Definition of Supply under GST: Scope explained

Under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability.

Concept Before GST

Under the erstwhile indirect tax regime, there was no concept of Supply. The stage at which indirect taxes were levied varied under different tax laws. The ‘excise duty’ was charged on goods manufactured when they were taken out of the factory. ‘Service Tax’ was levied based on certain rules known as the ‘point of taxation’ rules, for services rendered. A VAT would arise on the value of the sale of goods or provision of services. The present system has merged all taxes to maintain a single taxable event.

Latest Updates:

1st February 2023
Important updates from Budget 2023* 
1. Section 16 is amended to state that buyers who fail to pay their supplier the invoice value, including the GST amount, within 180 days from the date of issue of the invoice, must pay an amount equal to the ITC claimed along with interest under Section 50.
2. Sections 37, 39, 44, and 52 are amended to restrict taxpayers from filing their GSTR-1, GSTR-3B, GSTR-9 and GSTR-8 for a tax period after the expiry of three years from the due date. 
3. Section 17(5) is revised to include another item under ineligible ITC being expenditure on CSR initiatives for corporates.
4. High sea sales and similar transactions that are neither supply of goods or services are considered exempt and hence ITC proportional to such sales cannot be claimed as per revised Section 17(3).
5. Schedule III has been amended to provide for paras (7) and (8) and explanation (2) to take retrospective effect from 1st July 2017.
6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through an e-commerce operator to opt into the composition scheme.
*These amendments will come into force once notified by the CBIC.

What is supply under GST?

Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.

Elements of Supply

Supply has two important elements:

• Supply is done for a consideration
• Supply is done in course of furtherance of business

If the aforementioned elements are not met with, it is not considered as a sale.

Examples:

• Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10 months of use to a dealer. This is not considered as supply under CGST as this is not done by Mr A for the furtherance of business
• Mrs. B provides free coaching to neighbouring students as a hobby. This is not considered as supply as this act is not performed for a consideration.

However, as specified in Schedule I of GST Act, certain activities are considered as supply even if it is made without consideration. 

Classification of supply and types

Composite supply and Mixed Supply:

There are a few supplies which are made together with two or more items. Such supplies are further classified into Composite Supply and Mixed Supply.   

A supply comprising of two or more goods/services, which are necessarily supplied in conjunction with each other as per frequent business practices followed in that area. In other words, these items cannot be supplied individually. There is a principal supply and a secondary supply in the whole transaction. In such cases, the tax rate on principal supply will apply to the entire supply. E.g. Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box, and a wrapper. Box and wrapper cannot be sold individually without the main content which is dry fruit. This is a composite supply. 

A supply comprising of two or more goods/services, wherein the supplies are independent of each other and are not necessarily required to be sold together is called a mixed supply. The first condition to be met for mixed supply is that ‘it should not be a composite supply’. In such cases, the tax rate that is higher of the two supplies will be applicable to the entire supply. E.g Buying a Christmas package consisting of cakes, aerated drinks, chocolates, Santa caps, and other gift items. Each of these items can be sold separately and are not dependent on each other. This is a mixed supply.  

Import of services:

Import of goods/services with consideration is considered as supply whether for personal or business use.

Scope: List of supplies and taxability

Transfer – Transfer of title of goods

Transfer – Transfer of right in goods without transfer of title

Activities or transactions treated neither as the sale of goods nor sale of services as per Schedule III of GST Act

Following are the transactions covered under negative list:

• Services provided by an employee to the employer
• Services of the funeral, burial, crematorium or mortuary including transportation of the deceased
• Services by any court or Tribunal
• Duties performed by the MP/MLA/MLC/ Members of Local Bodies
• 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
• Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity
• Sale of Land
• Sale of Building (However, If construction of a complex /building intended for sale to a buyer and part of the consideration is received before completion, then it will be treated as Supply of Services)
• Actionable claims, other than lottery, betting and gambling
• 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*
• Supply of warehoused goods to any person before clearance for home consumption*
• Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption*

*These transactions were inserted into the Act with effect from 1st February 2019. However, in Budget 2023, it was proposed that these entries will take retrospective effect from 1st July 2017. However, no refund will be made of all the tax that has been collected between 1st July 2017 and 31st January 2019. The new amendment will apply once notified by the CBIC.

Thus, GST law has simplified tax treatment by clearly classifying activities considered as goods/services or transactions considered as neither sale of goods or services.