Synopsis:

 Introduction
 Meaning and scope of Supply
 Amalgamation
 Implementation
 Types of Supply
 Inclusive definition of supply
 Importance of Time , Place and Value of Supply
 Time of Supply
 Place of Supply
 Value of Supply
 Exception to Supply under GST
 Activities of Supply
 Activities Excluded
 Schedule - I
 Schedule - II
 Schedule – III
 Conclusion

1
Introduction

Taxes are the principal source of revenue in any country. Tax systems in the world over
have undergone remarkable changes during the last three decades as many countries across the
globe with varying economic policies have undertaken major fiscal reforms. The present WTO
regime has also influenced the member countries in formulating tax policies in tune with the
international requirements. Correspondingly, the Government of India has responded to the
internationalisation of commercial activities with a significant reduction in tariffs as part of its
policy of economic liberalisation. Adoption of a harmonised system of nomenclature and
removal of the distinction between goods and services are aimed to create transparency in tax
administration under the current GST law. Presently in India, the Goods and Services Tax has
introduced an integrated tax system for the whole of the country. We have moved from the
origin-based system of taxation of goods to destination-based system and brought together
taxation of goods and services under a uniform levy system. Previously, tax was levied at
differential rates on the total value of the goods. Taxes were collected at each stage of production
and consumption separately by the Centre and the State. This resulted in a multiplicity of taxes
causing cascading effect in taxation. But under the Goods and Services Tax system, tax is levied
on the value added at each stage and it is a single tax, collected at multiple points with a
complete set- off facility for taxes already paid in the same value-chain. Thus, the final consumer
will only bear the GST charged by the last dealer in the supply chain with set-off benefits for all
the previous stages. For transaction within a State, there will be two components of GST, viz.
Central GST (CGST) and State GST (SGST) being levied on the value of goods and services.
Both the Centre and States concurrently share GST collected across the value-chain. In case of
inter-State transactions, the Centre has the power to charge and collect the Integrated Goods and
Services Tax (IGST). The IGST would approximately be equal to the CGST plus SGST. This
has provided better opportunities for restructuring the supply chains to minimise tax burden and
to prevent tax evasion through uniform tax rates.

Section 7 of the CGST Act defines supply as a taxable transaction involving the provision of
goods or services or both for a consideration, in the course or furtherance of business, by a
taxable person within the taxable territory. However, certain exceptions apply, such as the import
2
of services and activities listed in Schedule-I made without consideration. The Act includes
various activities as part of supply, such as sale, transfer, disposal, barter, and more. Import of
services, even without business intentions, falls within the purview of supply. Additionally,
Schedule-I lists activities considered supply, regardless of consideration, including the
permanent disposal of business assets and the supply of goods between related persons. On the
other hand, Schedule-II outlines activities treated as supply of goods or services, like the transfer
of title or right in goods, lease of land and buildings, and treatment or processing of goods.
Schedule-III lists activities that are not treated as supply, such as services provided by employees
to employers in the course of employment and functions performed by public authorities.

Meaning and scope of supply

The taxable event under GST shall be the supply of goods and/or services made for
consideration in the course of furtherance of business. The tax- able events under the existing
course laws such as manufacture, sale, or provision of services shall stand subsumed in the
taxable event known as "supply". The term "supply" is wide in its import and includes all forms
of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease
or disposal made or agreed to be made for a con sideration by a person in the course or
furtherance of business. It also includes import of service. The GST law also provides for
including cer- tain transactions made without consideration within the scope of supply. 40 In
order to constitute a "supply", the following elements are required to be satisfied:

1. supply of goods and/or services;

2. supply is for a consideration;

3. supply is made in the course or furtherance of business;

4. supply is made in the taxable territory;

5. supply is a taxable supply; and

6. supply is made by a taxable person.

3
Inter-State and intra-State supplies have specifically been defined in Sections 3 and 3-A of IGST
Act respectively. Broadly, where the location of the supplier and the place of supply are in the
same State it will be intra-State and where it is in different States it will be inter-State supplies.
Unlike goods, in the case of services, the time of supply is determined by the fact whether the
invoice for supply of services has been issued within the prescribed period or beyond such
prescribed period. The time of sup- ply of service in such cases shall be the earliest date of
completion of the provision of service or the date of receipt of payment.

Amalgamation

Amalgamation of major taxes in GST with a broad and distinctive set-off provision for
input goods and services would lower the cost of domestic goods and services. The minimal
cascading effect of taxes is guaranteed by the system of continuous tax-credits throughout the
value- chain regardless of State boundaries. Elimination of hidden costs and diminution in
transaction cost of doing business would ultimately lead to enhanced competitiveness in trade
and industry. Consequently, the demand for Indian goods and services in the international market
would be strengthened with the consequent boost to Indian exports. Following the set standard of
uniform tax structures for the whole of India, GST would make doing business in the country
common and tax-neutral, irrespective of the choice of place of doing business. The single levy
system spanned across States will help to reduce the compliance cost. An active and all-inclusive
Information Technology (IT Infrastructure) system is the very foundation of the GST regime in
India. Thus, all services such as registrations, classification, returns, refund and payments would
be available to the taxpayers online, ensuring compliancy simple, obvious and effective. It is a
fruitful step in the direction of Digital India initiative aiming to increase digital connectivity and
make governance more transparent.

Implementation

Effective implementation of law is the crucial task as long as there exists transitional
hazards in the tax reforms. The Goods and Services Tax (Compensation to States) Act, 2017
provides for compensation to States for any loss in revenue due to the implementation of GST.
Likewise, the transitional provisions under the Central Goods and Services Act, 2017 maintains
the applicability of existing law on indirect tax as far as the applicable provisions are concerned.

4
As in other countries, post- implementation hassles are present in India also. For example, major
economies in the world like those under the European Union have overcome these initial
bottlenecks through joint efforts of various State agencies involved in tax administration.
Likewise, a vigilant revenue administration under the integrated tax system can bring about
positive results within a short span of time. Awareness programmes at the grass root level by the
municipalities and panchayats with the active participation of revenue offices can clear doubt in
the minds of common man and create confidence in the new GST regime. Thus, taking a positive
approach one can undoubtedly say that India's GST brings in promises, reforms and
opportunities, everything under one umbrella. Legal marginalisation is prevalent in varied extent
in the developed, developing and underdeveloped world. While globalisation, social trends and
other factors present new demands on many traditional systems, technological and
communicational advances offer opportunities to the policymakers to bring changes to systems,
making them more accessible, transparent and effective. Following that trend, the tax system is
going to be "hi-tech" and "e" oriented to assure "good governance" through more transparency,
accountability, participation and better management

Types of supply:

The GST definition of supply distinguishes between taxable and non-taxable supplies.
Further classifications for the types of supply under GST are as follows:

1. Non-Taxable Supplies

These services and goods are not subject to taxes. These are some examples:

Non-GST Supplies: Non-taxable supplies under GST include certain goods and services.

List of Exempt Supplies: Certain services and goods are exempt from GST payment even if they
fall under the taxable category.

2. Taxable Supplies

All services and goods taxable under GST are included in this category. Taxpayers can,
however, demand refunds on tax payments made throughout the payment period. Taxable
supplies are further categorised into two categories:

GST Zero-Rated Supply: Certain supplies sent to Special Economic Zones (SEZs) or other
business organisations are tax-free but are charged when sold within national borders.

5
Regular Taxable Supplies: Any good or service supply is considered regular if it results in a tax
liability.

Kerala High Court, in the case of Lalitha Muraleedharan Vs. Range Forest Officer1,
Marayoor, and Others[i], has held that the transaction between the parties is a zero-rated supply
of goods, and the taxpayer was directed to comply with the conditions except for the deposit of
IGST and communicate the same to the other parties with a request for delivery of goods.

In this case, the taxpayer is engaged in the manufacturing of natural and essential oils, food
supplements, aromatic chemicals, etc. from an industrial unit located in the Madras Export
Processing Zone. The said industrial unit is a notified Special Economic Zone (SEZ), i.e., 100%
export-oriented unit.

The taxpayer had participated in the e-auction of sandalwood conducted by the Government
Sandal Depot, Marayoor (Kerala). Upon successful bidding, the taxpayer was asked to comply
with the conditions of sale and pay the sale consideration, forest development tax, and IGST. The
taxpayer filed a letter with the Forest Officer to obtain clarification regarding payment of IGST
on the sale consideration. In response, the Forest Officer highlighted the relevant provisions of
the IGST Act, 2017, and asked for payment of IGST on the goods purchased by the taxpayer.

The taxpayer, being aggrieved by the IGST demand, filed a writ petition before the Kerala High
Court. After considering the various provisions/rule of GST law, the High Court observed as
under:

GST is payable based on the location where goods or services or both are being consumed. Basis
the provisions of Sections 7(1), 8(1), and 10 of the IGST Act, the Court stated that a transaction
could not be treated as an intra-state transaction in case such transaction either originates or
terminates in SEZ.

Section 10(1) provides that the place of supply of goods shall be the location where the
movement of such goods terminates for delivery to the recipient in case of supply involving the
movement of goods.

1
LAS (KER) 2019-12-428

6
Basis the provisions of Section 2(23) r.w.s. 16, the Court observed that it is for the parties to the
transaction falling under Section 16 to follow the optional tax treatment.

Under the GST law, the supplies to SEZ unit are treated at par with physical exports. Denial of
zero-rated tax benefit to the taxpayer or asking it to pay IGST and then claim a refund is contrary
to the GST law.

3.Composite Supply:

This involves a principal supply and one or more ancillary supplies, all considered as a
single supply. The GST rate applicable to the composite supply is determined by the rate of the
principal supply.

4. Mixed Supply: Involves two or more independent supplies, none dominating the other. The
GST rate is calculated based on the value of each supply.

Inclusive definition of GST:

It has been defined in inclusive manner and not exhaustive. The word ‘includes’ used in
the statutory provision enlarges the meaning of supply. It also indicates that the definition given
in the statute is not exhaustive. The Hon. Supreme Court in the case of CIT v. Taj Mahal
Hotel [1971] 2 observed as follows with:

“The word ‘includes’ is often used in interpretation clauses in order to enlarge the meaning of the
words or phrases occurring in the body of the statute. When it is so used, these words and
phrases must be construed as comprehending not only such things as they signify according to
their nature and import, but also those things which the interpretation clause declares that they
shall include”.

Clause (a) of section 7(1) specifies certain form of supply. These specific forms are only given
as example. Any other form of supply will also be included in the definition. Sections 9-10(2) of
Australian GST Act reproduced above inter alia provides following activity as supply:

(a) Provision of advice or information

(b) A grant, assignment or surrender of real property.

2
82 ITR 44

7
These activities are not specifically specified in the definition of supply in section 7(1) as it is
inclusive definition. The above form of supply will also be covered under the meaning of supply
given in section 7.

Importance of time place and Value of Supply:

Time of supply means the point in time when goods/services are considered supplied’.
When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

Place of supply is required for determining the right tax to be charged on the invoice, whether
IGST or CGST/SGST will apply.

Value of supply is important because GST is calculated on the value of the sale. If the value is
calculated incorrectly, then the amount of GST charged is also incorrect .

Time of Supply:

Time of supply means the point in time when goods/services are considered supplied’.
When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate
basis to identify their time of supply. Let’s understand them in detail.

Time of Supply of Goods

Time of supply of goods is earliest of:

1. Date of issue of invoice

2. Last date on which invoice should have been issued

3. Date of receipt of advance/ payment

8
Time of Supply under Reverse Charge

In case of reverse charge the time of supply for service receiver is earliest of:

 Date of payment
 30 days from date of issue of invoice for goods (60 days for services)

Place of Supply:
Usually, in case of goods, the place of supply is where the goods are delivered.So, the
place of supply of goods is the place where the ownership of goods changes.What if there is no
movement of goods. In this case, the place of supply is the location of goods at the time of
delivery to the recipient.

For example: In case of sales in a supermarket, the place of supply is the supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the location where
the installation is done.Generally, the place of supply of services is the location of the service
recipient.
In cases where the services are provided to an unregistered dealer and their location is not
available the location of service provider will be the place of provision of service.

Special provisions have been made to determine the place of supply for the following services:

 Restaurant services
 Admission to events
 Transportation of goods and passengers
 Telecom services
 Banking, Financial and Insurance services.

Value of supply

Value of supply means the money that a seller would want to collect the goods and
services supplied.

9
The amount collected by the seller from the buyer is the value of supply.

But where parties are related and a reasonable value may not be charged, or transaction may take
place as a barter or exchange; the GST law prescribes that the value on which GST is charged
must be its ‘transactional value’. This is the value at which unrelated parties would transact in
the normal course of business. It makes sure GST is charged and collected properly, even though
the full value may not have been paid.

Exceptions to Supply under GST:

Import of Services for a Consideration: Import of services into India, whether or not in
the course or furtherance of business, is considered as supply. Even if the transaction doesn’t
involve consideration, it still falls under the scope of supply.

Activities mentioned under Schedule-I: Schedule-I of the CGST Act enlists certain activities
that are treated as supply, even if made without consideration. Notable examples include the
permanent disposal of business assets on which Input Tax Credit (ITC) is availed and the supply
of goods or services between related persons or distinct persons.

Activities of Supply:

Section 7(1) of the CGST Act elaborates on the activities included as supply under GST:
1. All Forms of Supply of Goods or Services or Both: This encompasses a wide range of
activities, such as sale, transfer, disposal, barter, exchange, license, lease, or rental made or
agreed to be made for a consideration. These activities, when conducted in the course or
furtherance of business, fall within the scope of supply.

2. Import of Services for a Consideration: Irrespective of whether or not in the course or

furtherance of business, the import of services is treated as supply under GST.

3. Activities Specified under Schedule-I: Certain activities listed in Schedule-I are considered
supply, even if conducted without any consideration. These activities include permanent disposal
of business assets, supply between related persons or distinct persons, and others.

10
4. Activities Specified under Schedule-II: Schedule-II classifies activities that are treated either
as supply of goods or supply of services. These activities include the transfer of title or right in
goods, lease of land and buildings, treatment or process of goods, and more.

Activities Excluded from Supply under Section 7(2):

Section 7(2) of the CGST Act specifies activities that are excluded from the definition of
supply: 1. Activities Specified under Schedule-III: Schedule-III lists activities that are not
considered supply under GST. These activities include services provided by employees to
employers in the course of employment, services by courts or tribunals, and functions performed
by Members of parliament, Members of State legislator, and Members of local authorities. 2.
Activities Undertaken by Government Authorities: Activities carried out by the Central
government, State government, Union territory, or Local authority in their capacity as public
authorities are not treated as supply for GST purposes, as per the government’s notifications on
recommendations of the council.

Schedule-I :

Schedule-I gives a comprehensive list of activities treated as supply, even if made or

agreed to be made without consideration. The list of such activities is given below:

Permanent disposal of business assets on which ITC is availed.

ii. Supply of goods or services between related persons, or distinct persons (as per section 25),
made in the course or furtherance of business. Definition of related persons as per Section 25 (4):
A person who has obtained or required to obtain more than one registration, whether in one
state/union territory or more than one state/union territory, shall be treated as a distinct person in
respect of each such registration. Definition of distinct person as per Section 25(5): Where a
person, who has obtained or is required to obtain registration in a State or UT in respect of an
establishment, has an establishment in another State or Union Territory, then such establishments
shall be treated as establishments of distinct persons for the purposes of this Act.

11
Exception – Goods not exceeding Rs. 50.000 in a financial year, from an employer to his
employee shall not be treated as a supply of goods or services.

Supply of goods by a principal to his agent, where the agent undertakes to supply such goods on
behalf of the principal.

Supply of goods by an agent to his principal, where the agent undertakes to receive such goods
on behalf of the principal.

Import of services by a person from a related person or any of his establishments outside India,
in the course or furtherance of business.

Schedule-II :

This schedule gives a comprehensive list of activities which are either treated as supply
of goods or supply of services. The list of such activities is given below:

1. Title or right in goods:

(a) Transfer of title in goods is treated as supply of goods;

(b) Transfer of right in goods or undivided share in goods without transfer of the title
thereof is treated as supply of services;

(c) Transfer of title in goods by an agreement, which stipulated that the property in
goods shall pass on a future date upon discharge of full consideration as agreed, is treated as
supply of goods.

2. Land & Building:

(a) Lease, tenancy, easement or license to occupy land, is supply of services.

(b) Lease or tenancy of building (commercial/residential) either wholly or partly, for

business purpose, is supply of services.

12
3. Treatment or process of goods: Treatment or process applied to goods of another person is a
supply of services.

4. Transfer of Business assets:

(a) Transfer or disposal of goods forming part of assets of a business, by or under

direction of the person carrying on the business, so as no longer to form part of those assets,
whether or not with a consideration, is a supply of goods;

(b) Goods held or used for business purposes, when put to a private use or made available
to any person for a use other than business, either by or under direction of the person carrying on
the business, is treated as a supply of services;

(c) If a person ceases to be a taxable person, goods forming part of his business assets
shall be deemed to be supplied in course or furtherance of business (supply of goods),
immediately before he ceases as a taxable person, unless the business is transferred to another
person as a going concern, or his personal representative deemed as a taxable person.

5. Supply of Services:

(a) Renting of an immovable property;

(b) Construction of a building, complex, civil structure, including those intended for sale
either wholly or partly, unless the entire consideration received after getting completion
certificate if required or its first occupation, whichever is earlier;

(c) Temporary transfer or permitting the use of an intellectual property right;

(d) Development, design, programming, customization, adaptation, up-gradation,

enhancement or implementation of IT software;

(e) Agreeing to the obligation to refrain from an act, or to tolerate an act/situation, or to

do an act;

13
 (f) Transfer of right to use any goods for any purpose (whether or not for a specified
period) for cash or deferred payment or any other consideration.

6. Composite Supply of services:

(a) Works contract as defined under clause 119 of section 2 of CGST Act;

(b) Supply, by way of or as part of a service or any other manner whatsoever, of goods,
being food or any other article for human consumption or drinks other than alcoholic liquor for
human consumption, whether for cash or deferred payment or any other consideration.

Schedule III:

Schedule III gives a comprehensive list of activities not treated as supply. List of such
activities is given below:

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

employment.

2. Services by a court or tribunal.

3. Functions performed by the Members of parliament, Members of State legislator,

Members of Municipalities, Members of Panchayats or Members of any local authorities.
4. Duties performed by any person who holds any post in pursuance of any provisions
under the constitution in that capacity.

5. Duties performed by any person as a chairperson or a member or director in a body,

established by the central government or state government or local authority and who is not
deemed as an employee before commencement of this clause.

6. Services of funeral, burial, crematorium, or mortuary including transportation of the

deceased.

7. Sale of land and subject to clause b of paragraph 5 of schedule II, sale of building.
8. Actionable claims, other than lottery, betting and gambling.

14
 9. Supply of goods from a non-taxable territory to another non-taxable territory, without
entering into India.

10. Supply of goods by the consignee to any other person, by endorsement of documents
to title of goods, after the goods being dispatched from the port of origin outside India but before
clearance for home consumption.

11. Supply of warehoused goods to a person before clearance for home consumption.

Conclusion:

The CGST Act effectively includes delivering any services or goods taxable at the
destination rather than the point of origin under GST. Unlike the pre-GST regime, which treated
all taxable events separately, the GST regime is more uniform and simplifies the tax procedure.

Supply is the main deciding factor on which taxation of a transaction under GST system
is based. If a transaction is treated as a ‘supply’, then only the question of taxing the transaction
arises. So ‘supply’ is the most crucial factor under GST system and it is the taxable event on
happening of which the charge of GST is determined. Supply holds the greatest significance and
shall be an important event in determining the taxability of all transaction whether commercial or
otherwise. Therefore, determining whether or not a transaction falls under the scope of supply, is
most important to decide the GST applicability of the transaction.

15