Tick...Tick...Tick...Add to Cart...Type Address....Payment on delivery Select.......Online Sales; Ting tong…Pizza at Home.........Home Delivery; Bring your Old Refrigerator and Get a new one.....Exchange; Ola, Uber, Swadeshi, Ixigo, Zoomcar..... Electronic Commerce Operator; Renting; Leasing……All these terms quoted above are some examples of Supply, which is going to be a taxable event in GST Regime.
GST as we all know is the 'Goods and Services Tax' has came in effect from the 1st of July 2017, a destination based consumption taxation which is introduced with an objective of eliminating the Cascading effect of taxation under current regime.
Earlier we were used to deal with the concept of Manufacturing for Excise Duty, Sale of Goods for VAT and Sales Tax and Provision of Services for Service Tax purposes, but, now the interesting fact is that with the application of GST we are to deal with only one Concept, i.e., the Concept of Supply.
It is important to know and understand the concept of supply, since, whether an activity is supply or not would only decide that the transaction should be covered under the ambit of GST or not.
Only after understanding the place & time of supply, GST Implications would attract. It is only when value of the supply transaction is determined which could be taxed under GST.
Therefore, it becomes a necessity in the process of understanding GST that what is SUPPLY?
Definition of Supply: Inclusions
In Common Parlance, Supply can be termed as everything or say every activity which includes movement but in Legal terms there is no definition of supply. Although, CGST Act has provided an inclusive definition of Supply under Section 7(1) which states that:
a) All forms of supply of goods or services or both 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
Analysis: This part of the definition would impact daily life of a common man. If we begin to analyse our routine life starting with early morning schedules, we wake up in the morning and brush and when we buy toothbrush and toothpaste from our nearby shop, it is the event of supply for the shopkeeper.
We freshen up; take bath; use utility services and the water supply we use for it is a continuous supply of service
By the time we get ready our mother get our food ready, but in this case supply of food is not going to be an event of supply for the purposes of GST because it is not for a consideration and also this activity of supplying food by our mothers is not being performed in the course or furtherance of business. Although, in case the same food is supplied to us in a restaurant or even the roadside dhaba, the same would be considered as supply for GST purposes since the same is for consideration as well as in the course of furtherance of business.
Now, a question arises that what do we mean by this term 'in the course of furtherance of business'? The term has not been defined under the GST Acts….but the term business has been provided with an inclusive definition under Sec.2 which includes within its ambit any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not for a pecuniary benefit whether or not there is volume, frequency or regularity of such transaction
This means that even if a person is engaged in a one time business transaction throughout his life then too provisions of GST would apply since it is attracted in the course of furtherance of business whether or not the transaction is frequent.
One more interesting point here is that….even license and disposal are also considered as supply. For example, the kabadiwala we usually come through in our streets on Sundays, that disposal of newpapers, scrap and loha peetal stuff would be covered by the ambit of GST yes but only when it is in the ordinary course of furtherance of business.
In existing taxation regime, for example, Service Tax, the taxable event known as Service is defined as 'any activity provided by one person to another for a consideration', but taxable event in GST Regime, i.e., supply, includes all forms of supply for a consideration by a person in the course of furtherance of business, i.e., it does not necessitates supply from one person to another, hence, even if we are making a supply to ourselves it may attract GST.
b) Import of services for a consideration whether or not in the course or furtherance of business
Analysis: It means that GST would be applied even if we import any service for our personal use. It also means that in case we are using the services of an International Architect say from US, France or Japan, for a consideration, the same would be taxable under GST….in fact it may also attract implications of Reverse Charge Mechanism.
Reverse Charge Mechanism, generally known as RCM is a mechanism where tax is paid by recipient of supply in place of supplier who is taxed in general circumstances.
c) The activities specified in Schedule I, made or agreed to be made without a consideration; and
Analysis: Schedule I deals with some activities which would be made taxable even if there is no consideration involved, hence, it might be possible that mummy ka khana also becomes taxable, although, it is still not included in the Schedule but the following activities are:
i. supply of goods & services between related persons or distinct persons for business
ii. supply between principal and agent on behalf of the principal
iii. permanent disposal of business assets
iv. Import of services from a related person or his establishments outside India for business.
Even if any of these supplies lacks the element of consideration, they would still be taxable.
d) The activities to be treated as supply of goods or supply of services as referred to in Schedule II '
Analysis: The definition of Supply also includes activities exclusively classified as Supply of Goods or Supply of Services, defined under Schedule II of the Act. These classifications are similar to those we deal in Service Tax as Deemed Service but with a difference, the supply events are categorized in 7 categories being:
a. Transfer of title/right to use
b. Land & Building
c. Treatment or Process
d. Transfer of Business Asset
e. Supply of Services
f. Supply of Goods and
g. Composite Supply
Composite Supply mentioned under Sch. II deals with supply of works contract and supply of food (other than Alcoholic Liquor for human consumption on which there are no GST Implications). These are currently treated as sale of goods as well as provision of services on a proportionate basis but under the GST Regime these transactions would be treated only as Supply of Service.
Composite Supply & Mixed Supply
There are two terms used in Supply, composite supply & mixed supply. A combined reading of Section 8, 2 (30) & 2(74), it can be interpreted that composite supply means a supply consisting of two or more taxable supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business; Such a supply is taxable at the rate applicable to principal supply of the bundle.
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply taxable at the rate applicable on such goods.
The term mixed supply means two or more individual supplies made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply, i.e., a supply which is not a composite supply is a mixed supply, which is taxable at the highest rate applicable to the individual elements of the combination.
Illustration: In Diwali season, sweetshops sell a combo pack of sweets, chocolates, & dry fruits in decorative boxes. Such a pack is a mixed supply of goods and would be taxable at the highest rate applicable. For instance, if dry fruits are taxable @ 28%, sweets @ 18% & chocolates @5%, then, the whole combo pack would be taxable @28%.
Definition of Supply: Exclusions
Inclusions & Exclusions are the two sides of the same coin. Only understanding what is included in supply would not detail a complete picture of the concept. Although, Sec. 7(1) defines what is included in supply Sec.7 (2) states that:
(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.
Hence, it can be made out that Sec.7(2) deals with the activities which shall be treated neither as a supply of goods nor a supply of services as mentioned in Schedule III and to be notified by Government. The combined reading of Sec. 7(2) and Sch.III can also be interpreted as Negative List of Supply and includes:
1. Services by employee in the course of in the course of his employment (not business)
Although, where employer provides any gift to employee worth less than or equal to Rs.50000 in a financial year shall not be treated as supply
2. Services by Court/Tribunal, functions performed by MLA,MP, person holding post in constitutional capacity, or Chairperson/ Member /Director not deemed as an employee in a body established by the Central Government or a State Government or local authority
3. Services of funeral, burial, crematorium or mortuary including transportation of the deceased
4. Sale of land & building.
5. Actionable claims, other than lottery, betting and gambling.
The Concept of Supply is the outcome of GST implementation which has covered in its ambit some activities specifically classified as goods & as services which are either to be included or excluded. It is important to know the concept of supply in order to determine the tax liability & further implications on GST.