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

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