The Taxable event in GST – “Supply”

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Accountants of India may not necessarily subscribe to the views expressed by
the author(s).
The information cited in this article has been drawn from various sources. While
every effort has been made to keep the information cited in this article error free,
the Institute or any office of the same does not take the responsibility for any
typographical or clerical error which may have crept in while compiling the
information provided in this article.

Taxable event is that event, happening of which attracts liability to tax. Taxable
event is a very important event in any law as the levy and collection of tax is based
on the happening of the taxable event. Although, the taxable event happens to be
at a particular point of time, the levy and collection of such tax may be postponed
for administrative convenience, to a later date.
The Article 366 (12A) of the Constitutional (101st Amendment) Act, 2016 defines
“Goods and Services Tax” as any tax on supply of goods, or services or both,
except for taxes on the supply of the alcoholic liquor for human consumption.
The taxable event in GST is supply of goods or services or both. Therefore,
supply will hold the greatest significance and shall be an important event in
determining the taxability of all transaction whether commercial or otherwise
under the GST regime.
The term, “supply” has been inclusively defined in the Act. Supply 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 a
consideration by a person in the course or furtherance of business. Supply also
includes: import of services for a consideration whether or not in course of
furtherance of business, the activities specified in schedule I (without
consideration) and the activities as referred in schedule II. Though these terms
are not defined in the Act, dictionary meaning of the same are elaborated below:

Sale Transferring the property in goods from one to another, upon

valuable consideration.
Transfer Any transfer of goods or right in goods or of undivided share in
goods without transfer of title thereof.
Barter To exchange one commodity for another without use of money.
Exchange To swap, to part with, give or transfer for an equivalent with
the use of money.
Licence Permission granted by competent authority to exercise certain
privileges without such authorization the activity would have
constituted as an illegal act.
 Rental Periodical payment for the use of another property.
Lease Contractual agreement by which one party conveys an estate
in property to another party, for a limited period, subject to
various conditions, in exchange for something of value, but still
remain ownership.
Disposal To pass or into the control of someone else; to alienate, bestow,
or part with.

The meaning and scope of supply under GST can be understood in terms of
following five parameters, which can be adopted to characterize a transaction as
supply:

1. Supply of goods or services. Supply of anything other than goods or services

does not attract GST
2. Supply should be made for a consideration
3. Supply should be made in the course or furtherance of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply.

While these five parameters describe the concept of supply, there are a few
exceptions to the requirement of supply being made for a consideration, in
the course or furtherance of business and made by a taxable person.

1. Supply of Goods or Services or Both

Section 2(52) of CGST Act 2017 defines “goods” means every kind of movable
property other than money and securities but includes actionable claim, growing
crops, grass and things attached to or forming part of the land which are agreed to
be severed before supply or under a contract of supply.

Section 2(102) of CGST Act 2017 defines “services” means anything other than
goods, money and securities but includes activities relating to the use of money or
its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate
consideration is charged.

Schedule II (read with section 7) 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.

The Government may notify the transactions that are to be treated as -

 Supply of goods and not as a supply of services; or
 Supply of services and not as a supply of goods.
Further Schedule III (read with section 7) to the CGST Act, 2017 specifies activities
which shall be treated as neither supply of goods nor supply of services or outside
the scope of GST. This includes:

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

employment.
 Services by any court or tribunal (time being in force).
 Services by MPs, MLAs, Panchayats, Municipalities and member of other local
authorities.
 The duties performed by any person who had any post in pursuance of the
provisions of the constitution in that capacity.
 Services of funeral, burial, crematorium or mortuary including transportation
of the deceased.
 Sale of land (subject to clause (b) of paragraph 5 of schedule II) and sale of
building where the entire consideration has been received after completion
certificate is issued or after its first occupation.
 Actionable claims are included in the definition of goods, however, Schedule III
provides that actionable claims other than lottery, betting and gambling shall
be neither goods nor services.
 The 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. Accordingly, it has been notified that the Central Government or State
Government or any local authority in which they are engaged as public
authority, by way of any activity in relation to a function entrusted to a
Panchayat under article 243G of the Constitution is neither a supply of goods
nor a supply of service.

2. Supply for Consideration

Section 2(31) of CGST Act 2017 defines “consideration” in relation to the supply of
goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of,
in response to, or for the inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall not include any subsidy
given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for
the inducement of, the supply of goods or services or both, whether by the recipient
or by any other person but shall not include any subsidy given by the Central
Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both
shall not be considered as payment made for such supply unless the supplier
applies such deposit as consideration for the said supply.

However, there are exceptions to the requirement of ‘Consideration’ as a pre-

condition for a supply to be called a supply as per GST. As per schedule I to CGST
Act, 2017, activities as mentioned below shall be treated as supply even if made
without consideration:

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

3. Supply in the Course or Furtherance of Business

GST is essentially a tax only on commercial transactions. Hence, only those
supplies that are in the course or furtherance of business qualify as supply under
GST. Hence, 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 as
defined in the Act.

Section 2(17) of CGST Act 2017 defines “business” includes––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or
any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-
clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is
volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection
with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or
any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted
by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker
in such club; and
(i) any activity or transaction undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public authorities.

No definition or test has been specified to find out whether the activity is in the
course or furtherance of business. However, the following business test is
normally applied to arrive at a guiding factor about whether it is in the course or
furtherance of business or not:
i. Whether the activity is seriously and earnestly pursued?
ii. Whether the activity is pursued with reasonable or recognizable
continuity?
iii. Whether the activity is conducted in a regular manner based on sound
and recognized business principles?
iv. Whether the activity is predominantly concerned with the making of
taxable supply for consideration/ profit motive?

However, there is one exception to this ‘Course or Furtherance of Business’ rule

i.e., import of services for a consideration. Thus, Supply includes import of
services for a consideration whether or not in the course or furtherance of
business. This implies that import of services even for personal consumption
would be considered as supply and consequently, would be liable to tax. Imports
of service shall be taxable on reverse charge basis, i.e, in the hands of the recipient
of service. The threshold limit clause shall not apply here.

4. Supply by a Taxable Person

Section 2(107) of CGST Act 2017 defines “taxable person” means a person who is
registered or liable to be registered under section 22 or section 24.

A supply to attract GST should be made by a taxable person. Hence, a supply

between two non-taxable persons does not constitute supply under GST. Even an
unregistered person who is liable to be registered is a taxable person. Similarly, a
person not liable to be registered but has taken voluntary registration and got
himself registered is also a taxable person. However, there is exception to this rule,
supply from a non-taxable person to a registered person in case of RCM will attract
GST.
Notification no.5/2017- Central Tax dated 19-06-2017, exempts a person who is
engaged in making only supplies of taxable goods or services or both on which
reverse charge applies, from obtaining registration under GST. Hence, to
conclude, a non-taxable person can also make a taxable supply in above scenario
(subject to section 9(3) of CGST Act).

It should be noted that GST in India is State-centric. Hence, a person making

supplies from different States needs to take separate registration in each State. A
person who has obtained or is required to obtain more than one registration,
whether in one State or Union territory or more than one State or Union territory
shall, in respect of each such registration, be treated as distinct persons for the
purposes of GST. Hence, a supply between these entities constitutes supply under
GST.

5. Taxable Supply

Section 2(108) of CGST Act 2017 defines “taxable supply” means a supply of goods
or services or both which is leviable to tax under this Act

For a supply to attract GST, the supply must be taxable supply. Taxable Supply
can be either Inter State Supply or Intra State Supply.

 Inter State Supply

Inter- State supply of goods means a supply of goods where the location of the
supplier and place of supply are in different States or Union territories, then IGST
has to paid. Imports, Supplies from and to SEZs are treated as deemed Inter-State
supplies.

 Intra State Supply

Intra State supply of goods means supply of goods where the location of the
supplier and the place of supply are in the same State or Union territory, then
CGST and SGST/UTGST has be paid.

Various types of supplies which are not liable to tax are :

 Exempt supply

Section 2(47) of CGST Act 2017 defines “exempt supply” means supply of any goods
or services or both which attracts nil rate of tax or which may be wholly exempt from
tax under section 11, or under section 6 of the Integrated Goods and Services Tax
Act, and includes non-taxable supply.
Thus, it can be construed that an Exempted supply includes three types of supply:
 Supply attracting Nil Tax rate
 Wholly Exempt under Section 11 of the CGST Act or section 6 of the IGST act.
 Non-taxable Supply

It is pertinent to note that :

 Definition of Aggregate Turnover includes Exempt Supply.
 Input Tax Credit is not available in case you have an Exempt outward Supply.

Notification no.02/2017 – Central Tax (Rate) dated 28-06-2017 as amended are

exempted goods and its supply is Exempt Supply. Notification no.12/2017 –
Central Tax (Rate) dated 28-06-2017 as amended are exempted services and its
supply is exempted supply.
Example: To list a few – Milk, Fruits, Vegetables, Pure Services provided to
Government, Services by way of health care services etc.

 Non-taxable supply

Section 2(78) of CGST Act 2017 defines “non-taxable supply” means a supply of
goods or services or both which is not leviable to tax under this Act or under the
Integrated Goods and Services Tax Act.

Example : Alcoholic liquor for human consumption, Petroleum products etc.

 Nil rated supplies

Such Supply of goods or services which attracts nil rate of tax. It is Pertinent to
note that, there is not a single good specified in the tariff schedule of GST at Nil
rated. However, there is one entry in List of Services.

As per notification no.11/2017 – Central Tax (Rate) dated 28-06-2017, there is

only one entry (heading 9972 is also nil entry) notified nil rated (heading 9986).
Example : Services notified nil rated are:

(i) Support services to agriculture, forestry, fishing, animal husbandry.

(ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail
packing, labelling of fruits and vegetables which do not change or alter
the essential characteristics of the said fruits or vegetables.
(iii) Carrying out an intermediate production process as job work in relation
to cultivation of plants and rearing of all life forms of animals, except the
rearing of horses, for food, fibre, fuel, raw material or other similar
products or agricultural produce.
  Zero-rated supplies

“zero-rated supply” shall have the meaning assigned to it in section 16 of IGST Act.
As per Section 16. (1) “zero rated supply” means any of the following supplies of
goods or services or both, namely:––
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer
or a Special Economic Zone unit.

The main point to note is that Input Tax credit is available in case of zero –rated
Supply even if the supplies are exempt. It means that if exempt supply made in
India, Input Tax Credit not available but same exempt supply exported then Input
tax credit available.

Example: Consultancy Services by Indian Consulting firm to overseas entity,

payment for which is received in foreign currency, Sale of goods from a supplier
in India to a person in Germany etc.

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Acknowledgements
We thank CA Madhulika Jain for drafting this article and CA. Sachin Kumar Jain
for reviewing the same. For any queries, you may connect with CA Madhulika Jain
at [email protected].
- Indirect Taxes Committee