Module-3

Concept of Supply under GST: part-1

By: Ambar Fatima

 Concept of Supply
The very basis for the charge of tax in any taxing statute is the taxable event i.e the

point on which the levy of tax gets attracted.

The taxable event under GST is SUPPLY.

CGST and SGST/UTGST are levied on all intra-State supplies of goods and/or

services while IGST is levied on all inter-State supplies of goods and/ or services.
 Intra-State Supply
Where the location of the supplier and the place of supply of goods or
services are in the same State/Union territory, it is treated as intra-State
supply of goods or services respectively.

Inter-State Supply
Where the location of the supplier and the place of supply of goods or

services are in :

(i) two different States or

(ii) two different Union Territories or

(iii) a State and a Union territory, it is treated as inter-State supply of goods or

services respectively.
 Charging Section of CGST Act,2017

Section 9: It provides that

there shall be levied a tax called CGST on all intra-State supplies of goods

or services or both, except on the supply of alcoholic liquor for human

consumption. However, supply of petroleum crude, high speed diesel,

motor spirit(patrol), natural gas and aviation turbine fuel are also

Includes in GST.

SUPPLY is the Taxable event to levy GST.

 Section 7: Scope of supply
Section 7(1) (a)
For the purposes of this Act, the expression ―supply includes–– all forms of supply of goods or services or both
such as
i)sale, ii)transfer, iii) barter, iv) exchange, v) licence,

vi) rental, vii) lease or viii) disposal

made or agreed to be made for a consideration by a person in the course or furtherance of business;

(Section 2(31) defines ‘Consideration’)

( Section 2(17) defines Business)

Section 7(1)(aa): [ the activities or transactions between an association, club or similar entities and its members

constituents as

‘supply’. For the purpose of taxability, the members and the entity shall be two distinct persons.

Example: Resident Welfare Association(RWA) collects maintenance charges from its members for services

provided.

Section7(1)(b): import of services for a consideration whether or not in the course or furtherance of business;[and]

Section7(1)(c): the activities specified in Schedule I, made or agreed to be made without a consideration.
 SCHEDULE I

Activities to be treated as Supply even if made

without consideration

1) Permanent transfer or disposal of business assets where input tax credit has been availed on such
assets.

E.g: TCS upgraded their 1000 Laptops and donated their old laptops (on whom ITC was already
Claimed) to the Government Schools. In this case, such donation is treated as supply as per Schedule I.

2) Supply of goods or services or both between related persons or between distinct persons as specified
in section 25, when made in the course or furtherance of business:

E.g: Free supplies to related persons, stock transfers to a unit outside the state/ a differenent business
vertical, etc. will be reckoned as supplies.

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an
employee shall not be treated as supply of goods or services or both.
 Meaning of “Distinct person”
Section 25(4): A person who has obtained/is required to obtain more than one registration,
whether in one state/Union territory or more than one state/union territory shall, in respect
to each such registration, be treated as distinct persons.

Meaning of “Related persons”

Related persons: means
1) Such persons are partner in business.
2) Any person holds twenty-five per cent or more of shares of both of them.
3) One of them controls the other (Holding Subsidiary Company)
4) Together they directly or indirectly control a third person
5) Such persons are employer and employee
6) They are members of the same family.
• Section2(49): “family” means,––
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly dependent on the said
person
3) Supply of goods—

(a) by a principal to his agent or

(b) by an agent to his principal

where the agent undertakes to supply or receive such goods on behalf of the principal.

Notes:

• Where principal invoices to Agent and Agent Invoices to customer: then such Agent will fall under

Schedule-I and

• Where the principal Invoices directly to customer and the transaction mediated by an Agent, then such

agent will not be covered under Schedule-I

4) Import of services by a person from a related person or from any of his other establishments outside India,

in the course or furtherance of business.

[(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)] 16 , 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.
 SCHEDULE II

ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR

SUPPLY OF SERVICES

1. Transfer

(a) any transfer of the title in goods is a supply of goods;

(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof,

is a supply of services;

(c) any 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, is a supply of goods.

2. Land and Building

(a) any lease, tenancy, easement, licence to occupy land is a supply of services;

(b) any lease or letting out of the building including a commercial, industrial or residential complex

for business or commerce, either wholly or partly, is a supply of services.

 Any treatment or process which is applied to another person's goods is a supply of services.

4. Transfer of business assets

(a) 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;

(b) where, by or under the direction of a person carrying on a business, 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 than a purpose of the business, whether or not for a consideration, the usage or

making available of such goods is a supply of services;

(c) where any person ceases to be a taxable person, any goods forming part of the assets of any business

carried on by him 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—

(Exception)

(i) the business is transferred as a going concern to another person; or

(ii) (ii) the business is carried on by a personal representative who is deemed to be a taxable person.
5. Supply of services
The following shall be treated as supply of services , namely:—
(a) renting of immovable property;
(b) Sale of under construction building where whole or part of the consideration received before issuance
of completion certificate.
However, where the entire consideration has been received after issuance of completion certificate or after its
first occupation, whichever is earlier, then such transaction is neither supply of goods nor supply of service.
E.g: DLF has constructed individual residential units for agreed consideration of Rs.5 Cr per unit. Rs 2.5 Cr per
unit were received before issuance of completion certificate by Competent authority and balance after
completion.
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d) development, design, programming, customisation, adaptation, upgradation, enhancement,
implementation of information technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
and
(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash,
deferred payment or other valuable consideration.
 6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:—

(a) Works contract services related to immovable property wherein transfer of property in goods

(whether as goods or in some other form) is involved in the execution of such contract)and

(b) supply, by way of or as part of any service or in any other manner whatsoever, of goods,

being food or any other article for human consumption or any drink (other than alcoholic liquor

for human consumption), where such supply or service is for cash, deferred payment or other

valuable consideration.

7. Supply of Goods

The following shall be treated as supply of goods, namely:—

Supply of goods by any unincorporated association or body of persons to a member thereof for

cash, deferred payment or other valuable consideration.

 SCHEDULE III [See section 7]

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS

NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his

employment.
2. Services by any court or Tribunal established under any law for the time being in
force.
3. (a) the functions performed by the Members of Parliament, Members of State
Legislature, Members of Panchayats, Members of Municipalities and Members of other
local authorities;
(b) the duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
(c) 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, subject to clause (b) of paragraph 5 of Schedule II, sale of
building.
6. Actionable claims, other than lottery, betting and gambling.
Explanation.—For the purposes of paragraph 2, the term "court" includes District
Court, High Court and Supreme Court.
Section:8: Tax liability on composite and mixed supplies.

The tax liability on a composite or a mixed supply shall be determined in the following

manner, namely:—

(a) a composite supply comprising two or more supplies, one of which is a principal

supply, shall be treated as a supply of such principal supply; and

(b) a mixed supply comprising two or more supplies shall be treated as a supply of that

particular supply which attracts the highest rate of tax.

Section 2(30) “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

Section(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.

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.