Sunday, 16 February 2020

GST : Meaning & Scope of Supply (Part 1)

Part 1 |

Under any tax law, taxable event is a very important concept. Taxable event is an event on occurrence of which the levy of tax arises. In other words, there is no tax liability unless the taxable event occurs. For example, under pre-GST indirect tax regime, in case of excise duty, ‘manufacture’ was the taxable event. Excise duty used to arise only when the activity falls under the scope of manufacturing. Now we are in GST regime. Under GST law, ‘supply’ is the taxable event. Once an activity falls under the ambit of supply, levy of GST arises. In today's article, we will try to understand the concept of supply under GST laws.

The term ‘Supply’ is defined under Section 7 of Central Goods and Service Tax Act, 2017 (CGST Act). Section 7 gives an inclusive definition of supply. According to Section 7 of CGST Act,

“7 (1)- For the purpose of this Act, the expression ‘supply’ includes

(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;

(b) Import of service for a consideration whether or not in the course or furtherance of business; and

(c) The activities specified in Schedule I, made or agreed to be made without consideration
7 (1A)- where certain activities or transactions constitute a supply in accordance with 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), -

(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.

7 (3)- Subject to the provisions of 5[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.”
On reading of aforesaid definition, we can list following important points in relation to supply:
  1. Supply should be of goods or services. Supply of anything other than goods or services for example, money, securities etc. will not attract GST.
  2. Supply should be made for consideration. Anything supplied without consideration or free of cost will not attract GST. (Exception to this is activities listed in Schedule I. This will be discussed in later part)
  3. Supply should be in the course or furtherance of business. (However, in case of import of service, import of services for the consideration whether or not in the course or furtherance of business is treated as supply.
  4. GST Act has classified certain transactions as supply of goods or supply of services. This classification is provided in Schedule II of the Act.
  5. Further, there are some cases which are not treated as supply even though these transactions fulfill all the conditions necessary for treating an activity to be supply in normal course. These activities are given in Schedule III of the Act.

Every part of the above definition needs detailed analysis to understand the concept of supply thoroughly. We will try to elaborate the two important concepts in the definition in the next part of this article. These two important concepts are
  1. Consideration 
  2. In the course or furtherance of business
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....to be continued

Sunday, 9 February 2020

Doctrine of Merger

  1. Assessee who is resident in India filed the return of income u/s 139(1) on 31-07-2014 for the AY 2013-14 declaring the income at 50 crore INR. Assessee is an individual engaged in the business of manufacturing & export of readymade garments.
  2. Return was processed under section 143(1) without any variation.
  3. On 30-11-2015, assessment u/s 143(3) was finalised by making addition on account of bogus purchase to the tune of Rs 5 crore by assessing officer.
  4. Aggrieved by that, assessee filed the appeal before CIT Appeal and CIT appeal partly allowed the appeal & restricted the addition to the extent of 2 crores & deleted the addition of 3 crore.
  5. Against this order both AO & Assessee are in appeal at tribunal and both the cases are pending.
  6. For the same AY, On 29-03-2016, AO issued the notice u/s 148 by alleging that assessee has claimed the bogus gifts.
  7. Assessee filed a fresh return which was identical to the return u/s 139(1).
  8. Assessment order u/s 143(3) read with section 147, was framed on 31-08-2016 and addition on account of bogus gifts were made to the tune of 1 Crore INR.
  9.  Aggrieved by that, assessee filed the appeal before CIT Appeal challenging reassessment as well as addition. Case is yet to be disposed.
  10. On 31-03-2019, Principal Commissioner of Income Tax Issued the notice under section 263 by alleging that during the proceedings under section 143(3) rws 147, AO should have inquired about the source of the fresh investment in the residential house owned by the assessee to the tune of 5 crore & such absence of the inquiry by AO makes the assessment order erroneous & prejudicial to the interest of revenue & accordingly he set aside the order passed by the AO dated 31-08-2016 & directed the AO to make the fresh assessment order after making investigation as stated above.
  11. Assessee contended that stand taken by PCIT is not correct as the matter raised by PCIT stands covered in the assessment order dated 30-11-2015 and by doctrine of merger, this issue is no more open under section 263.

In the light of the above facts, you are required to write a note:
A. If course of action adopted by the PCIT u/s 263 is valid or not
B. What could be the possible recourse & available defence for the assessee henceforth.
C. Would your answer be different if assessee has been non resident.
Hint:
  • Absence of inquiry vs Sufficiency of the inquiry
  • Doctrine of Merger
Please give your answers in comment section.