Concept of Supply Under GST and Levy of Tax
Expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, 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 services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
Under the GST law, the levy of tax is as follows:
(a) In the hands of the supplier – on the supply of goods and / or services (referred to as tax under forward charge mechanism);
(b) In the hands of the recipient – on receipt of goods and / or services (referred to as tax under reverse charge mechanism)
When the goods/ services are supplied by a supplier, who is un-registered person to a receiver, who is registered person, the liability to pay tax on such supplies will be on recipient under reverse charge basis.
Thus, a registered person would be required to pay GST on all supplies received by it from un-registered persons.
Note: This is applicable to both, goods as well as, services
Levy of tax: Every supply will be liable to tax. The nature of tax would depend upon the nature of supply, viz., inter-State supplies will be liable to IGST and intra-State supplies will be liable to CGST and SGST (UTGST).
(i) Supply should involve goods and / or services – viz., either as wholly goods or wholly services. Even where a supply involves both, goods and services, the law provides that such supplies would classifiable either as, wholly goods or wholly services. Schedule II of the Act provides for this classification.
(ii) Where a supply involves multiple (more than one) goods or services, or a combination of goods and services, the treatment of such supplies would be as follows:
(a) If it involves more than one goods and / or services which are naturally bundled together: These are referred to as composite supply of goods and / or services. It shall be deemed to be a supply of those goods or services, which constitutes the principal supply therein.
(b) If it involves supply of more than one goods and / or services which are not naturally bundled together: These are referred to as mixed supply of goods and / or services. It shall be deemed to be a supply of that goods or services therein, which are liable to tax at the highest rate of GST
A supply of more than one goods and / or services as a bundle will be reckoned as ‘mixed supply’ if:
(i) such goods and / or services are supplied together for a single price
(ii) they are not naturally bundled together and
(iii) it does not qualify as composite supply.
Some Important Points about Supply
A) Supply should be in the course or furtherance of business: For a transaction to qualify as ‘supply’, it is essential that the same is ‘in the course or furtherance of business’. This implies that any supply of goods and / or services by a business entity would be liable to tax, so long as it is in the course or furtherance of business. Supplies which are not in the course of business (or in furtherance of business) will not qualify as ‘supply’ for the levy of tax, except in case of import of service for consideration, where the service is a supply whether or not it is made in the course or furtherance of business.
B) Import of service will be taxable in the hands of the recipient (importer): The word ‘supply’ includes import of a service, made for a consideration (as defined in Section 2(31)) and whether or not in the course or furtherance of business. This implies that import of services even for personal consumption would qualify as ‘supply’ and therefore would be liable to tax. This would not be subject to the threshold limit as tax is expected to be payable on reverse charge basis, and the threshold limits do not apply in case of supplies attracting tax on reverse charge basis.
C) Transactions without consideration: The law provides that in certain cases, even though there is no consideration, the same would be treated as ‘supply’. Such cases are listed in Schedule I.
(i) Permanent transfer of business assets where input tax credit has been availed: The word ‘transfer’ in this clause suggests that there should be another person who would receive the business assets at the other end. The use of the words ‘permanent transfer’ implies that the goods should be transferred without any intention or requirement of having to receive the goods back.
E.g.: Goods sent on job work or goods sent for testing or goods sent for certification would not qualify as ‘supply’ under this clause since there is no permanence in transfer
Typically, donation of business assets or scrapping or disposal in any other manner (other than as a sale – i.e., for a consideration) would qualify as ‘supply’ under this clause, where input tax credit has been claimed on the same.
(ii) Supply of goods and / or services between related person, or between distinct persons as specified in Section 25(4) or 25(5), when made in the course or furtherance of business
(iii) Supply of goods by a principal to his agent, where the agent undertakes to supply such goods on behalf of the principal
(iv) Supply of goods by an agent to his principal, where the agent undertakes to receive such goods on behalf of the principal
(v) 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: Importation of services as covered by the definition does not include importation without consideration.
Therefore, this clause is inserted to rope in such services that are received from related persons / their establishments outside
D) Certain supplies will be neither a supply of goods, nor a supply of services: The law lists down matters which shall not be considered as ‘supply’ for GST. This list includes:
Activities/ transactions in Schedule III:
(i) Services by an employee to an employer in the course or in relation to his employment;
(ii) Services by any Court or Tribunal established under any law for the time being in force;
(iii) Functions performed by MPs, MLAs, etc.; the duties performed by a person who holds any post in pursuance of the provisions of the Constitution in that capacity; the duties performed by specified persons in a body established by the Central State Government or local authority, not deemed as an employee;
(iv) Sale of land and Sale of Building (except sale of under-construction premises where the part or full consideration is received before issuance of completion certificate or before its first occupation, whichever is earlier.;
(v) Actionable claims, other than lottery, betting and gambling and
(vi) Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
Reverse charge mechanism:
Normally, the supplier of goods and / or services will be liable to discharge tax on the supplies effected. However, the Central or State Governments upon recommendation of the GST Council are empowered to specify by notification the categories of supplies in respect of which the recipient of goods and / or services will be liable to discharge the tax.
All other provisions of this Act will apply to the recipient of such goods and / or services, as if the recipient is the supplier of such goods and / or services – viz., for the limited purpose of such transactions, the recipient would be deemed to be the ‘supplier’. Similarly, when any registered taxable persons receive any supply from unregistered person, he shall be required to pay tax on such inward supplies under reverse charge mechanism.