PREPARED BY

FinTaxPro Advisory LLP

SCOPE OF SUPPLY

Learning Objective

Taxable event in GST


Supply and its scope


Transaction neither supply of goods or service


Schedule I,II,III


Deemed Supply


Cross charge vs ISD


Composite and mixed supply

Taxable Event in GST

‘Taxable event” is that on happening of which charge of GST is fixed. In other words any
transaction or occurrence that result in a tax consequence. It is important to ascertain whether
any transaction fall under the scope of taxable event or not as it determine the point at which
tax would be levy.
However it is important to note that ‘taxable event’ and ‘point of taxation’ are different. Taxable
event help to determine whether any transaction is taxable or not, however point of taxation
came at a later stage which determine the time when tax is to be levy and paid by taxpayer.

In GST supply is the taxable event and time of supply is point of taxation. Time of supply will be
discuss at later stage.

 Means
Definition in which the expression “means” has been used are exhaustive definition.
Hence the scope of these definition cannot be expand

 Includes
Definition in which the expression “includes” has been used are inclusive and are
not exhaustive definition. Thus the scope of these definition is wide

SUPPLY AS PER GST LAW (SEC 7)

(1) For the purposes of this Act, the expression - "supply" includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made for a consideration by a person
in the course or furtherance of business;

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

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

(b) import of services for a consideration whether or not in the course or furtherance of
business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
 (d) the activities to be treated as supply of goods or supply of services as referred to in
Schedule I (Omitted w.e.f 1 Feb 2019)

(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. (Interested w.e.f 1 Feb 2019)

(2) Notwithstanding anything contained in sub-section (1),-

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State

Government or any local authority in which they are engaged as public authorities, as may
be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services.

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

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

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

 SCHEDULE I
Activities to be treated as supply even if made without consideration (Deemed
Supply)

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

(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:

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.
(3) Supply of goods-

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of
the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf
of the principal.

(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.


SCHEDULE II
Activities or transactions to be treated as supply of goods and 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.

(3) Treatment or process

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, 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, 2 [****] 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-

(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.

5. Supply of services

The following shall be treated as supply of services, namely:-

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex
or building intended for sale to a buyer, wholly or partly, except where the entire
consideration has been received after issuance of completion certificate, where required, by
the competent authority or after its first occupation, whichever is earlier.

Explanation. -For the purposes of this clause-

(1) the expression "competent authority" means the Government or any authority
authorized to issue completion certificate under any law for the time being in force and in
case of non-requirement of such certificate from such authority, from any of the following,
namely:-

(i) an architect registered with the Council of Architecture constituted under the Architects
Act, 1972 (20 of 1972); or

(ii) a chartered engineer registered with the Institution of Engineers (India); or

(iii) a licensed surveyor of the respective local body of the city or town or village or
development or planning authority;

(2) the expression "construction" includes additions, alterations, replacements or re

modelling of any existing civil structure;

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customization, 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 as defined in clause (119) of section 2; 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.

 SCHEDULE III
Activity or Transaction which shall be treats as neither as 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 Specified actionable claims.

7. Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.

8. (a) Supply of warehoused goods to any person before clearance for home consumption;

(aa) supply of goods warehoused in a Special Economic Zone (SEZ) or Free Trade
Warehousing Zone (FTWZ) to any person before clearance of such goods for exports or to
the Domestic Tariff Area, shall be treated neither as supply of goods nor as supply of
services.

(b) Supply of goods by the consignee to any other person, by endorsement of documents of
title to the goods, after the goods have been dispatched from the port of origin located
outside India but before clearance for home consumption.

9. Activity of apportionment of co-insurance premium by the lead insurer to the co-insurer

for the insurance services jointly supplied by the lead insurer and the co-insurer to the
insured in co-insurance agreements, subject to the condition that the lead insurer pays the
central tax, the State tax, the Union territory tax and the integrated tax on the entire
amount of premium paid by the insured.

10. Services by insurer to the reinsurer for which ceding commission or the reinsurance
commission is deducted from reinsurance premium paid by the insurer to the reinsurer,
subject to the condition that the central tax, the State tax, the Union territory tax and the
integrated tax is paid by the reinsurer on the gross reinsurance premium payable by the
insurer to the reinsurer, inclusive of the said ceding commission or the reinsurance
commission.]
 Explanation 1.-For the purposes of paragraph 2, the term "court" includes District Court,
High Court and Supreme Court.

Explanation 2.- For the purposes of paragraph 8, the expression "warehoused goods" shall
have the same meaning as assigned to it in the Customs Act, 1962 (50 of 1962).]

RELATED PERSON
As per Section 15(5) of the CGST Act, 2017, "related persons" are defined in accordance
with the rules prescribed under the GST law. These relationships are important to determine
the value of supply in transactions between related parties, which is often scrutinized to
prevent tax evasion.

Who are Related Persons?

Two or more persons are deemed to be related if:

1. Officers or Directors: They are officers or directors of one another’s businesses.

2. Partners: They are legally recognized partners in business.
3. Employer-Employee Relationship: One person is an employer, and the other is an
employee (whether current or former).
4. Ownership/Control: Any person directly or indirectly owns, controls, or holds 25% or more
of the shares or voting rights in both entities.
5. Control by One Entity: One person directly or indirectly controls the other.
6. Control by a Third Party: Both persons are directly or indirectly controlled by a third
person.
7. Family Members: They are members of the same family.
8. Sole Agent/Distributor: One person is the sole agent, sole distributor, or sole
concessionaire of the other.

FAMILY
The term "family" is specifically defined under Section 2(49) of the CGST Act, 2017.
Family includes-

1. Spouse and children.

2. Parents, grandparents, brothers, and sisters of the person if they are wholly or mainly
dependent on the said person
DISTINCT PERSON
Under Section 25(4) and 25(5) of the CGST Act, 2017, a distinct person refers to a
scenario where a single entity has multiple registrations in different states or Union
Territories, or where branches or units of the same entity have separate GST
registrations. These entities are treated as distinct persons for GST purposes.

Key Highlights:

1. Separate GST Registration in Different States or Union Territories:

If a person obtains a separate registration for establishments in different states
or Union Territories, each such establishment is treated as a distinct person
under GST.
2. Impact on Inter-Branch Transactions:
Transactions between such branches or units located in different states or
Union Territories are treated as inter-state supplies and are taxable, even if no
consideration is involved. However question may be arise how to calculate GST
if no consideration is involved. For this issue value of supply (VOS) provide
specific rule to calculate value of these transactions and calculate GST
3. Distinct Persons for Different Registrations:
When a single legal entity has multiple GST registrations (even within the same
state for distinct verticals of business), each registered entity is treated as a
distinct person.
4. Example:
If Company X has GST registrations in Maharashtra and Karnataka, these
registrations are treated as distinct persons. Any transfer of goods or services
between these locations would be subject to GST.

CROSS CHARGE VS ISD

Cross Charge
Cross Charge refers to the practice where services provided by one branch or unit of an
organization to another are treated as supplies under GST. This is particularly relevant for
internally generated services such as accounting, human resources, IT support, and
management services. Since branches in different states are considered distinct persons under
GST, any supply of services between them is taxable, even if no consideration is exchanged. The
valuation for such cross charges is typically determined based on the open market value of
similar services or cost plus a certain percentage, as prescribed under Rule 28 of the CGST
Rules.

ISD
An Input Service Distributor is an office of an organization that receives invoices for input
services and distributes the input tax credit (ITC) to its branches or units having the same
Permanent Account Number (PAN). The ISD mechanism is used when services are procured
centrally but utilized across multiple locations. The ISD issues an ISD invoice to distribute the
ITC appropriately to the consuming units, ensuring that the credit is utilized in the correct
proportion.

Note - Concept of cross charge is not define under GST, however this concept drive from
schedule I, supply of goods or services or both between related persons or between distinct
persons even without consideration.

Scenario till 31.3.2024 -

Till 31.3.2024, most business use the method of cross charge for all supplies i.e. procured from
third party as well as internally generated services. Circular No. 199/11/2023-GST dated 17
July 2023 also clarify that ISD registration is not mandatory in all cases.

Why most entity prefer cross charge instead of ISD?

ISD required a separate registration in GST (along with normal registration), also
ISD need to file GSTR 6 to distribute common input. Also under ISD ITC is

distributed on the basis of turnover. On the other hand under cross charge only an
invoice is required to distribute expenses and expenses can be distributed on the
basis of open market value. Due to these reason cross charge is always use to
distribute common input services [We will discuss more about ISD in upcoming
sessions]

However in 50th GST Council meeting it is recommend that “to clarify through a circular that
Input Services Distributor (ISD) mechanism is not mandatory for distribution of input tax credit
of common input services procured from third parties to the distinct persons as per the present
provisions of GST law, and also to clarify issues regarding taxability of internally generated
services provided by one distinct person to another distinct person. The Council has also
recommended that amendment may be made in GST law to make ISD mechanism
mandatory prospectively for distribution of input tax credit of such common input services
procured from third parties”. Now in certain cases it is mandatory to distribute ITC through
ISD mechanism only

Amendment w.e.f 1.4.2024

After the recommendation of 50th GST Council meeting, amendment came in Finance Act,
2024 to amend the definition of ISD and provision of sec 20 [Manner of distribution of credit by
Input Service Distributor] w.e.f 1.4.2024

Services procured from third party - In case of services procure from third party it is now
mandatory to distribute the same through ISD channel only and cross charge method
cannot use in this case. Some important point need to consider are as follows-
Separate GST required for ISD
Input service invoice must be in GSTIN of ISD
GSTR 6 to be file to transfer ISD input
Input shall be distribute as per 39 [we will discuss this in ISD chapter]

Internally Generated Services - Internally generated services are still out of the scope of
ISD and hence cross charge can apply on same on the basis of open market value.
 ISD also apply on transfer of GOODS to branch?
No, under GST ISD concept only apply on common input SERVICES, because
service doesn't involve moment of goods and it is difficult for government to track

these transactions and thus ISD concept is introduced to ensure better compliance
for distribution of common input services. On the other hand transfer of good
required delivery note, eway bill and other necessary document (even for branch
transfer) hence for common input goods doesn't required any separate mechanism
for ITC distribution.

ISD compliance is mandatory?

 ISD compliance is mandatory only if distribution of common input service procure
from third party. In case of internally generated common service ISD is not
required. Also if entity doesn't want to distribute common ITC then ISD compliance
is not required.

COMPOSITE & MIXED SUPPLY

(SEC 8)
1. Composite Supply: A composite supply consists of two or more goods or services, naturally
bundled and supplied together in the ordinary course of business. One of these is a principal
supply.

Taxation Rule: The tax rate applicable to the principal supply applies to the entire
composite supply.
Example: A hotel provides accommodation along with complimentary breakfast. The
principal supply is accommodation, and the breakfast is incidental. GST will be charged at
the rate applicable to accommodation services.

2. Mixed Supply: A mixed supply consists of two or more individual supplies of goods or
services made together for a single price. These are not naturally bundled.

Taxation Rule: The tax rate of the supply attracting the highest rate of GST applies to the
entire mixed supply.
Example: A gift pack containing chocolates, toys, and cakes sold for a single price is a
mixed supply. If chocolates attract the highest GST rate, that rate will apply to the entire
gift pack.
TYPE OF SUPPLY IN GST
Type of Supply Definition GST Rate Input Tax Examples
Credit (ITC)

Taxable Supply Supplies on which As per ITC Sale of goods

GST is levied and GST rate available for (e.g., electronics,
the supplier is (5%, 12%, inputs used furniture),
required to pay tax. 18%, 28%) in taxable consultancy
supply. services, rent, etc.

Exempt Supply Supplies specifically No GST ITC not Healthcare

exempted from available. services,
GST via education by
notifications. recognized
institutions, fresh
fruits and
vegetables.

Nil-Rated Supplies that 0% ITC not Fresh milk, grains,

Supply attract a GST rate available. salt.
of 0% as specified
in the GST rate
schedule.

Zero-Rated Supplies that 0% ITC Export of goods or

Supply attract no GST but (Exports & available, services, supplies
allow claiming of SEZs) refund to SEZ units or
ITC and refund. claimable. developers.

Non-Taxable Supplies that are No GST ITC not Alcohol for human
Supply outside the scope available. consumption,
of GST. petroleum crude,
diesel, petrol
(currently
excluded from
GST).

Composite A combination of GST rate ITC Sale of a laptop

Supply two or more of the available for with a charger, air
naturally bundled principal the principal travel with in-flight
supplies made supply. supply. meals.
together.
 Mixed Supply A combination of Highest ITC Gift hampers
two or more GST rate available for containing
supplies made among eligible chocolates, soft
together for a single items in items. drinks, and wine.
price, not naturally the supply.
bundled.

TURNOVER VS SUPPLY
SUPPLY
As already discussed above. It defines the taxable event under GST. Without a supply, GST
cannot be levied. Supply help to determine whether GST liability arises on a transaction.

TURNOVER
Turnover is not defined under GST Act. However sec 2(6) define “aggregate turnover” means
the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is
payable by a person on reverse charge basis), exempt supplies, exports of goods or services or
both and inter-State supplies of persons having the same Permanent Account Number, to be
computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax
and cess;

“Aggregate turnover” in GST is generally used for determination of

Registration in GST,
Eligibility of composition scheme,
GSTR 9 Filing,
 For opting QRMP scheme,
HSN number reporting on invoice
e invoicing applicability, etc.

Now lets discuss turnover and supply in different domain like GST, Accounting and Income Tax.


Practical Example 1
Focused where GST taxable supply is less than actual turnover

Mr. Abhinav have a restaurant where alcohol and food both are served during last year
alcohol sale was 2.5 crore and food sale was 3 crore.

The example involving Mr. Abhinav's restaurant highlights how the treatment of alcohol and
food sales differs under GST, accounting standards, and income tax laws. Here’s a detailed
explanation:

1. GST Perspective

Nature of Supplies:
Food Sale (₹3 crore): Considered as a restaurant service under Para 6 of Schedule II of
the CGST Act. It is taxable under GST.
Alcohol Sale (₹2.5 crore): Alcohol for human consumption is non-taxable under GST
and falls outside the scope of GST as per Section 9(2) of the CGST Act.
GST Treatment:
Taxable Turnover: ₹3 crore (food sales only).
GST Liability: GST is levied only on food sales.
Non-Taxable Turnover: ₹2.5 crore (alcohol sales are not considered for GST purposes).

2. Accounting Perspective

Business Turnover:
From an accounting standpoint, total business turnover includes all revenues generated
by the business, irrespective of taxability.
Thus, both alcohol and food sales are combined.
Total Turnover: ₹3 crore (food) + ₹2.5 crore (alcohol) = ₹5 crore.
Disclosure:
For financial reporting, alcohol and food sales may be disclosed separately for clarity but
will collectively reflect the total turnover of ₹5 crore in the financial statements.

3. Income Tax Perspective

Taxable Income:
The total turnover of the business under income tax laws includes all revenues,
regardless of whether the supply is taxable under GST.
Total Turnover: ₹5 crore (food + alcohol sales).
 Deductions/Taxability:
Expenses incurred to generate this turnover (e.g., cost of goods sold, salaries, rent)
can be claimed as deductions.
Taxable income will be calculated on the net profit (total turnover minus allowable
deductions).

Key Differences Across Perspectives

Aspect GST Perspective Accounting Income Tax

Perspective Perspective

Turnover ₹3 crore (only ₹5 crore (total ₹5 crore (total

taxable supplies). business revenue). business revenue).

Tax Applicability GST applies to ₹3 Not relevant to Income tax applies

crore (food only). GST; total is ₹5 to total net profit.
crore.

Alcohol Sales Excluded (non- Included (part of Included (part of

taxable). turnover). turnover).

Conclusion

GST: ₹3 crore is considered taxable turnover, and GST applies only to food services.
Accounting: The total business revenue is ₹5 crore, including both taxable (food) and non-
taxable (alcohol) supplies.
Income Tax: The total turnover is ₹5 crore, with tax computed on the net income after
deductions.

This distinction is important for proper compliance under each law and ensures accurate
reporting and payment of taxes.


Practical Example 2
Focused where GST taxable supply is more than actual turnover

Here's a detailed example with figures illustrating the scenario where GST supply is higher than
actual turnover due to branch transfers:

Scenario
eFileEase Private Ltd. operates a centralized kitchen in Delhi that supplies food to its outlets
located in Delhi, Gurugram (Haryana), and Noida (Uttar Pradesh). The company has 3 GST
registrations (GSTINs):

1. Delhi GSTIN.
2. Haryana GSTIN.
3. Uttar Pradesh GSTIN.

Data

Centralized Kitchen Distribution of Food

Region No. of Outlets Food Transferred Sales by Outlets (₹)

from Kitchen (₹)

Delhi (same GSTIN) 5 ₹20,00,000 ₹50,00,000

Gurugram (Haryana 2 ₹10,00,000 ₹25,00,000

GSTIN)

Noida (UP GSTIN) 4 ₹15,00,000 ₹40,00,000

Analysis

SUPPLY TURNOVER

Delhi 7500000 5000000

Haryana 2500000 2500000

Noida 4000000 4000000

IN ABOVE TWO EXAMPLE WE CAN CONCLUDE THAT IT IS NOT ALWAYS NECESSARY THAT
GST SUPPLY AND ACCOUNTING TRUNOVER MATCH. HENCE A RECONCILIATION MAYBE
REQUIRED IN CASE OF ANY DIFFERENCE.