CHAPTER III

The Meaning and Scope of Supply

The taxable event in GST is supply of goods or services or both. Various
taxable events like manufacture, sale, rendering of service, purchase,
entry into a territory of State etc. have been done away with in favour of
just one event i.e. supply. The constitution defines “goods and services
tax” as any tax on supply of goods, or services or both except taxes on the
supply of the alcoholic liquor for human consumption.

The Central and State governments will have simultaneous powers to levy the
GST on intra-state supply. However, the Parliament alone shall have
exclusive power to make lawswith respect to levy of goods and services tax
on inter-statesupply.

The term, “supply” has been inclusively defined in the Act. The meaning and
scope of supply under GST can be understood in terms of following six
parameters, which can be adopted to characterize a transaction as supply:

1. Supply of goods or services. Supply of anything other than goods or services does not attract GST.

2. Supply should be made for a consideration

3. Supply should be made by a taxable person

4. Supply should be made in the course or furtherance of business

5. Supply should be a taxable supply While these six parameters describe the concept of supply,

6. there are a few exceptions to the requirement of supply being made for a
   consideration and in the course or furtherance of business. Any
   transaction involving supply of goods or services without consideration
   is not a supply, barring few exceptions, in which a transaction is
   deemed to be a supply even without consideration. Further import of
   services for a consideration, whether or not in the course or
   furtherance of business is treated as supply.

Supply of goods or services or both

Goods as well as services have been defined in the GST Law.The securities
are excluded from the definition of goods aswell as that of services. Money
is also excluded from thedefinition of goods as well as services, however,
activities 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 aseparate consideration is charged are
included in services.

Schedule II to the CGST Act, 2017 lists a few activities
which are to be treated as supply of goods or supply of
services. For instance, any transfer of title in goods would
be a supply of goods, whereas any transfer of right in goods
without transfer of title would be considered as services.

Further Schedule III to the CGST Act, 2017 spells out
activities which shall be treated as neither supply of goods
nor supply of services – in other words, outside the scope of

GST.A few important ones are: –

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

2. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

3. Sale of land and, sale of building where the entire consideration has
   been received after completion certificate is issued or after its first
   occupation.Actionable claims are included in the definition of goods,
   however, schedule III provides that actionable claims other than
   lottery, betting and gambling shall be neither goods nor services.

Supply for consideration

Consideration has specifically been defined in the CGST Act,
2017. It can be in money or kind. Any subsidy given by the
Central Government or a State Government is not considered as
consideration. It is immaterial whether the payment is made by the
recipient or by any other person.

A deposit given in respect of the supply of goods or services or both shall
not be considered as payment made for such supply unless the supplier
applies such deposit as consideration for the said supply;

Further, when there is barter of goods of services, the same activity
constitutes supply as well as a consideration. When a barber cuts hair in
exchange for a painting, hair cut is a supply of services by the barber. It
is a consideration for the painting received.

However, there are exceptions to the requirement of ‘Consideration’ as a
pre-condition for a supply to be called a supply as per GST. As per
schedule to CGST Act, 2017, activities as mentioned below shall
be treated as supply even if made without consideration.

1. Permanent transfer or disposal of business assets
   where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related
   persons or between distinct persons as specified in
   section 25, when made in the course or furtherance
   of business: Provided that gifts not exceeding fifty
   thousand rupees in value in a financial year by an
   employer to an employee shall not be treated as
   supply of goods or services or both.

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. Import 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.

Supply in the Course or Furtherance of Business

GST is essentially tax only on commercial transactions. Hence only those
supplies that are in the course or furtherance of business qualify as
Supply under GST. Hence any supplies made by an individual in his personal
capacity do not come under the ambit of GST unless they fall within the
definition of business as defined in the Act. CBEC vide press release
dated 13.07.2017 has clarified that sale of old gold jewellery by an
individual to a jeweller will not constitute supply as the same cannot be
said to be in the course or furtherance of business of the individual.
Sale of goods or service even as a vocation is a supply under GST.
Therefore, even if a famous politician paints paintings for charity and
sells the paintings even as a one-time occurrence, the sale would
constitute Supply.

However, there is one exception to this ‘Course orFurtherance of Business’
rule i.e., import of services for aconsideration.

Supply by a taxable Person

A supply to attract GST should be made by a taxable
person. Hence a supply between two non-taxable persons
does not constitute supply under GST. A “taxable person”
is a person who is registered or liable to be registered under
section 22 or section 24. Hence even an unregistered person
who is liable to be registered is a taxable person. Similarly,
a person not liable to be registered but has taken voluntary
registration and got himself registered is also a taxable
person.

It should be noted that GST in India is state-centric. Hence
a person making supplies from different states need to take
separate registration in each state. Further the person may
take more than one registration within a state if the person
has multiple business verticals. A person who has obtained
or is required to obtain more than one registration, whether
in one State or Union territory or more than one State or
Union territory shall, in respect of each such registration, be
treated as distinct persons for the purposes of GST. Hence
a supply between these entities constitutes supply under
GST.

Taxable supply

For a supply to attract GST the supply must be taxable.
Taxable supply has been broadly defined and means any
supply of goods or services or both which is leviable to tax
under the Act. Exemptions may be provided to the specified
goods or services or to a specified category of persons /
entities making supply.

Supply in the taxable territory

For a supply to attract GST the place of supply should be
in India except the state of Jammu and Kashmir. The place
of supply of any goods or services is determined based on
Sections 10, 11,
12 and 13 of IGST Act 2017

Inter/Intra State supply

The location of the supplier and the place of supply determines whether a
supply is treated as an Intra State supply or an Inter State supply.
Determination of the natureof supply is essential to ascertain whether
integrated tax is to be paid or Central plus State tax are to be paid.
Inter – State supply of goods means a supply of goods where the location of
the supplier and place of supply are in different States or Union
territories. Intra State supply of goods means supply of goods where the
location of the supplier and place of supply are in the same State or Union
territory. Imports, Supplies from and to SEZs are treated as deemed
inter-State supplies.

Composite / Mixed supply

A composite supply means a 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. For instance, a travel ticket from Mumbai to Delhi may include
service of food being served on board, free insurance, use of airport
lounge. In this case, transport of passenger, constitutes the pre-dominant
element of the composite supply, and is treated as the principal supply and
all other supplies are ancillary.

The GST Law lays down the tax liability on a composite or mixed supply in
the following manner.

• Composite Supply comprising two or more supplies one of which is a
  principal supply,shall be treated as supply of such principal supply.

• Mixed Supply comprising two or more supplies, shall be treated as supply
  of that particular supply which attracts the highest rate of tax.