The entire scheme of the GST law revolves around the concept of supply. The charging section of the Act says that the tax will be charged on all "supplies" on goods/services made in the course of trade or commerce on the value prescribed in the Act. So it is the supply of goods/services which is the taxable event in the GST regime and the tax will be charged at the value and rate prescribed in the Act. In this paper we will try to examine the concept of supply, when it is considered supply and when the transaction is not considered as supply, time of supply and it’s valuation for the purpose of levy and collection of GST.
Section-3 of the GST Model Law defines the term supply and the same read as follows:
3. Meaning and scope of supply
(1) Supply includes -
(a) 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 consideration by a person in the course or furtherance of business,
(b) importation of services, for a consideration whether or not in the course or furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
(3) Notwithstanding anything contained in sub-section (1),
(a) activities or transactions specified in schedule III; or
(b) activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities as specified in Schedule IV, shall be treated neither as a supply of goods nor a supply of services.
(4) Subject to sub-section (2) and sub-section (3), the Central or a State Government may, upon recommendation 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; or
(c) neither a supply of goods nor a supply of services.
(5) The tax liability on a composite or a mixed supply shall be determined in the following manner -
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
The above said definition is an inclusive definition so any supply of goods/services for a consideration in furtherance of a business against consideration is considered to be a supply for the purpose of levy and collecting GST. So, in terms of section 3.1(a) the supply has to be against consideration in the course or furtherance of business.
Section 3.1 (a)(c) is a departure from the section 3.1(a) and in case of importation of service for a consideration is treated to be supply even if the same is not in the course or furtherance of business. The second departure is certain transactions are treated to be supply even if the same is done in the absence of consideration. These transactions are mentioned in schedule I and the same is read as follow:
SCHEDULE I
MATTERS TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION [IN TERMS OF CLAUSE (c) OF SUBSECTION (1) OF SECTION 3]
1. Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services between related persons, or between distinct persons as specified in section 10, when made in the course or furtherance of business.
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. Importation 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.
The above said is a significant departure from the earlier law because earlier consideration played important role in indirect taxation be it Central Excise Law or the Service Tax.
TIME OF SUPPLY OF GOODS/SERVICES:
As liability to pay the tax shall arise at the time of supply of goods/services, section-12 and 13 of the GST Model Law explain the time of supply. The section-12 and 13 of the GST Model Law read as follow:
12.Time of supply of goods
(1) The liability to pay CGST / SGST on the goods shall arise at the time of supply as determined in terms of the provisions of this section.
(2) The time of supply of goods shall be the earlier of the following dates, namely,-
(a) the date of issue of invoice by the supplier or the last date on which he is required, under section 28, to issue the invoice with respect to the supply; or
(b) the date on which the supplier receives the payment with respect to the supply:
PROVIDED that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess shall, at the option of the said supplier, be the date of issue of invoice.
Explanation 1.- For the purposes of clauses (a) and (b), the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.
Explanation 2.- For the purpose of clause (b), "the date on which the supplier receives the payment" shall be the date on which the payment is entered in his books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely—
(a) the date of the receipt of goods, or
(b) the date on which the payment is made, or
(c) the date immediately following thirty days from the date of issue of invoice by the supplier:
PROVIDED that where it is not possible to determine the time of supply under clause (a), (b) or (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.
Explanation.- For the purpose of clause (b), "the date on which the payment is made" shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.
(4) In case of supply of vouchers, by whatever name called, by a supplier, the time of supply shall be-
(a) the date of issue of voucher, if the supply is identifiable at that point; or
(b) the date of redemption of voucher, in all other cases;
(5) In case it is not possible to determine the time of supply under the provisions of sub-section (2), (3) or (4) the time of supply shall
(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed, or
(b) in any other case, be the date on which the CGST/SGST is paid.
13.Time of supply of services
(1) The liability to pay CGST/SGST on services shall arise at the time of supply, as determined in terms of the provisions of this section.
(2) The time of supply of services shall be the earlier of the following dates, namely:-
(a) the date of issue of invoice by the supplier or the last date on which he is required, under section 28, to issue the invoice with respect to the supply; or
(b) the date on which the supplier receives the payment with respect to the supply:
PROVIDED that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess shall, at the option of the said supplier, be the date of issue of invoice.
Explanation 1.- For the purposes of clauses (a) and (b), the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.
Explanation 2.- For the purpose of clause (b), "the date on which the supplier receives the payment" shall be the date on which the payment is entered in his books of accounts or the date on which the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely-
(a) the date on which the payment is made, or
(b) the date immediately following sixty days from the date of issue of invoice by the supplier:
PROVIDED that where it is not possible to determine the time of supply under clause (a) or (b), the time of supply shall be the date of entry in the books of account of the recipient of supply:
PROVIDED FURTHER that in case of ‘associated enterprises’, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.
Explanation.- For the purpose of clause (a), "the date on which the payment is made" shall be the date on which the payment is entered in the books of accounts of the recipient or the date on which the payment is debited in his bank account, whichever is earlier.
(4) In case of supply of vouchers, by whatever name called, by a supplier, the time of supply shall be-
(a) the date of issue of voucher, if the supply is identifiable at that point; or
(b) the date of redemption of voucher, in all other cases;
(5) Where it is not possible to determine the time of supply of services in the manner specified in sub-sections (2), (3) or (4), the time of supply shall
(a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or
(b) in any other case, be the date on which the CGST/SGST is paid.
If we examine the above said sections we find following facts regarding the time of supply:
a. The time of supply of goods/services will be date on which invoice is issued or supplier is supposed to issue the invoice in terms of section 28 of the Model GST Law or receipt of payment by the supplier in respect of supply, whichever is earlier.
b. If the tax is to be paid on the supply under reverse charge, the time of supply shall be earliest date on which the goods is received or payment is made or 30 days from the date of issue of invoice by the supplier.
c. Regarding supply of vouchers the time of supply will be date of issue of vouchers or date of redemption of vouchers.
VALUE OF TAXABLE SUPPLY:
Section 15 of the Model GST Law says that the value shall be transaction value i.e. price actually paid or payable for the said supply of goods/services where the supplier and the recipient of the supply are not related and price is the sole consideration for the supply. The value of supply shall include taxes, cess, fees etc. in terms of section 15(2) and exclude discount in terms of section 15 (3) of the Model GST Law. Section 15(2) and (3) of the Model GST Law read as follow:
Value of taxable supply
…………………….
(2) The value of supply shall include:
(a) any taxes, duties, cesses, fees and charges levied under any statute, other than the {SGST Act/the CGST Act} and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services;
(c) incidental expenses, such as, commission and packing, charged by the supplier to the recipient of a supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or, as the case may be, supply of the services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central and State governments; Explanation.- The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount that is given:
(a) before or at the time of the supply provided such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, provided that:
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit has been reversed by the recipient of the supply as is attributable to the discount on the basis of document issued by the supplier.
NOT TO BE TREATED AS SUPPLY:
The Model GST Law also enumerates certain activities or transactions which are not considered either as supply of goods or as supply of services. The list of such activities or such transactions is mentioned in schedule III & schedule IV of the Model GST Law. In fact most of these entries were part of the exemptions earlier given in the field of indirect taxation and it appears that government has decided to continue with some these exemptions. Schedule III & schedule IV of the Model GST Law are as follows:
SCHEDULE III
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A 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 by a foreign diplomatic mission located in India.
5. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
SCHEDULE IV
ACTIVITIES OR TRANSACTIONS UNDERTAKEN BY THE CENTRAL GOVERNMENT, A STATE GOVERNMENT OR ANY LOCAL AUTHORITY WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services provided by a Government or local authority to another Government or local authority excluding the following services:
(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services;
(ii) services in relation to an aircraft or a vessel , inside or outside the precincts of a port or an aircraft; or
(iii) transport of goods or passengers.
2. Services provided by a Government or local authority to individuals in discharge of its statutory powers or functions such as-
(i) issuance of passport, visa, driving license, birth certificate or death certificate; and
(ii) assignment of right to use natural resources to an individual farmer for the purpose of agriculture.
3. Services provided by a Government or local authority or a governmental authority by way of:
(i) any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution;
(ii) any activity in relation to any function entrusted to a Panchayat under article 243 G of the Constitution;
(iii) health care; and
(iv) education.
4. Services provided by Government towards-
(i) diplomatic or consular activities;
(ii) citizenship, naturalization and aliens;
(iii) admission into , and emigration and expulsion from India;
(iv) currency , coinage and legal tender , foreign exchange;
(v) trade and commerce with foreign countries , import and export across customs frontiers , interstate trade and commerce; or
(vi) maintenance of public order.
5. Any services provided by a Government or a local authority in the course of discharging any liability on account of any tax levied by such Government or authority.
6. Services provided by a Government or a local authority by way of -
(i) tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract; or
(ii) assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016:
PROVIDED that the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource:
7. Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import or export of cargo on payment of Merchant Overtime Charges (MOT).
8. Services provided by Government or a local authority by way of-
(i) registration required under any law for the time being in force; or
(ii) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force.
Definitions:
1. Governmental Authority means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W or a Panchayat under article 243G of the Constitution.
2. Health care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.
3. Education services means services by way of - i) pre-school education and education up to higher secondary school or equivalent; ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force; or iii) education as a part of an approved vocational education course.
As I said earlier being a new law GST needs kind attention of the assesses and also of the kind attention of the implementing authorities. Let us give due care to the new law which is a ray of hassle free transactions on the horizon of business.
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