behalf of G every month and supply
the same to G. Will the above activity be treated as supply and liable for GST?
Solution
As per Schedule I of CGST Act, supply of goods by an agent to his principal where the
agent undertakes to receive such goods on behalf of the principal shall be treated as
supply even if it is without consideration. Thus such suppy of goods by R to G shall fall
 within the term of supply, even if made without consideration. This supply of goods
from R to G shall be subject to integrated tax under IGST Act.
Problem 9:
R lives in Germany. His brother G is carrying on business in India. G imports technical
services from R without any consideration in November, 2017 in the course or
furtherance of business. Will this be treated of supply or services although G did not
pay any consideration to R?
Solution
As per Schedule I of the CGST Act. import of services by a taxable person from a
related person or from any of his other establishments outside India, in the course or
furtherance of business shall by treated as supply even if it is without any
consideration. The said importation of service shall fall within the ambit of term
"supply" and G shall be liable to pay integrated tax under IGST Act, 2017 even if R has
provided consultancy services without any consideration. However, if such services are
for personal use then it will not be treated as supply unless there is a consideration.

Problem 10:
Under a scheme of finance, Maruti Ltd. gives the possession of car to the buyer in
November 2017. It agrees to transfer the ownership of the car to the buyer in January
2019 upon payment of full consideration of Rs. 9,60,000, in installments as agreed.
What will be the nature of this transaction?
Solution
As per Schedule II of the CGST Act, 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 shall be treated as supply of goods.
Thus, the aforesaid transaction shall be treated as supply of goods on hire purchase
and liable to| GST.
Problem 11:
R, the owner of a specific piece of land in Delhi, leases the same to G for one year for
an agreed,
Consideration in November, 2017.
What will be the nature of this transaction?
Solution
As per Schedule II of the CGST Act, any lease, tenancy, easement, license to occupy
land shall be treated as supply of services.
Thus, the aforesaid lease of land shall be treated as a supply of services and liable to
GST.
Problem 12:
R is a manufacturer of goods. He sends his goods for the purpose of special packaging
to G on job work. The packaging material has also been provided by R.
What is the nature of this activity?
Solution
As per Schedule II of the CGST Act, treatment or process applied to another person's
goods (job work) shall be treated as supply of services. Further, it shall be immaterial,
whether the job-work is to be carried out by a job-worker with or without any
material.

In the given case, the activity of special packing by G shall be treated as supply of
services. Further, it shall be immaterial whether G uses his own packing material or the
same is provided by R.
Problem 13
R is carrying on the business of consumer durable products. He disposed of a defective
TV for 20,000 to G whereas its normal price is Rs.2,00,000.
(a) Will the aforesaid disposal be treated supply of goods or services.
(b) Assume in the above example, R donated the above-refrigerator to an NGO and he has
claimed the input tax credit on such refrigerator at the time of purchase.

Solution
(a) As per Schedule II of the CGST Act, where goods forming part of the assets of a
business are transferred or disposed of by or under the directions of the person
carrying on the business so as no longer to form part of those assets, whether or not
for a consideration, such transfer or disposal is a supply of goods by the person.
Thus, the aforesaid disposal shall be considered as supply of goods by R and liable to
GST.
(b) The aforesaid donation shall be considered as supply of goods by R. Valuation of the
defective refrigerator for payment of GST shall be done on fair market value basis in
accordance with CGST Rules, 2017 concerned with Determination of Value.
Problem 14
R deals in home appliances like washing machines, refrigerator, etc. He uses
computers in his shops for keeping track of inventory and for other business purposes.
Out of 2 computers, R takes home one computer to be used by his son for his studies
during the month of October, 2017 and thereafter computer is brought back to the
show room of R.
What will be the nature of this transaction?
Solution
As per Schedule II of the CGST Act, where goods held or used for the purposes of the
business are put to any private use or are used, or made available to any person for
use, for any purpose other then a purpose of the business, whether or not for a
consideration, the usage or making available of such goods is supply of services.
The aforesaid private use of a computer by R/his son shall be treated as a 'supply of
services', although it is without consideration and thus liable to GST.
Problem15
 R gives generator-sets on rental basis to various customers. He gives a generator-set to
his brother-in-law for a period of one month in September, 2017 on the occasion of
some function in the home of his brother-in-law and thereafter generator is brought
back to the show room of R. What will be the nature of this transaction?
Solution
As per Schedule II of the CGST Act, where goods held or used for the purposes of the
business are put to any private use or are used, or made available to any person for
use, for any purpose other then a purpose of the business, whether or not for a
consideration, the usage or making available of such goods is supply of services.
The activity of making available the said generator for the private use of brother-in-law
of R shall be treated as a 'supply of services' although it is without consideration and
thus liable to GST.
Problem 16 R has closed down
his business but was left with certain capital goods and inputs forming part of the
assets of the business carried on by him. The closure of the business is due to his ill
health.
what will be the nature of this transaction?
Solution
As per Schedule II of the CGST Act, where goods forming part of the assets of
anybusiness carried on by a person shall be deemed to be supplied by him in the
course or furtherance of his business immediately before he ceases to be a taxable
person, unless—
(i) the business is transferred as a going concern to another person; or
(ii) the business is carried on by a personal representative who is deemed to be a
taxable person.
In this case, such goods shall deemed to be supplied by him in the course of
furtherance of his business immediately before he ceases to be a taxable person.
Thus, the capital goods which have some useful life and such inputs lying with
him on which credit has been availed should be treated as deemed supply and
shall be subject to GST.
CHAPTER 4: COMPOSITE SUPPLY AND MIXED SUPPLY
4.1 Brief overview
GST is payable on supply of goods/ services at a rate notified by the government. In case of
supply of single goods/ services poses no problem for determination of applicable GST rate,
if they are clearly identifiable. However, some of the supplies are a combination og
goods/combination of services/ combination of services and goods wherein each individual
component of such supply attract a different rate of tax. In such cases, determination of
applicable rate of tax to be levied on such supplies may be a challenge. To address this issue,
the GST law categorises such supplies into composite supplies and mixed supplies.
4.2 Composite supply
U/S 2(30) of 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 ordinary course of business,
 and out of all supplies, one of which is principal supply. (Principal supply means
predominant element of composite supply for which other supplies forming part of
composite supply play an ancillary role)
4.3 Condition for composite supply
Any supply of goods or services will be treated as composite supply if it satisfies the
following conditions simultaneously:
1. supply of two or more taxable supply
2. it is naturally bundled i.e., goods or services are usually provided
together in normal course of business. They cannot be separated.
3. One of the supplies must be principal supply.
4.4 Tax liability for composite supply
As per sec. 8 of CGST Act, 2017 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. Accordingly
the tax rate applicable for the goods or services which is treated as principal supply is the
rate of tax for composite supply.
4.5 Mixed supply
As per sec. 2(74) 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.
4.6 Condition for mixed supply
Any supply of goods or services will be treated as mixed supply if it satisfies the following
conditions simultaneously:
1. Supply of two or more individual supply
2. It is not naturally bundled i.e., goods or services are usually not
provided together in normal course of business. They can be
separated.
3. None of the supplies is principal supply.
4.7 Tax liability for composite supply
As per sec. 8 of CGST Act, 2017 a supplies mixed supply comprising two or more shall be
treated as a supply of that particular supply which attracts the highest rate of tax.

4.8 Guiding principles for determining whether supply is a composite supply or mixed
supply

Following guiding principles could be adopted to determine whether it would be a

composite supply or mixed supply.
Description Composite Mixed
supply supply
Naturally bundled Yes No
Supplied together Yes Yes
Can be supplied separately No Yes
One is predominant supply for recipient Yes No
Each supply priced separately No No
4.9 Criteria for determining natural bundle
 Perception of customer about the supply.
 Market trend i.e. how other supplier supplies.
 Nature of ingredient of supply.
Problem1:
R is selling hampers consisting of canned foods, sweets, chocolates, cakes and dry fruits on
diwali and other festivals. What is the kind of supply and at which rate will GST be
payable by R?
Solution
The supply of hamper consisting of canned foods, sweets, chocolates, cakes and dry
fruits if sold for a single price shall be a mixed supply and the GST rate shall be rate of
any of these items which attracts the highest rate of tax. However, if each of the items
is supplied separately and is not dependant on any other item, it shall not be mixed
supply and GST rate applicable shall be the rate applicable for each supply.
Problem 2 .
R dispatched chocolates to G from Delhi to Punjab after getting it packed and paying
insurance charges of such goods. What is the kind of such supply of chocolates
and what rate will GST be applicable?
Solution
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. GST rate applicable in this case shall be the GST rate of chocolates.
Problem 3
R purchases air travel ticket of Air India from Delhi to Bangalore for Rs. 9,000 which
includes free food on board and free insurance. What is the kind of such supply and
what rate will GST be applicable?
Solution:
Air travel ticket from Delhi to Bangalore costing Rs. 9,000 includes free food on board
and free insurance. Therefore, it is a case of composite supply. In this case, the
transport of passenger, institutes the pre-dominant element of the composite supply,
and is treated as the principal supply and all other supplies are ancillary. Hence, GST
rate applicable in this case shall be the GST rate of transportation of passenger by air.

Problem 4: Mr. Ram being a dealer in laptops, sold laptop to a customer in Laptop Bag, for
Rs. 55,000. COST and SGST for laptop @ 18% and for laptop bag @ 28%. What would
be the rate of tax leviable? Also find the GST liability.

Solution
If the laptop bag is supplied along with the laptop in the ordinary course of business,
the principal supply is that of the laptop and the bag is an ancillary.
Therefore, it is a composite supply and the rate of tax would that as applicable to the
laptop. Hence, applicable rate of GST 18% on Rs.55,000. CGST is Rs.4,950 and SGST is
Rs. 4,950
Problem 5
Mr. A booked a Rajdhani train ticket, which includes meal. Is it composite supply or
 mixed supply?
Solution
It is a bundle of supplies. It is a composite supply where the products cannot be sold
separately. The transportation of passenger is, therefore, the principal supply.

Rate of tax applicable to the principal supply will be charged to the whole composite
bundle.
Therefore, rate of GST applicable to transportation of passengers by rail will be
charged by IRCTC on the booking of Rajdhani ticket.
Problem 6
Big Bazar offers a free bucket with detergent purchased. Is it composite supply or
mixed supply? Assume rate of GST for detergent @ 28% and bucket @ 18%.
Solution
This is a mixed supply. These items can be sold separately. Product which has the
higher rate will apply on the whole mixed bundle.
From the following information determine the nature of supply and tax liability.
Problem 7:
XYZ Ltd. is manufacturer of cosmetic products supplied a package consisting of hair oil
(GST Rate -18%), Sun screen cream (GST Rate - 28%), Shampoo (GST rate - 28%) and
hair comb (GST Rate -12%). The Price per package is Rs. 500 (exclusive of taxes).
10,000 packages were supplied by the company to its dealers. Determine the nature of
supply and its tax liability.

Solution
This supply would be regarded as mixed supply, since in this case each of the goods in
the package have individual identity and can be supplied separately, but are
deliberately supplied conjointly for a single consolidated price. The tax rates applicable
in case of mixed supply would be the rate of tax attributable to that one supply (goods,
or services) which suffers the highest rate of tax from amongst the supplies forming
part of the mixed supply. Therefore, the package will be chargeable to 28% GST.

The tax liability will be arrived as under :

Value of taxable supply per package Rs. 500
No. of packages 10,000
Total Taxable Value of supply Rs. 50,00,000
Applicable GST Rate 28%
Total Tax liability Rs.14,00,000

Problem 8
A Ltd. a manufacturing concern in Rajasthan has opted for composition scheme
furnishes you with the following information for Financial Year 2018-19. It requires you
to determine its composition tax liability and total tax liability. In Financial Year 2017-
 18 total value of supplies including inward supplies taxed under reverse charge basis
are Rs. 68,00,000. The break up of supplies are as follows –

Particulars Rs.
(1) Intra State Supplies of Goods X chargeable @ 5% GST 30,00,000
(2) Intra State Supplies made which are which are chargeable to GST at
Nil rate 18,0,000
(3) Intra state supplies which are wholly exempt under section 11 of CGST
Act, 2017 2,40,000
(4) Value of inward supplies on which tax payable under RCM (GST Rate
5%) 5,00,000
(5) Intra State Supplies of Goods Y chargeable @ 18 % GST 30,00,000

Solution:
The composite tax liability of A Ltd. shall be as under :

(1) Computation of Aggregate Turnover and composite tax :

Particulars Rs.
(1) Supplies made under forward, charge 30,00,000
(2) Supplies made which are which are chargeable to GST at Nil rate 18,00,000
(3) Supplies which are wholly exempt under section 11 of CGST Act, 2,40,000
2017 NIL
(4) Value of inward supplies on which tax payable under RCM (GST Rate 30,00,000
5%) (not to be included) 30,00,000
(5) Intra State Supplies of Goods Y chargeable @ 18 % GST Aggregate 2%
turnover Rate of composite tax Total Composite tax 60,000

(2) Tax payable under reverse charge basis:

Particulars Rs.
Value of inward supplies on which tax payable under RCM 5,00,000
Rate of GST 5%
Tax payable under RCM 25,000
Total Tax liability 85,000
 Chapter 8: Place of supply
8.1 Brief overview
Under the GST environment, Place of Supply (PoS) of Goods and services is the most
important concept because the chargeability of GST is based on three pillars.
 Taxable event i.e supply
 Time of supply of Goods / Services (point of taxation)
 Place of Supply of Goods and services.
Therefore it can be said that Place of Supply is very significant for computation of tax under
GST regime. In case the Place of Supply is wrongly determined, it has vast implication under
provision of section 77. According to that section if a person wrongly collect and paid the
CGST and SGST assuming the transaction is a Intra-State supply, while the actual transaction
is a Inter-State supply, shall refund the CGST/SGST and paid IGST along with interest and
vice versa. Under GST it is very important to determine the nature of supply because it’s
only after determining the same we can make sure the tax that is to be collected and paid.
Hence, in case the nature of supply is Inter-State we shall apply Integrated Goods and
Service Tax (IGST) on the transaction and in case of Intra-State supply we need to apply both
i.e. Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST). As per
section 7 of IGST Act, a transaction is said to be a Intra-State supply if the location of
supplier and the Place of Supply of goods and services are in same state or same Union
Territory. As per section 8 of IGST Act a transaction is said to be a Inter-State supply if the
location of supplier and the Place of Supply of goods and services are two different States or
two different Union Territory or one in Union Territory and another is State Territory. Inter-
State supplies also includes the supply of goods or services imported into India, where LoS
(location of supplier) is outside India and PoS (Place of Supply) is in India, and supply of
goods and services exported from India, where LoS in India but PoS is outside India. Apart
from this there are some specified transactions which actually looks like Intra- State supplies
but deemed to be a Inter- State supplies, for example supplies made to or by SEZ units even
within the State would considered as Inter- State Supplies. All Intra-State supplies are
governed by Central GST Act and State/ Union Territory GST Act, 2017 and applicable taxes
are CGST plus SGST/UGST. So imposition of two different kinds of taxes on the same
transaction indicates the equal share of taxes by Central and State/ UT Government. All
Inter-State supplies are governed by the IGST Law applicable levy on the transaction is IGST.
This IGST include the share of both Central Government and respective state/ UT
Government which is consider as the Place of Supply. Thus the concept of Place of Supply is
the Utmost important from the point of Government to determine which State or Union
Territory will get the share of IGST and it is also important for the business to identify which
taxes to be imposed depending upon whether the transaction is Inter sate supply or Intra-
State supply. In this article I will try to cover the provisions of Place of Supply of goods and
services of IGST law for domestic and cross border supply under the following points.

8.2 Scope of the sections

Section 10 to 13 of the IGST Act 2017 indicates the principles to determine the Place of
Supply.
1. Section 10 governs the Place of Supply of goods other than goods imported into and
exported from India.
2. Section 11 governs the Place of Supply of Goods imported into or exported from
India.
3. Section 12 governs the Place of Supply of services, where location supplier and
location of recipient is in India.
4. Section 13 governs the Place of Supply of services, where the location supplier or
location of recipient is outside India.
It important to state that where section 10 and 12 deals with domestic transaction but
Section 11 and 13 deals with cross border transactions of goods and services. Also section
10 and 11 covers the Place of Supply of goods, but section 12 and 13 covers the supply of
services, both are independent provisions.

8.3 Place of Supply of Goods other than export and import

According to the related provisions, Rules governing the Place of Supply of Goods other than
Imports and export (for Domestic supply) are as under-
1) where the supply involves movement of goods:

Supply involves movement of goods whether by the supplier or the recipient, the Place of
Supply of such goods shall be the location of the goods when the movement of goods
terminates for delivery to the recipient. This implies that place of supplier or receiver is of
no consequence to determine the Place of Supply when it comes to those transactions
which involve the movement of goods. The place where delivery terminates i.e. where the
ownership is passed on shall be critical to determine the Place of Supply.

Case study 1:
A Ltd. of West Bengal sold 300 units of computer to Info Traders of Bihar, to be delivered at
his office at Jharkhand. Place of Supply of goods is Jharkhand and IGST will be levied as it is A
Inter- State supply.
2) where the goods are delivered on the direction of a third person:
where the goods are delivered by the supplier to a recipient on the direction of a third
person, whether acting as an agent or otherwise, before or during movement of goods,
either by way of transfer of documents of title to the goods or otherwise, it shall be deemed
that the said third person has received the goods and the Place of Supply of such goods shall
be the principal place of business of such person. When goods are delivered to a party on
the direction of a third person the Place of Supply will be the location of such third person
and not where the delivery terminates.
Case study 2:
Samanta Traders, a dealer in Furniture, located in west Bengal place an order to Rahim
traders located at Assam, for 100 units of Chairs, with the direction that to Deliver the
Chairs to City College of Kolkata, West Bengal, who is the customer of Samanta Traders.
There are two legs of the Transaction
Leg1: Samanta Traders and Rahim Traders, Place of Supply is West Bengal and IGST will be
levied as Inter- State sale.
Leg 2: Samanta Traders and City College (Having Registered under GST), PoS of goods is
West Bengal and Intra- State supply, CGST plus SGST will be charged.
3) Where supply involves no movement of goods
Where the supply does not involve movement of goods, whether, by the supplier or the
recipient, the Place of Supply shall be the location of such goods at the time of the delivery
to the recipient. However, when goods are of such nature which does not require any
movement, Place of Supply shall be the location of such goods.
Case study 3:
Silk Traders of Gujarat Sold 20 pieces of silk salwar to Amit traders of west Bengal at Gujarat
show room. Here the transaction is Intra -Sate Supply of goods, as Place of Supply is Gujarat .

4) When Goods are Installed-

Where the goods are assembled or installed at site, the Place of Supply shall be the place of
such installation or assembly.
Case study 4:
Ramco Limited registered in Bihar opens a new office in Delhi. It purchases 10 ACs to be
installed at its Delhi office from Patil electronics in Bihar. In this case, the location of the
supplier is Bihar, but a Place of Supply of goods will be Delhi. Hence, IGST will be levied.
5) Goods on Board a conveyance
In case the goods are supplied on board a conveyance, including a vessel, an aircraft, a train
or a motor vehicle, the Place of Supply shall be the location at which such goods are taken
on board. This provision includes those purchases which are done while travelling on a
conveyance.
Case Study 5:
Mr. Mehta is travelling on a cruise liner from Mumbai to Goa. He purchases a book from the
in-house store in the cruise liner. These books were on-boarded from Mumbai. Registered
place of business of the book shop is in Mumbai. Place of location of supplier is Maharashtra
and Place of Supply of goods , in this case, will be Maharashtra. This is an Intra-State supply,
and CGST and SGST will be charged.

8.4 Place of Supply of services other the export and import services

Broad principles governing the Place of Supply of services where the location of service
supplier (provider) and recipient (Receiver) is in India, are 13 in numbers, out of which 1 is
general principle and 12 are specific situation based principles. For the most supplies of
services, the places of supply of services are determined by “General Rule”. However, some
supplies are subject to special rules for fixing the Place of Supply of services, depending
upon the nature of services referred in those respective rules.
 1) General Rules:
Where both supplier and recipient are located in India, the Place of Supply of service would
be:
a) When the service supplied or provided to persons registered under the GST the Place
of Supply of service is the location of registered person.
Case Study 7:
Mr. Rahaman is the chartered accountant of West Bengal, provided Professional
services to a ABC Ltd, of Assam. The PoS of the Service is the Location of Registered
person. Here it is Assam. So Mr. Rahaman will charge IGST for his service as Inter-
State Supply.
b) When the services are provided to a un-registered person but the address exists on
records of the supplier of service, the Place of Supply of service is the location of
service recipient of to un-registered persons.
Case study 8:
Samanta Furniture of Kolkata is providing services of Renting of furniture to Amit of
Midnapur. Then the location of supply of services is at West Bengal, hence Intra-
States supply. So both CGST plus SGST will be levied.

c) When the services are provided to a un-registered person but the address does’t
exists on records of the supplier of service, the Place of Supply of service is the
location of service supplier or provider.
Case study 9:
Infotech Kolkata is providing computer repair services to Rahul of Jharkhand,
unregistered person and address is not available in its records. In this situation Place
of Supply is location of service provider i.e West Bengal (Intra- State supply)

The general rule has been framed keeping in the view the difference between B to B
and B to C supplies. The rule is very well aligned with the overall philosophy of GST
Act which is destination based consumption tax.

2) Specific Rules
a) Place of Supply of the Services in relation to immovable property is the location
of the immovable property without differentiating the B to B and B to C supplies.
 (Availing input tax credit from a state where the service receiver has no place of
business may difficult) The rule covers
 Services like Architecture, interior decoration, construction any others of
similar nature.
 Services of accommodation for staying in hotel, guest house, lodge, inn
etc. or for organising any function or events.
b) Place of Supply for the restaurant and catering services personal grooming,
health and beauty services etc., is the location of actual performance.
c) Place of Supply for services like training and performance appraisal is the
 For Registered service recipient –location of the service recipient (can
claim ITC-input tax credit)
 For un-registered recipient – place of actual performance.(no question of
claiming ITC)
d) Place of Supply for the services provided by way of admission to an event or
amusement park or any other place is the location of the event or park without
differentiating the B to B and B to C supplies.
e) Place of Supply for the services provided by way of organising such events and
other ancillary services in this connection is the
 For Registered service recipient –location of the service recipient (can
claim ITC-input tax credit)
 For un-registered recipient – location of actual performance.(no question
of claiming ITC). If the event is outside India then location of service
recipient will the Place of Supply for un-registered person..
f) Place of Supply for the services transportation of goods , including mail or
courier is the
 For Registered service recipient –location of the service recipient (can
claim ITC-input tax credit)
 For un-registered recipient – location of where goods are handed over
for transportation
g) Place of Supply for the services of Passenger transportation is
 For Registered service recipient –location of the service recipient (can
claim ITC-input tax credit)
  For un-registered recipient – location where passenger embarks on a
conveyance for the continuous journey.
h) Place of Supply for the services on the board of conveyance like Aircraft, Vessel
train, motor vehicles is the first departure point of the conveyance of that
journey.
i) Place of Supply for the telecommunication services like data transfer,
broadcasting, cable and DTH services to any person has been prescribed
differently
 For fixed line, leased circuits, cable or dish antenna – place of installation
 For post paid mobile/ internet connection – location of billing address.
 For pre paid mobile/ internet connection – address of the selling agent or
the location of sale in different situation.
This is largely in the line with the provision followed by other developed nations.
j) Place of Supply for banking and financial services including services of stock
broking firm shall be
 Location of receiver is available in records - the location of service
receiver.
 Location of receiver is not available in records – the location of service
provider
Such provision is similar to the previous provision in service tax.
k) Place of Supply for insurance services shall be the location of the service
recipient in case of business or otherwise.
l) A special rule is framed for the advertising services provided to the government
whether central or state / union territory. Place of Supply is the respective state
for which the advertisement is meant for.
After discussing the principles governing PoS for the entire domestic supplies of services, it
may be seen that overall objective of the principle is to capture the location of consumption
of services and to ascertain the PoS accordingly.
2.6 Time of Supply/ Point of Taxation
GST is payable on supply of goods or services. A supply consists of elements that can be
segregated or separated in respect to time, like purchase order or agreement for sale,
provision of services, despatch of goods, delivery of goods. Payment, entry of payment or
amount deposited to Bank. So at which of these points of time, will GST become payable?
Will it become payable when an agreements to supply goods or services are provided or
when invoices is issued or when payment is made? What happens if the goods are delivered
over a period of time? What happens if the services are provided over a period of time?
Provision relating to ‘time of supply’ provides answer to all such questions that arise on the
timing of the liability to pay CGST and SGST/UTGST (Intra-State supply) and IGST (Inter-State
Supply) as time of supply fixes the point of time when the liabilites to pay tax arises.

2.6.1 Time of Supply of Goods, u/s 12 of CGST Act

Time of Supply of Goods under forward charge The time of supply of goods shall be (a) Date of issue
of tax invoice [When invoice is issued within time limit of issue of invoice] (b) Last date on which
invoice ought to have been issued [When invoice is not issued within time limit] (c) Date of receipt of
payment –Earlier of the above three Note : 1. Time limit for issue of invoice for supply of goods (a)
Where supply involves movement of goods → at the time or before the removal of goods. (b) Where
supply does’t involve movement of goods → at the time or before the delivery of goods. (c) In case of
continious supply of goods: → at the time or before the time of issuance of periodical statement.
Note: 2. Date of receipt of payment shall be (a) Date on which the payment is recorded in the books of
accounts of the supplier (b) Date on which the payment is credited to the supplier’s Bank A/c

Note : 3. If the payment received is upto Rs. 1000 in excess of the invoice amount, the supplier can
choose to take the date of invoice issued with respect to such excess amount as the time of supply of
goods for such excess value. Note: 4. When the payment is received in instalments, the time of supply
shall be determined seperately for each instalment.

Time of Supply of Services

Time of supply of services under forward charge Section 13(2) CGST Act prescribed the
manner for determination of time of supply in case of supply of services under forward
charge: Case 1 : Invoice has been issued within time limit u/s 31 The time of supply shall be
(a) Date of issue of invoice (b) Date of receipt of payment Earlier of the above two. Case 2 :
Invoice has not been issued within time limit u/s 31 The time of supply shall be (a) Date of
provision of service (b) Date of receipt of payment Earlier of above two Note: 1. Time limit
for issue of invoice (a) For Banking and Financial institution-within 45 days from the
provision of service (b) For other case–within 30 days from the date of provision of service.
Note: 2. Date of receipt of payment shall be (a) Date on which the payment is recorded in the
books of accounts of the supplier (b) Date on which the payment is credited to the supplier’s
Bank A/c Note : 3. If the payment received is upto Rs. 1000 in excess of the invoice amount,
the supplier can choose to take the date of invoice issued with respect to such excess amount
as the time of supply of goods for such excess value.
Note: 4. When the payment is received in instalments, the time of supply shall be determined
separately for each instalment.
2.6.2 Time of Supply of vouchers
In case of supply of vouchers by a supplier, the time of supply (TOS) shall be (a) The date of
issue of voucher → If supply is identifiable at the point (b) The date of redemption of
Voucher → if supply is not identifiable at that point of issue of voucher. Where it is not
possible to determine the time of supply u/s 12, then time of suply shall be (a) Date on which
periodic return has to be filed (b) In other case → the date on which tax is paid.

2.6.3 Supply of Goods under Reverse Charge Mechanism (RCM)

Section 12(3) of CGST Act provides that in case of supply of goods under RCM, the time of
supply shall be (a) Date on which the goods received (b) Date of payment earlier of (i) Date
of payment by Debiting Bank A/c (ii) Date of Book entry (c) Date immediately following 30
days from the date of issue of invoice.

2.6.5 Time of Supply of Service under RCM

(a) Transaction between non-associate enterprises Section 13(3) of CGST Act provides that
in case of supply of services taxable under RCM the time of supply shall be (i) Date of
payment (ii) Date immediately following 60 days from the date of issue of invoice. Note: If
Time to supply (TOS) can’t be determined as above parameters, then the TOS is the date of
book entry of services in the Books of recipient.
(b) Transaction between associated enterprises. TOS shall be earlier of (i) Date of payment
(ii) Date of debit entry in the books of accounts of the recipient of services.