SCOPE OF SUPPLY UNDER GST

In the GST regime, tax whether CGST, SGST or IGST is chargeable only when there is a “supply” of goods and/ or services. Thus it is imperative to understand the meaning of the term “supply”.

• Meaning and scope of “supply” is provided in Section 7 of the Central Goods and Services Tax Act/ State Goods and Services Tax Act, 2017. As per the provision, “supply” includes
  • All forms of supply of goods and/ or services such as: sale, transfer, barter, exchange, license, rental, lease, and disposal made or agreed to be made for a consideration by a person in the course of furtherance of business;
  • Import of services for a consideration;
  • Activities specified under Schedule I & II of the Act.

• Section 7(1)(c) r/w Schedule I, following transactions without consideration are covered within the four corners of “supply”:
  • Permanent transfer/ disposal of business asset;
  • Gifts upto fifty thousand rupees in value shall not be treated as supply of goods or services or both;
  • Supply of goods by a principal to his agent where agent undertakes to receive such goods on behalf of the principal or by agent to his principal where agent undertakes to receive such goods on behalf of the principal;
  • Import of service by a taxable person in the course of furtherance of business etc

• Schedule II to the CGST Act, 2017 lists a few activities which are to be treated as “supply of goods” or “supply of services”. For instance, any transfer of title in goods would be a supply of goods, whereas any transfer of right in goods without transfer of title would be considered as services. Further, certain activities where there might be debate whether the same is supply of goods or supply of services , it has been amply clarified vide this schedule such as:
  • Works contract is a composite “supply of service”;
  • Restaurant services is a “supply of service”;
  • Job work activity is a “supply of service” etc.
  • Supply of goods by any unincorporated association or a body of person to a member for consideration shall be treated as “supply of goods”.
• S. 7(2) provides for certain activities which shall be treated neither as a supply of goods nor a supply of services, they are:
  • Activities or transaction under Schedule III such as:
    • Services by an employee to the employer in the course of or in relation to his employment;
    • Services by any court or tribunal;
    • Any functions performed by the members of Parliament, members of state legislature, members of Panchayats etc;
    • Sale of land or sale of building;
    • Services of funeral, burial etc.
  • Activities or transactions undertaken by central government, state government or local authority in which they are engaged as public.
• Government may also by notification can recommend certain transaction to be treated a supply of goods or supply of service.
• In case of composite or mixed supply, tax liability shall be determined :
  • If one of the composite supply is principal supply then it shall be treated as a supply of such principal supply and rate of tax for the principal supply shall apply;
  • If there is a mixed supply comprising two or more supplies, then the rate of tax for the supply which attracts the highest rate of tax shall apply.
• Here, ‘it is imperative to note that most activities on a day to day business shall fall within the scope and meaning of supply’. Only in cases where the activities are specified to be neither a supply of service nor a supply of goods or are specifically exempted shall not be taxable. Thus, it must be taken care of that taxability of each and every transaction is duly considered and determined, irrespective of whether the same is an outward supply or is an inward supply. More to follow on inward supplies when we discuss upon reverse charge.

By TEAM GST LAW INDIA

Team ALA Legal

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