Supply

Meaning and Scope

 The taxable event and incidence of tax
 The incidence of tax is the foundation stone of any taxation system.
 It determines the point at which tax would be levied, i.e. the taxable event.
 So, an event happening of which results in levying of tax is taxable event.

 In the era of excise duty, taxable event was manufacturing of goods

 Under service tax, taxable event was provision of service

 The main ambiguities and controversies related to the above taxable events were:
 whether a particular process amounted to manufacture or not
 whether the sale was pre-determined sale
 whether a particular transaction was a sale of goods or rendering of services etc.

 The GST laws resolve these issues by laying down one comprehensive taxable event i.e. “Supply”
 Under GST regime, taxable event is the supply of goods or services or both by a person
Who is a person under GST?
 Who is a Taxable Person?

To attract GST, supply is to be made by a taxable person. Taxable person means:-

 A person who is registered or liable to be registered
 A person who is not liable to be registered but has taken voluntary registration
 A person who is liable to be registered but has not taken registration

Points to Remember
 Supply by a non-taxable person to a non-taxable person is not subject to GST
 Supply by a taxable person to a non-taxable person may be subject to GST
 Supply by a non taxable person to a taxable person may be subject to GST under Reverse Charge
Mechanism (RCM)
Supply
 Meaning of Goods

As per section 2(52) of CGST Act, goods mean

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 agreed to be severed before supply or under a contract of supply.

Securities include:- shares, scrips, stocks, bonds, debentures, derivatives, government securities
etc.
In the above definition actionable claims include only lottery, betting and gambling and shall be
treated as supplies. All the other actionable claims shall not be supplies.
 Meaning of Services

As per section 2(102), services are defined as anything other than goods, money and
securities.

Services include an activity 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 as separate consideration is charged.
Transactions only in money shall not be considered as service and not chargeable to GST.
Examples:
Bank Deposit (Not a Service)
Demand Draft (Service)
Exchange of currency with foreign exchange dealer (Service)
 Meaning of Supply

As per section 7(1) of CGST 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 Taxable person in the
course or furtherance of business
 Import of services, for a consideration whether or not in the course or furtherance of business
 A supply specified in Schedule I, made or agreed to be made without a consideration
 Deemed supply (activities specified in Schedule II are treated as supply or deemed as supply)

 But, supply excludes negative list of services (Section 7(2) + Schedule III)
 Parameters of Supply
 Supply of anything other than goods or services does not attract GST

 Supply should be made for a consideration

Example: Suppose Mr. Ram provides free coaching service to Mr. Shyam, in such case there is no supply due to
lack of consideration

 Supply should be made in the course or furtherance of business

Example: Manish buys a mobile phone for his personal use and after six months sells it to a mobile dealer. Sale of
mobile by Manish to mobile dealer is not a supply under CGST Act because supply is not made by Manish in the
course or furtherance of business.

 Supply should be made by a taxable person

 Supply should be a taxable supply

 Supply should be made within the taxable territory

 Supply Includes
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.

To swap, to part with, give or transfer for an equivalent with the use of money. (When a new Mobile worth Rs
10,000 is purchased in exchange of an old Mobile along with the monetary consideration of Rs 2,000 paid for the
Exchange
said purchase. This is an example of exchange.)

Permission granted by competent authority to exercise certain privileges without such authorization the activity
Licence would have constituted as an illegal act.

Rental Periodical payment for the use of someone else’s property.

Lease Contract to allow right to use for a period without transfer of title.

Disposal To pass or into the control of someone else; to alienate, bestow, or part with.
 Schedule III Negative List
Neither supply of goods nor supply of services

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

Note: A gift by an employer to an employee not exceeding Rs 50,000 in a financial year is not a supply. However, any gift which
is not a part of employment contract but exceeding Rs 50,000 is treated as supply.

b. Services by any Court or Tribunal established under any law for the time being in force
c. Functions performed by Members of Parliament/State
Legislature/Panchayat/Muncipality/Local authorities, or any other person who holds any post in
pursuance of the provisions of the Constitution in that capacity
d. Services of funeral, burial, crematorium or mortuary including transportation of the deceased
e. Sale of land and sale of full constructed building / Part of it (Under construction buildings / Part
of it is subjected GST)
f. Actionable claims other than lottery, betting and gambling
 Activities treated as Supply under Schedule I even if there is no consideration

1. Permanent transfer/disposal of business assets:

 Supply is made by a taxable person to a taxable/non-taxable person
 Supply involves permanent transfer of business assets or permanent disposal of business assets
 The supplier has availed input tax credit in respect of the aforesaid supply
Example: Mr. Raghav, a dealer in garments has given few garments in his shop to a charitable trust free of
cost. However, he already availed input tax credit on those garments. It is considered as supply and is subject to
GST.
2. Supply between related persons or distinct persons: Provided that such supply is made in the course or
furtherance of business
Related persons: Supply of goods between principal and agents (The provision is not applicable to supply of
services between principal and agent)
Distinct Persons: Multiple registration by the same company (Distinct persons are persons with different
GSTINs belonging to one legal entity (single PAN) situated within the same state or in two different states or in a
different country)
Example: A textile company which has manufacturing unit in Ahmedabad has branches in Bangalore,
Mumbai and Hyderabad. Hence, total number of registrations is 4. Head office and branches have different
GSTINs, hence are treated as distinct persons. Head office in Ahmedabad sent garments worth Rs
10,00,000 to branch office in Hyderabad for retail sale. Such a transfer, even if there is no consideration, is
treated as supply. Head office charges GST and branch office claims ITC on the same.
 Activities treated as Supply under Schedule I even if there is no consideration

3. Import of Services
It covers import of services if the following points are satisfied-
 Service is imported by a taxable person
 It is imported from a related person i.e. from any of his other establishments outside India
 Such service is imported in the course or furtherance of business

Such an import is treated as supply even without consideration

• Example: A software company in Bangalore imports a mobile app from its branch office in
Malaysia for which no consideration is paid. Such import is treated as supply and is subject to GST.
• Example: Ram, a proprietor, has received the architect services for his house from an architect
located in New York at an agreed consideration of $ 5,000. The import of services by Ram is supply
under section 7(1)(b) though it is not in course or furtherance of business.
 Import of Services

Either consideration or furtherance of business is required to be considered as

supply of service
 Activities or transactions treated as supply of goods under Schedule II

i. Transfer of title in goods: Any transfer of title in goods is supply of goods.

Example: Sale of Mobile Phone by the dealer of Samsung is supply of goods, as title in goods in
transferred.
ii. Transfer of title in goods under a forward contract: Any transfer of title in goods
under an agreement which specifies the transfer on a future date upon full payment of
consideration is supply of goods.
Example: On October 30, 2019 Mr. Subhash, a dealer in ceramic tiles enters into an agreement
with a builder to sell 3,000 units of tiles on December 3, 2019 at Rs 300 per unit. Title of ceramic
tiles will be passed on to the builder on December 3, 2019 when full consideration is paid.
iii. Transfer of business assets: When goods forming part of the assets of a business
transferred or disposed, whether or not for a consideration is a supply of goods.
Example: Mr. Sushanth buys a computer for business use and after six months sells it to a
computer dealer for consideration. It is supply of goods. The rule remains the same even if it is
made for no consideration.
 Activities or transactions treated as supply of goods under Schedule II

iv. Where any person ceases to be a taxable person, any goods forming part of the assets 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;
the business is transferred as a going concern to another person; or
the business is carried on by a personal representative who is deemed to be a taxable person
  Example: Mr. Krish who was in the business of mobile sets. He closes his business on October 31, 2019 and
ceases to be a taxable person immediately under GST. On that day, the closing stock in his business was of
50 sets of Samsung and 30 sets of Redmi. The value of the stock was Rs 10,00,000. These goods are deemed
to have been supplied by Mr Krish in the course of business. However, this rule is not applicable if Mr Krish
transfers the business to another person as a going concern or Mr Krish carried on the business as a personal
representative of someone else.
v. Supply of goods by Association of person or body of Individuals ( AoP/BoI) to its members
Example: Nizam club in Hyderabad supplies sports items to its members for a consideration. It is treated as
supply of goods.
 Activities or transactions treated as supply of services under Schedule II

i. Transfer of right in goods: Any transfer of right in goods (or undivided share in goods) without transfer of title in goods
is supply of services and is subject to GST.
Example: PC rental services rents its computer to high school students. The transaction is treated as supply of services, as
it involves only the transfer of right in goods not transfer of title in goods.
ii. Lease, tenancy, easement or license to occupy land: Any lease, tenancy, easement or license to occupy land is supply of
service.
Example: Mr Roy, owner of an agriculture land leases his land to Mr. Chatterjee for non-agricultural purpose for a period
5 years for a consideration of Rs 30 lakhs per year.
iii. Letting out of building: Any lease or renting a commercial/residential building complex for business is supply of service.
Example: Mr. Resham, owner of a commercial complex leases to Bajaj Electricals on a monthly lease rent of Rs 25 lakhs
for a period of 6 years.
iv. Treatment or process: Treatment or process applied to another person’s goods is a supply of services. Such treatment is
considered as job work.
Example: A readymade garments manufacturing firm sends garments to a tailor for embroidery work for a consideration of
Rs 100 per garment. The embroidery work done by the tailor is supply of service. The clause remains the same, even if the
tailor buys garment material from outside.
 Activities or transactions treated as supply of services under Schedule II

v. Use of business goods for non-business use: When goods held for business purpose, upon the direction
of a person carrying on a business, are used for personal use, such transaction is supply of service. This is
rule is same whether the supply is made for consideration or not.
Example: X Ltd. Is a manufacturing company. Its shares are owned by X and his family members.
X Ltd owns 50 computers in its office. One of the computers (owned by X Ltd.) is given by X to his
friend Y for his personal use. Ownership is not transferred. No consideration is recovered from Y.
This is treated as supply of services by X Ltd. to Y.
Example: Mr. Ganguly, owner of Lucid Diagnostics services, has given Blood Pressure checking
machine to his friend, Mr. Lal for his personal use without any charge. It is supply of service.
Example: Z Ltd. Is a manufacturing company. MD of the company is Z. One of the cars owned by
the company is given to A (a friend of Z) for personal use to travel . As business asset is used by Z
Ltd. For non-business purposes, it is supply of service.
 Activities or transactions treated as supply of services under Schedule II

vi. Renting of immovable property: Renting of immovable property in general is treated as a

supply of service and is subject to GST. However, in the following cases, renting of
immovable property is exempted from GST.
 Renting of vacant land with or without a structure incidental to its use, relating to agriculture
 Renting of residential building for residential purpose
 Renting out of any property by a government or a local authority to a non-business entity
 Renting of a hotel, inn, guest house, club or commercial spaces meant for residential or
lodging purposes, with a tariff less than Rs 1000 per day

  Example: Mr. Souvick rents his flat for residential purpose. Not a supply of service
Example: Mr. Banerjee, owner of a function hall rents out for conducting a marriage
ceremony for five days. It is a supply of service and is subject to GST.
 Activities or transactions treated as supply of Services under Schedule II
vii. Construction of a complex, building, civil structure: The services provided by builders for construction of
a building, complex or civil structure is treated as a supply of service. However, if the consideration is
received after issuance of completion certificate by a competent authority or building’s first occupation
whichever is earlier.
Example: Shobha Developers constructs a residential complex in Bangalore. It received occupancy certificate from
municipality on October 16, 2019. However, buyers (Mr. Chand and Mr. Anil) occupied the complex from August 17,
2019. Mr Chand made payment of Rs 50,00,000 towards the purchase of building on July 12, 2019, whereas Mr.
Anil paid Rs 52,00,000 on September 13, 2019. Occupancy certificate was issued on October 16 but first occupancy
took place on August 17, the earlier of the two is August 17. Since Mr. Chand paid before August 17, the service
provided to him is treated as a deemed supply and are subject to GST. Whereas, Mr Anil paid after August 17, the
service provided to him is not deemed supply and is not subject to GST.

 viii. Temporary transfer of intellectual property right: Intellectual property rights such as copyright, patents,
trademarks, designs etc. are transferred temporarily, it is treated as deemed supply and is subject to GST.
Example: Mr. Madhavan owns a patent right to manufacture pollution free paper bags using dung. He temporarily
transfers his right to Mr. Kumar for a year against the payment of Rs 40 lakh. This transaction is deemed supply and
is subject to GST.
 Activities or transactions treated as supply of services under Schedule II
ix. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act: If a person agrees to the
obligation to refrain from an act, to tolerate an act or a situation or to do an act for a consideration, it is deemed supply and is subject to
GST.
Example: Mr. Abhishek and Mr Charan have garments business in Hyderabad. Mr. Charan agreed not to open his branch in Kukatpally
area where Mr Abhishek has his branch for a consideration of Rs. 22,00,000. Such an action is deemed as supply of service and is
subject to GST.
x.Transfer of the right to use any goods: Transfer of the right to use any goods for any purpose, for cash, deferred payment or other
valuable consideration is supply of service.
Example: Mr Ram has given his car to his friend for personal use against the payment of certain amount. It is supply of service and is
subject to GST.
xi. Work contracts: Work contracts means a contract for construction of building, erection, installation of plant and machinery etc. It is
treated as a supply of service. However, most of the times it is a mix of goods and services. Under such cases, it is treated as a supply of
composite service.
Example: Mr. Achyut is involved in the renovation of commercial flats by employing material like sand, cement, bricks, labour etc. This
transaction is treated as composite supply of service and is subject to GST.
xii. Supply of food/other article for human consumption: Supply of goods (food or any other article for human consumption) or any drink
(other than alcoholic liquor for human consumption) for a cash consideration or any other valuable consideration including deferred
payment is supply of service or composite service.
Example: Swagath Grand, a family restaurant in Hyderabad provides home delivery of food to its customers. It is treated as supply of
service.
 Types of Supply
Particulars NIL Rated Supplies Non-Taxable Supplies Exempted Supplies Zero-Rated Supplies

Meaning Goods and services on Goods and services on Supplies which are Goods or services
which 0% GST is which GST is not levied exempt from payment which are exported or
applicable at all of GST supplied to SEZ

Input credit Not available  Not available Not available Available

availability

GST Falls within GST ambit Doesn’t fall within GST Falls within GST Falls within GST
applicability ambit ambit ambit

Example Hotel accommodation Supply of alcohol for Gandhi topi and Export of shoes to
with tariff below Rs. human consumption Khadi products sold South Africa
1,000 by KVIC
 Types of Supply

 Intra-state Vs. Interstate supplies

 Continuous supplies
A supply of goods which is provided or agreed to be provided on a recurrent basis, under a
contract and for which the supplier invoices the recipient on a period basis is continuous supply of
good. Such a supply may or may not be made by means of a wire, cable, pipeline or other
channels.
Continuous supply of services means a supply of services which is provided or agreed to be
provided on recurrent basis under a contract for a period exceeding 3 months with periodic
payment obligations.
 Types of Supply

Composite supply
Supply made by a taxable person to a recipient comprising two or more supplies of goods or services, 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.
The elements in a composite supply are dependent on the ‘principal supply’.
Principal supply means the supply of goods or services which constitutes the predominant element of a composite
supply and to which any other supply forming part of that composite supply is ancillary.
GST rate applicable on the principal supply shall be applicable to the entire consideration.
Example 1: A laptop is supplied along with MS Office, laptop bag and a warranty for 3 years for Rs. 50,000. Since
the principal supply is supply of laptop, the applicable tax rate to laptop is applicable to the entire consideration of
Rs.50,000.
Example 2: Suvarna Manufacturers entered into a contract with XYZ Ltd. for supply of readymade shirts packed
in designer boxes at XYZ Ltd.’s outlet. Further, Suvarna Manufacturers would also get them insured during transit.
In this case, supply of goods, packing materials, transport and insurance is a composite supply wherein supply of
goods is principal supply.
Example 3: When a consumer buys a television set and he also gets warranty and a maintenance contract with the
TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and
maintenance services are ancillary.
 Types of Supply
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.
The individual supplies are independent of each other and are not naturally bundled.
How to determine the tax liability on mixed supplies?
A mixed supply comprising of two or more supplies shall be treated as supply of that
particular supply that attracts highest rate of tax.

Example 1: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits,
aerated drink and fruit juices when supplied for a single price is a mixed supply. Such a supply is
treated as supply of the item with the highest GST rate. Hence, highest GST is applicable to the
entire consideration.

Example 2: A shopkeeper selling storage water bottles along with refrigerator. Bottles and the
refrigerator can easily be priced and sold independently and are not naturally bundled. So, such
supplies are mixed supplies.