2-Concept of Supply
2-Concept of Supply
CHAPTER 2
LEARNING OUTCOMES
CHAPTER OVERVIEW
Meaning of supply - Supply with consideration in course/
furtherance of business
1. INTRODUCTION
A taxable event is any transaction or occurrence
that results in a tax consequence. Before levying
any tax, taxable event needs to be ascertained. It
is the foundation stone of any taxation system; it
determines the point at which tax would be
levied.
Under the earlier indirect tax regime, the
framework of taxable event in various statutes
was prone to catena of interpretations resulting
in litigation since decades. The controversies largely related to issues like whether
a particular process amounted to manufacture or not, whether the sale was pre-
determined sale, whether a particular transaction was a sale of goods or rendering
of services etc.
The GST laws resolve these issues by laying down one
comprehensive taxable event i.e. “Supply” - Supply of goods or
services or both. Various taxable events namely 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.
GST Law, by levying tax on the ‘supply’ of goods and/or services, departs from the
historically understood concepts of ‘taxable event’ under the State VAT Laws, Excise
Laws and Service Tax Law i.e. sale, manufacture and service respectively.
In the GST regime, the entire value of supply of goods and/or services is taxed
in an integrated manner, unlike the earlier indirect taxes, which were charged
independently either on the manufacture or sale of goods, or on the provisions
of services.
2. RELEVANT DEFINITIONS
Goods: means every kind of movable property other than money and
securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed
before supply or under a contract of supply. [Sec. 2(52) of CGST Act].
Principal: means a person on whose behalf an agent carries on the
business of supply or receipt of goods or services or both [Section 2(88)
of CGST Act].
Competent authority: means such authority as may be notified by the
Government [Section 2(29) of the CGST Act].
Family: means, —
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if they
are wholly or mainly dependent on the said person [Section 2(49) of
the CGST Act].
Business: includes –
(c) any activity or transaction in the nature of (a) above, whether or not
there is volume, frequency, continuity or regularity of such transaction;
An association of persons or
A Limited Liability a body of individuals,
A firm
Partnership whether incorporated or not,
in India or outside India
Society as defined
Central Government/ under the Societies
A local authority
State Government Registration Act,
1860
Our discussion in this Study Material will principally be confined to the provisions
of CGST and IGST laws as the specific State GST laws 1 are outside the scope of
syllabus.
STATUTORY PROVISIONS
1
It may be noted that GST laws of all the States and Union Territories are largely based on
the CGST Act, 2017.
(3) Subject to sub-sections (1), (1A) & (2), the Government may, on the
recommendations of the Council, specify, by notification, the
transactions that are to be treated as —
ANALYSIS
The definition of ‘supply’ as contained in section 7 of the CGST Act is an inclusive
definition and does not define the term exhaustively. It defines the scope of supply
in an inclusive manner. Clause (a) of sub-section (1) illustrates the forms of supply,
but the list is not exhaustive. This is substantiated by the use of words ‘such as’ in
the definition.
Provisions of scope of supply under CGST Act have also been made applicable
to IGST Act vide section 20 of the IGST Act.
The meaning and scope of supply in terms of section 7 can be understood in terms
of following parameters:
1. Supply should be of goods or services. Supply of anything other than goods
or services like money, securities etc. does not attract GST.
Money
Anything 💸💸
which is Securities
neither
Goods goods nor
Supply
NOT Supply
services
Services
in the of goods
course or and
furtherance services
of business
Parameters for
consideration
of supply
Supply should be
Aforesaid parameters describe the concept of supply. However, there are a few
exceptions to 2nd and 3rd parameters [the requirement of supply being made for a
consideration and in the course or furtherance of business] in the GST law. Few
+ Schedule I]
Goods Services
means means
excludes
includes includes
The first part of section 7 [Clause (a) of sub-section (1)] includes 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 consideration in the course or
furtherance of business.
Supply includes
sale, transfer, in the course or
barter, exchange, for consideration furtherance of
licence, rental, business
lease, disposal
Thus, the forms of supply as contemplated in this first part have two pre-requisites:
2
www.merriam-webster.com
Further, the term ‘transfer’ has been defined in the Black’s Law dictionary as
to convey or remove from one place, person, etc., to another; pass or hand
over from one to another; specifically, to make over the possession or control
of.
(1) A shopkeeper sells a pen for ` 100 to the buyer. After the sale,
the pen belongs to the buyer and shopkeeper does not have any
right on the pen. This is a transaction of sale.
(2) A company transfers goods from its factory to the depot for
sale purposes. This is ‘transfer’ of goods where the sale has not
taken place.
II. Barter and Exchange: The dictionary meaning of term ‘barter’ is to exchange
goods or services for other goods or services instead of using money 3. Black’s
Law dictionary defines the term ‘exchange’ as an act of giving or taking one
thing for another.
While barter deals with a transaction which only includes an exchange of
goods/services, exchange may cover a situation where the goods are paid for
partly in goods and partly in money. When there is a barter of goods or
services, same activity constitutes supply as well as consideration.
(3) When a new car worth ` 5,00,000 is purchased in exchange of
an old car alongwith the monetary consideration of ` 4,00,000
paid for the said purchase.
(4) A doctor got his hair cut from a barber and provides him
medical consultancy in return. In this transaction, the doctor
provided the medical consultancy services to the barber for which
consideration was in the form of hair cutting services provided by the barber.
Similarly, the barber provided hair cutting services to the doctor for which
consideration was in the form of medical consultancy services provided by
the doctor.
III. Licence, lease, rental and disposal: The dictionary meaning of the term
‘licence’ is a permission granted by competent authority to engage in a
business or occupation or in an activity otherwise unlawful 4. Black’s law
3
www.macmillandictionary.com
4
www.merriam-webster.com
dictionary defines disposal as the sale, pledge, giving away, use, consumption
or any other disposition of a thing.
The dictionary meaning of ‘rental’ is an arrangement to rent something, or
the amount of money that you pay to rent something 5 and that of ‘lease’ is
to make a legal agreement by which money is paid in order to use land, a
building, a vehicle, or a piece of equipment for an agreed period of time 6.
Under GST, such licenses, leases and rentals of goods with or without transfer
of right to use are covered under the supply of service because there is no
transfer of title in such supplies. Such transactions are specifically treated as
supply of service in Schedule-II of CGST Act [Schedule-II has been discussed
in detail in the subsequent paras].
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.
The term consideration is defined under section 2(31) of the CGST Act [Refer
heading ‘Relevant Definitions].
5
www.dictionary.cambridge.org
6
www.dictionary.cambridge.org
The said definition has been depicted in the form of a diagram as follows:
CONSIDERATION
By recipient or any
Deposit to be other person
considered as
payment
ONLY
Excluding subsidy given
by Central/ State
when the supplier Governments
applies such deposit
as consideration for
the said supply
Thus, GST is not leviable where all the following three conditions are
satisfied namely:
Purpose is
Gift or donation
Payment has the philanthropic (i.e., it
is made to a
character of gift leads to no
charitable
or donation commercial gain) and
organization
not advertisement
**Provisions of Schedule I of the CGST Act have been discussed in detail later in this chapter.
shall also be construed as business. For any trade, commerce, or any other similar
activity to qualify as business, frequency, volume, continuity or regularity of
such transaction is not a pre-requisite.
Some of the examples of supply made/not made ‘in the course or furtherance of
business’ are as follows:
(7) Rishabh buys a car for his personal use and after a year sells it to a
car dealer. Sale of car by Rishabh to car dealer is not a supply under CGST
Act because said supply is not made by Rishabh in the course or
furtherance of business 7.
(8) Manikarnika sold her old gold bangles and earrings to ‘Aabhushan
Jewellers’. 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 8.
The view taken in above two examples is based on the view taken in the Departmental
FAQs/ press release. 9
Since ‘business’ includes vocation, therefore, sale of goods or service as a vocation
is also a supply under GST.
(9) Sundaram Acharya, a famous actor, paints some paintings and sells
them. The consideration from such sale is to be donated to a Charitable
Trust – ‘Kind Human’. The sale of paintings by the actor qualifies as
supply.
7
Clarified vide GST FAQs issued by CBIC
8
Clarified by CBIC vide press release dated 13.07.2017
9
There is another school of thought according to which since the definition of business
includes trade, commerce, or any other similar activity, whether or not there is frequency,
volume, continuity or regularity of such transaction, the transactions in the above
examples can be considered to be made in the course or furtherance of business and thus,
will constitute supply. The taxability of such transactions, however, will have to be examined
under the provisions of section 9 [Discussed in detail in Chapter 3 – Charge of GST]. This
view is based on literal interpretation of the law. However, since this view may not always
lead to logical conclusions, it is more prudent to take a purposive approach as followed in
Departmental FAQs/press release given above.
10
Totalisor is a computerised device that pools the wagers/bets (after deduction of charges
and statutory taxes) of various persons placing the bet and also divides the total wager
amount to be distributed to the winning persons.
In the subsequent paras, we have discussed the exceptions to the two parameters
of supply, namely, (i) supply made for consideration, but not in course or
furtherance of business and (ii) supply made without consideration.
STATUTORY PROVISIONS
S. No. Particulars
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.
ANALYSIS
There are instances where an activity or transaction
is treated as supply, even if the same is made
without consideration. These are specifically
Section 7(1)(c)
mentioned in Schedule I appended to the CGST read with
Act. The same has been discussed in the Schedule I
subsequent paras:
In the past regime, in every tax statute,
“consideration” played the most important role for levying taxes. For instance, if
any service was provided for free to a person, such service was not subject to service
tax. However, under GST, the importance of consideration has been diluted in
certain cases – this is an important departure from the earlier indirect tax regime.
As per Schedule I, in the following four cases, activities made without consideration
will be treated as supply under section 7 of the CGST Act:
I. Permanent Transfer/Disposal of Business Assets [Para 1. of
Schedule I]: Any kind of disposal or transfer of business assets made by an
entity on permanent basis even though without consideration qualifies as
supply. However, it is important to note that this provision would apply only
if input tax credit has been availed on such assets.
Therefore, in order to qualify as supply under this para, following conditions
need to be satisfied:
There must be a disposal or transfer of business assets**.
Transfer/disposal must be permanent.
11
List of the goods in respect of which ITC is blocked has been elaborated in Chapter 6 – Input
Tax Credit.
(16) Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of
XYZ Ltd. ABC Ltd. and XYZ Ltd. are related.
(17) Q Ltd. has a deciding role in corporate policy, operations
management and quality control of R Ltd. It can be said that Q Ltd. controls
R Ltd. Thus, Q Ltd. and R Ltd. are related.
A person who has obtained/is required to obtain more than one registration,
whether in one State/Union territory or more than one State/Union territory
shall, in respect of each such registration, be treated as distinct persons
[Section 25(4) of the CGST Act].
(18) Mohan, a Chartered Accountant, has a registered head office in Delhi.
He has also obtained registration in the State of West Bengal in respect of
his newly opened branch office. Mohan shall be treated as distinct persons in
respect of registrations in West Bengal and Delhi.
Distinct persons
Single registration in UP
are not treated as supply [Schedule III of CGST Act (discussed subsequently in
this chapter)].
Gifts by employer to employee
Further, proviso to Para 2. of Schedule I provides that gifts upto ` 50,000 in
value in a financial year by an employer to an employee shall not be treated
as supply of goods or services or both. However, gifts of value more than
` 50,000 made without consideration are supply and are subject to GST, when
made in the course or furtherance of business.
What
constitutes
a ‘gift’?
The term ‘gift’ has not been defined in the GST law. In common parlance, gift
is made without consideration, is voluntary in nature and is made
occasionally. It cannot be demanded as a matter of right by the employee
and the employee cannot move a court of law for obtaining a gift.
Perquisites by employer to employee
As already discussed, services by an employee to the employer in the course
of or in relation to his employment is outside the scope of GST (neither supply
of goods or supply of services).
It follows therefrom that payment made by the employer to the employee in
terms of contractual agreement entered into between the employer and the
employee, will not be subjected to GST.
Ministry of Finance has clarified in a Press Release on 10.07.2017 that if
services such as membership of a club, health and fitness centre etc. are
provided free of charge to all the employees by the employer, the same will
not be subjected to GST. The same would hold true for free housing to the
employees, when the same is provided in terms of the contract between the
employer and employee and is part and parcel of the cost-to company
(C2C) 12.
III. Principal– Agent [Para 3. of Schedule I]: Supply of goods by a principal
to his agent, without consideration, where
the agent undertakes to supply such goods
on behalf of the principal is considered as
supply.
Similarly, supply of goods by an agent to his
principal, without consideration, where the
agent undertakes to receive such goods on
behalf of the principal is considered as
supply.
Points which merit consideration, in this regard, are as follows:
• Only supply of goods and not supply of services is covered here.
• Supply of goods between principal and agent without consideration
is also supply.
Thus, the supply of services between the principal and the agent and vice
versa would therefore require “consideration” to be considered as supply and
thus, to be liable to GST.
In order to determine whether a particular principal-
agent relationship falls within the ambit of the
Para 3. of Schedule I as discussed above or not, the
deciding factor is whether the invoice for the further
supply of goods on behalf of the principal is being
issued by the agent or not? In other words, the crucial
12
It is possible to take an alternative view in this regard. This scenario, i.e. the employer
providing services (free of charge) to the employee in lieu of the services provided by the
employee to the employer in the course of employment, is an exchange transaction. In an
exchange transaction, both the parties independently assess their transaction status. Thus,
while service provided by employee to the employer being covered under Schedule III to the
CGST Act is not a supply, service provided by employer to employee may constitute a supply
in terms of section 7(1)(c) read with para 2 of the Schedule I since employer and employee
are related persons as per explanation to section 15. Provisions of section 15 have been
discussed in detail in Unit 2 of Chapter 5 – Time and Value of Supply.
point is whether or not the agent has the authority to pass or receive the title
of the goods on behalf of the principal.
Where the invoice for further supply is being
issued by the agent in his name then, any Invoice for further
provision of goods from the principal to the supply to customer
agent would fall within the fold of Para 3. above. be issued in the
agent’s name.
However, where the invoice is issued by the
agent to the customer in the name of the principal, such agent shall
not fall within the ambit of Para 3. above.
Similarly, where the goods being
procured by the agent on behalf of Goods procured on behalf
the principal are invoiced in the of principal are invoiced
name of the agent then further in the agent’s name.
provision of the said goods by the
agent to the principal would be covered by Para 3. above [Circular No.
57/31/2018 GST dated 04.09.2018].
The above clarification can be understood with the help of following scenario
based examples:
(22) Anmol appoints Bholu to procure certain goods from the
market. Bholu identifies various suppliers who can provide the
goods as desired by Anmol and asks the supplier (Golu) to send
the goods and to issue the invoice directly to Anmol.
In this scenario, Bholu is only acting as the procurement agent, and has in no
way involved himself in the supply or receipt of the goods. Hence, in
accordance with the provisions of this Act, Bholu is not an agent of Anmol for
supply of goods in terms of Para 3. of Schedule I.
not an agent of M/s Tintin for the supply of goods in terms of Para 3. of Schedule
I.
13
It is important to note that services provided by the commission agent for sale or purchase
of agricultural produce are exempt from GST.
14
Services by way of extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount (other than interest involved in credit card services)
are exempt vide Entry 27 of Notification No. 12/2017 CT(R) dated 28.06.2017 [Discussed in
detail in Chapter 4 – Exemptions under GST].
15
Section 15 of the CGST Act, 2017 has been discussed in detail in Chapter 5 – Time and
Value of Supply.
of the CGST Act. In view of the same, few sales promotion schemes have
been examined as under:
16
ITC on inputs, input services and capital goods to the extent they are used in relation to
the gifts/free samples shall be available to the supplier only where the activity of distribution
of gifts/free samples falls within the scope of supply - Discussed in detail in Chapter 6 – Input
Tax Credit.
17
Refer Circular No.44/18/2018 CGST dated 02.05.2018 discussed subsequently.
Business is carried on by a
personal representative who is
deemed to be a taxable person.
18
Services by way of transfer of a going concern, as a whole or an independent part thereof
are exempt from GST [Discussed in detail in Chapter 4 – Exemptions from GST].
Although stamp duty and registration charges have been levied on such transfer of
tenancy rights, it shall be still subject to GST. Merely because a
transaction/supply involves execution of documents which may
require registration and payment of registration fee and stamp
duty, would not preclude them from the ‘scope of supply’ and
from payment of GST.
The transfer of tenancy rights cannot be treated as sale of land/ building in para 5.
of Schedule III. Thus, it is not a negative list activity [this concept is discussed under
next heading] and consequently, a consideration for the said activity shall attract
levy of GST.
To sum up, the activity of transfer of ‘tenancy rights’ is squarely covered under the
scope of supply and taxable per-se. Transfer of tenancy rights to a new tenant
against consideration in the form of tenancy premium is taxable.
However, renting of residential dwelling for use as a residence is exempt [Entry 12
of Notification No. 12/2017 CT (R) dated 28.06.2017 – Discussed in Chapter 4 –
Exemptions from GST]. Hence, grant of tenancy rights in a residential dwelling for
use as residence dwelling against tenancy premium or periodic rent or both is
exempt. As regards services provided by outgoing tenant by way of surrendering
the tenancy rights against consideration in the form of a portion of tenancy
premium is liable to GST [Circular No. 44/2018 CT dated 02.05.2018].
Hence, our discussion under this heading will revolve around the following:
19
Discussion based on Service Tax Education Guide issued under erstwhile under service tax
law.
20
Schedule III has two more entries - Entry 7 and 8 [as enumerated below]. These entries are
covered in the syllabus of Paper 8: Indirect Tax Laws at Final Level.
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.
8. (a) Supply of warehoused goods to any person before clearance for home consumption.
(b) 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.
21
notified vide Notification No. 14/2017 CT (R) dated 28.06.2017/ Notification No. 11/2017
IT (R) dated 28.06.2017 as amended
22
notified vide Notification No. 25/2019 CT (R) dated 30.09.2019/ Notification No. 24/2019
IT (R) dated 30.09.2019
other licenses and privileges for a fee in other situations, where GST
is payable.
It may be noted that services provided by the Government to
business entities including by way of grant of privileges, licences,
mining rights, natural resources such as spectrum etc. against
payment of consideration in the form of fee, royalty etc. are taxable
under GST. Tax is required to be paid by the business entities on
such services under reverse charge 23.
(ii) Inter-State movement of various modes of conveyance
Inter-State movement of various modes of conveyance, between
distinct persons including-
• Trains,
• Buses,
• Trucks,
• Tankers,
• Trailers,
• Vessels,
• Containers,
• Aircrafts,
(a) carrying goods or passengers or both; or
(b) for repairs and maintenance,
[except in cases where such movement is for further supply of the same
conveyance] was discussed in GST Council’s meeting held on 11th June,
2017 and the Council recommended that such inter-State movement
shall be treated ‘neither as a supply of goods or supply of service’ and
therefore not be leviable to IGST.
Thus, above activity may not be treated as supply and consequently
IGST will not be payable on such supply. However, applicable
CGST/SGST/IGST, as the case may be, shall be leviable on repairs and
maintenance done for such conveyance [Circular No. 1/1/2017 IGST
dated 07.07.2017**].
23
Circular No. 121/40/2019 GST dated 11.10.2019
(iii) Inter-State movement of rigs, tools and spares, and all goods on
wheels [like cranes]
**Above circular shall mutatis mutandis apply to inter-
State movement of rigs, tools and spares, and all
goods on wheels [like cranes], [except in cases
where movement of such goods is for further supply
of the same goods], such inter-State movement
shall be treated ‘neither as a supply of goods or supply of service,’ and
consequently no IGST would be applicable on such movements. In this
context, it is also reiterated that applicable CGST/SGST/IGST, as the case
maybe, is leviable on repairs and maintenance done for such goods [Circular
No. 21/21/2017-GST dated 22.11.2017].
In the preceding paras, we have discussed, how to determine whether a given
activity or transaction constitutes a supply. Once an activity or transaction qualifies
as supply, one needs to determine whether the same is leviable to GST or not.
Though the provisions relating to levy and collection of GST have been discussed
at length in Chapter 3 – Charge of GST, a brief idea of the same is provided
hereunder.
For a supply to attract GST, primarily two additional conditions need to be satisfied.
These are – (i) supply must be made by a taxable person and (ii) supply must be a
taxable supply. These two additional conditions have been discussed hereunder:
(i) 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 taxable supply
under GST.
The restriction of being a taxable person is only on the supplier whereas the
recipient can be either taxable or non-taxable.
STATUTORY PROVISIONS
ANALYSIS
GST is payable on individual goods or services or both at the notified rates. The
application of rates poses no problem if the supply is of individual goods or
individual services, which is clearly identifiable and such goods or services are
subject to a particular rate of tax.
However, in certain cases, supplies are not such simple and clearly identifiable
supplies. Some of the supplies are a combination of goods or combination of
services or combination of goods and services both and each individual component
of such supplies may attract a different rate of tax.
In such a case, the rate of tax to be levied on such supplies may be a challenge. It
is for this reason, that the GST Law identifies composite supplies and mixed supplies
and provides certainty in respect of tax treatment under GST for such supplies.
In order to determine whether the supplies are ‘composite supplies’ or ‘mixed
supplies’, one needs to determine whether the supplies are naturally bundled or
not naturally bundled in ordinary course of business. The concept of ‘naturally
bundled’ supplies is emanating from the definition of ‘composite supply’.
Principal supply means the supply of goods or services which constitutes the
predominant element of a composite supply and to which any other supply
forming part of that composite supply is ancillary. [Section 2(90) of CGST Act]
(57) Works contract and restaurant services are classic examples of
composite supplies.
How to determine whether the services are bundled in the ordinary course
of business?
Whether the services are bundled in the ordinary course of business, would depend
upon the normal or frequent practices followed in the area of business to which
services relate. Such normal and frequent practices adopted in a business can be
ascertained from several indicators some of which are listed below:
The perception of the consumer or the service recipient - If large number
of service recipient of such bundle of services reasonably expect such services
to be provided as a package, then such a package could be treated as
naturally bundled in the ordinary course of business.
(58) Mobile phone is always sold with battery.
(62) When a consumer buys a television set and he also gets mandatory
warranty and a maintenance contract with the TV, this supply is a
composite supply. In this example, supply of TV is the principal supply,
warranty and maintenance services are ancillary.
(63) A travel ticket from Mumbai to Delhi may include service of food
being served on board, free insurance, and the use of airport lounge. In
this case, the transportation of passenger, constitutes the pre-dominant
element of the composite supply, and is treated as the principal supply and all other
supplies are ancillary.
Supplies given in the below mentioned table are the composite supplies. CBIC has
clarified as to what constitutes the principal supply in the given composite supplies:
Activity of bus The principal supply may be determined on the basis of facts
body building and circumstances of each case [Circular No. 34/8/2018-GST
dated 01.03.2018].
(67) A house is given on rent through a single rent deed - one floor of
which is to be used as residence and the other for housing a printing press,
at a lump sum rent amount. Such renting for two different purposes is not naturally
bundled in the ordinary course of business. Said supplies are mixed supply.
How to determine the tax liability on mixed supplies?: A mixed supply
comprising of two or more supplies shall be treated as supply of that particular
supply that attracts highest rate of tax.
5. LET US RECAPITULATE
The taxable event under GST is supply. The scope of supply under GST can
be understood in terms of following parameters:
Supply should be of goods Supply should be made for a Supply should be made in the
or services consideration course or furtherance of business
Consideration
Supply
in course or
furtherance of
business
Consideration
Importation of
Supply
services
in course or furtherance
of business
Deemed Supply
Assets
Permanently
transferred/disposed
Related/Distinct Related/Distinct
Deemed
Supply
Person 1 Person 2
Supply of goods or services
in course or furtherance of business
Employer Employee
Gifts ≤ ` 50,000 in a FY
Not supply
Deemed Supply
supplies goods
Principal Agent
Supplier Agent
Deemed Supply
Agent receives goods on behalf of
principal and receives invoice in supplies
his own name goods to
principal
Principal
Related
persons
Deemed Supply
Person out Person in India
of India supplies services
Import of services
Yes
No Is it an activity No
Is it for a
consideration? specified under
Schedule I?
Yes Yes
Is it in course No
or furtherance
of business?
Is it
No
Is it in course
or furtherance import of
of business? No service?
Yes
Yes Yes
Is it an activity specified No
in Schedule III or section Activity is
Activity is
7(2)(b)? Supply NOT
Supply
Yes
Chocolates 18%
Toy balloons 5%
16. Sarvanna & Sons wishes to start supplying liquor in the State of Tamil Nadu.
Therefore, it applies for license for selling liquor to the Tamil Nadu Government
for it has charged specified fee from it. Examine whether the grant of alcoholic
liquor license by the Tamil Nadu Government to Sarvanna & Sons qualifies as
supply.
7. ANSWERS/HINTS
1. Taxable event under GST is supply of goods or services or both. CGST and
SGST/ UTGST will be levied on intra-State supplies. IGST will be levied on
inter-State supplies.
2. As per Schedule I of the CGST Act, 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, is deemed as supply
even if made without consideration. In the given case, since the Damodar
Private Ltd. and its branch located in another State are distinct persons,
supply of goods between them qualifies as supply.
3. Section 7 stipulates that the supply should be for a consideration and should
be in the course or furtherance of business. However, Schedule I of the CGST
Act enumerates the cases where an activity is treated as supply, even if the
same is without consideration. These are as follows:
(i) Permanent transfer or disposal of business assets where input tax credit
has been availed on such assets.
(ii) 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.
However, 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.
(iii) 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.
(iv) Import 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.
4. The statement is not correct. Composite supply is treated as supply of the
principal supply. It is the mixed supply that is treated as supply of that
particular goods or services which attracts the highest rate of tax.
5. Title as well as possession both have to be transferred for a transaction to be
considered as a supply of goods. In case title is not transferred, the
transaction would be treated as supply of service in terms of Schedule II(1)(b)
of the CGST Act. In some cases, possession may be transferred immediately,
but title may be transferred at a future date like in case of sale on approval
basis or hire purchase arrangement. Such transactions will also be termed as
supply of goods.
6. (a) Schedule I of CGST Act, inter alia, stipulates that supply of goods or
services or both between related persons or between distinct persons
as specified in section 25, is supply even without consideration provided
it is made in the course or furtherance of business. Further, a person
who has obtained more than one registration, whether in one
State/Union territory or more than one State/Union territory shall, in
respect of each such registration, be treated as distinct persons
[Section 25(4) of the CGST Act].
In view of the same, factory and depot of Sulekha Manufacturers are
distinct persons. Therefore, supply of goods from Delhi factory of
Sulekha Manufacturers to Mumbai Depot without consideration, but in
course/furtherance of business, is supply under section 7 read with
Schedule I of the CGST Act.
(b) Schedule I of CGST Act, inter alia, stipulates that import of services by
a taxable person from a related person located outside India, without
consideration is treated as supply if it is provided in the course or
furtherance of business. Explanation to section 15, inter alia, provides
that persons shall be deemed to be “related persons” if they are
members of the same family. Further, as per section 2(49) of the CGST
Act, 2017, family means, —
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if
they are wholly or mainly dependent on the said person.
In the given case, Raman has received free of cost legal services from
his brother. However, in view of section 2(49)(ii) above, Raman and his
brother cannot be considered to be related as Raman’s brother is a well-
known lawyer and is not wholly/mainly dependent on Raman. Further,
Raman has taken legal advice from him in personal matter and not in
course or furtherance of business. Consequently, services provided by
Raman’s brother to him would not be treated as supply under section
7 read with Schedule I of the CGST Act.
(c) In the above case, if Raman has taken advice with regard to his business
unit, services provided by Raman’s brother to him would still not be
treated as supply under section 7 of the CGST Act read with Schedule I
as although the same are provided in course or furtherance of business,
such services have not been received from a related person.
7. (a) Supply of services
(b) Supply of goods
(c) Supply of services
(d) Supply of goods
8. (a) Supply of services
(b) Supply of goods
(c) Supply of services
(d) Supply of goods
9. The statement is not correct. Supply of goods on hire purchase shall be
treated as supply of goods as there is transfer of title, albeit at a future date.
10. (i) Supply, under section 7 of the CGST Act, 2017, inter alia,
includes import of services for a consideration
even if it is not in the course or furtherance of business.
Thus, although the import of service for consideration by Miss. Shriniti
Kaushik is not in course or furtherance of business [as the interior
decoration services have been availed in respect of residence], it would
amount to supply.
(ii) Schedule I of CGST Act, inter alia, stipulates that import of services by
a taxable person from a related person located outside India, without
Supply of these goods is, therefore, supply of individual items which are
taxable at the respective rates applicable to them.
13. As per section 2(74) of the CGST Act, 2017, mixed supply means 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.
Supply of a package containing chocolates, fruit juice bottles and a packet of
toy balloons is a mixed supply as each of these items can be supplied
separately and is not dependent on any other. Further, as per section 8(b) of
the CGST Act, 2017, the mixed supply is treated as a supply of that particular
supply which attracts the highest rate of tax. Thus, in the given case, supply
of packages is treated as supply of chocolates [since it attracts the highest
rate of tax] and the rate of GST applicable on the package of ` 6,00,000
(20,000 × ` 30) is 18%
14. As per section 25(4) 24, a person who has obtained 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’.
Schedule I to the CGST Act specifies situations where activities are to be
treated as supply even if made without consideration. Supply of goods and/or
services between ‘distinct persons’ as specified in section 25, when made in
the course or furtherance of business is one such activity included in
Schedule I under para 2.
However, in view of the GST Council’s recommendation, it has been clarified
that the inter-State movement of various modes of conveyance between
‘distinct persons’ as specified in section 25(4), not involving further supply of
such conveyance, including trucks carrying goods or passengers or both; or
for repairs and maintenance, may be treated ‘neither as a supply of goods
nor supply of service’ and therefore, will not be leviable to IGST [Circular No.
1/1/2017 IGST dated 07.07.2017].
24
Provisions of section 25(4) of the CGST Act have been discussed in detail in Chapter 7 –
Registration
Thus, in the given case, inter-State movement of trucks from the workshop of
Gagan Engineering Pvt. Ltd. located in Haryana to its repair centres located
in other States is ‘neither a supply of goods nor supply of service’.
15. As per section 7(1)(a), the goods or services which are supplied free of cost
(without any consideration) are not treated as “supply” except in case of
activities mentioned in Schedule I of the CGST Act. Under “Buy One Get One
Free” scheme, it may appear at first glance that in case of offers like “Buy One,
Get One Free”, one item is being “supplied free of cost” without any
consideration. However, it is not an individual supply of free goods, but a
case of two or more individual supplies where a single price is being charged
for the entire supply. It can at best be treated as supplying two goods for the
price of one.
Taxability of such supply will be dependent upon as to whether the supply is
a composite supply or a mixed supply and the rate of tax shall be determined
accordingly.
16. Services by way of grant of alcoholic liquor license by the State Governments
have been notified to be treated neither as a supply of goods nor as a supply
of service. Such licence is granted against consideration in the form of licence
fee or application fee or by whatever name it is called. This special
dispensation is applicable only to supply of service by way of grant of liquor
licenses by the State Governments as an agreement between the Centre and
States and is not applicable/has no precedence value in relation to grant of
other licenses and privileges for a fee in other situations, where GST is
payable.
Thus, in the given case, the grant of alcoholic liquor license by the Tamil Nadu
Government to Sarvanna & Sons is neither a supply of goods nor a supply of
service.