Supply – Section 7 of Central Goods and Services Tax Act, 2017 (CGST Act)
Determination of taxable event is of prime importance for implementation and compliance of tax law. Occurrence of taxable event triggers the charge or levy of tax. Taxable events under the erstwhile indirect tax laws were manufacture, sale of goods, provision of services, etc. GST stipulates single taxable event i.e. ‘supply’ in place of multiple taxable events in erstwhile indirect tax legislations. Supply of goods or services or both is a taxable event under GST.
The term ‘supply’ is of wide import and it covers all forms of supply of goods or services or both that includes 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. Supply is defined under section 7 of the CGST Act, 2017 and it is inclusive and expansive definition on literal interpretation.
7(1) | Supply includes:
|
7(1A) | Where certain activities or transactions constitute of supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II |
7(2) | Notwithstanding anything contained in sub-section (1), following shall neither be treated as supply of goods nor supply of services:
|
7(3) | Subject to provisions of sub-sections (1), (1A) and (2), the Government may on the recommendation of Council, specify by notification, the transactions that are to be treated as:
|
Pre-requisites for an activity to be covered under the definition of ‘supply’:
Activity should be in relation to goods, services or both;
Such activities should be carried out for consideration (Except for activities specified in Schedule–I); and
Activity should be in course or furtherance of business of supplier (Except for import of services for consideration).
All above pre-requisites are cumulative and should be present simultaneously in order to render any activity or transaction a ‘supply’ as defined u/s 7 of the CGST Act. Absence of any one or more pre-requisite would take activity or transaction out of statutory definition of supply.
Schedule I – Activities to 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 | Activities to be treated as supply even if made without consideration | Supply of goods or services between related persons or between distinct persons as specified in Section 25, when made in course or furtherance of business; Provided that gifts not exceeding 50,000 in value in a financial year by an employer to an employee shall not be treated as supply |
Supply of goods—
| Importation of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business |
Above supplies is to be valued in terms of Rule 27 to Rule 31 of Central Goods and Services Tax Rules, 2017.
Schedule II – Activities to be treated as supply of goods
The classification of transaction in ‘goods’ or ‘services’ is still relevant under GST legislation as certain important provisions such as time of supply, place of supply, exemptions, input tax credit, etc. are different for goods and services.
Schedule II is merely a classification schedule and does not create charge by itself. The charge on activities listed in this schedule is created only when it constitutes a supply as defined u/s 7(1) of the CGST Act. This schedule just classifies following specific activities as goods or service:
Transfer
any transfer of the title in goods is a supply of goods;
any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;
any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.
Land and Building
any lease, tenancy, easement, license to occupy land is a supply of services;
any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
Treatment or process
GST & Indirect Taxes Any treatment or process which is applied to another person’s goods is a supply of services.
Transfer of business assets
where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, such transfer or disposal is a supply of goods by the person;
where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, the usage or making available of such goods is a supply of services;
where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him 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.
Supply of services
The following shall be treated as supply of services, namely:—
renting of immovable property;
construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.
Explanation.—For the purposes of this clause—
the expression “competent authority” means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:—
an architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or
a chartered engineer registered with the Institution of Engineers (India); or
a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
the expression “construction” includes additions, alterations, replacements or remodeling of any existing civil structure;
temporary transfer or permitting the use or enjoyment of any intellectual property right;
development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software;
agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and
transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
Composite supply
The following composite supplies shall be treated as a supply of services, namely:—
works contract as defined in clause (119) of section 2; and
supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Schedule III – Activities or transactions which shall be treated neither as supply of goods nor 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 (Court includes District Court, High Court and Supreme Court) or Tribunal established under any law for the time being in force. |
3 |
|
4 | Services of funeral, burial, crematorium or mortuary including transportation of the deceased. |
5 | Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. |
6 | Actionable claims, other than lottery, betting and gambling. |
7 | Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India. [w.e.f. 01.02.2019] |
8 |
|
Above listed activities or transactions are not at all a ‘supply’ within the meaning of section 7 of CGST Act and hence the same are out of the scope of GST levy.
Composite Supply and Mixed Supply – Section 8 of CGST Act
Taxpayers, legislators and tax administrators face great challenge for classification and characterization of transaction involving combination of supply of goods or services or both as each individual constituent thereof may have different tax rates, exemptions, place of supply or time of supply. In view of this, the legislators thought it fit to bring clarity as to tax treatment on this aspect. GST legislation, therefore, defines terms “Composite Supply” and “Mixed Supply” in Sections 2(30) and 2(74) of CGST Act respectively and also provides for special tax treatment for such supplies under Section 8 of CGST Act.
Definition of Composite Supply and Mixed Supply
Composite Supply [2(30)] | Mixed Supply [2(74)] |
a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, 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. | 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. |
Pre-requisites of composite supply
Supply should be made by a taxable person;
It should consist of two or more taxable supplies;
Supplies should be naturally bundled;
It should be supplied in conjunction with each other in ordinary course of business; and
One of such supplies should be a principal supply.
All the above prerequisites are to be satisfied cumulatively to qualify as composite supply. Absence of any one or more prerequisite would render supply a non-composite supply.
Pre-requisites of mixed supply
It should contain two or more supplies;
Supplies to be made in conjunction of each other;
Supply should be made by taxable person;
Supply should be for single price; and
Such supply should not be a Composite Supply.
All the above prerequisites are to be satisfied cumulatively to fall under definition of mixed supply. Absence of any one or more prerequisite would take supply out of definition of mixed
supply.
Determination of tax liability on composite supply u/s 8(a) of CGST Act
Composite Supply comprising of two or more supplies, one of which is principal supply, shall be treated as a supply of such principal supply** |
**Principal supply [Section 2(90)] – means supply of goods or services or both which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
Illustrations of Composite Supply
Air transportation services wherein element of transportation of passenger is combined with on board catering services;
A hotel providing 4 days / 3 nights’ package with breakfast;
Conference services provided for lump sum price for accommodation, meals, conference hall, business centers, access to fitness center etc
The composite supply shall be taxed at the rate that is applicable to the principal supply. If the principal supply is exempted, entire composite supply will be exempt supply.
Determination of tax liability on mixed supply u/s 8(b) of CGST Act
| Mixed supply comprising of two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax |
Illustrations of Mixed Supply
1. Package containing sweets, chocolates, dry fruits and aerated drinks;
Each of these items can be supplies separately and is not dependent on any other.
The mixed supply shall be taxed at the highest rate applicable to any of the items forming part of the mixed supply even though some items forming part of mixed supplies are either exempt or taxable at a lower rate.
Comments
Post a Comment