Supply of Goods or/and Services under CGST/SGST Act. – Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.—

(i) the activity involves supply of goods or services or both;

(ii) the supply is for a consideration unless otherwise specifically provided for. Schedule 1 specifically provides the activities which shall be treated as supply even if such supply is made or agreed to be made without a consideration (See para 2.1(C));

(iii) the supply is made in the course or furtherance of business;

(iv) the supply is made in the taxable territory;

(v) the supply is a taxable supply; and

(vi) the supply is made by a taxable person.

1. Under certain circumstances such as import of services for a consideration whether or not in the course or furtherance of business [Section 3(1)(b)] or supplies made without consideration, specified under Schedule-I of CGST/SGST Act, where one of more ingredients specified above are not satisfied, it shall still be treated as supply for levy of GST.

2. Inter-State self-supplies such as stock transfers, branch transfers or consignment sales shall be taxable under IGST, even though such transactions may not involve payment of consideration.

Supply of Goods or/and Services under CGST/SGST Act.

Table of Contents

1. Meaning of Goods or Services under CGST/SGST Act.

Supply should be of goods or services. Supply of anything other than goods or services like money, securities, etc. does not attract GST.

(a) Meaning of “Goods” [Section 2(52) of the CGST Act, 2017]:

“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.

(b) Meaning of “Services”[Section 2(102) of the CGST Act, 2017]:

“Services” means anything other than goods, money and securities

but includes

— 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 a separate consideration is charged.

A careful perusal of the above Schedule II reveals that in the GST Regime, the terms “goods” and “services“ shall be understood in legal sense as defined in Schedule-II as compared to the traditional sense. For example, in the pre-GST Regime the term “works contract” used to mean a contract wherein transfer of property is involved in the execution of such contract and there is provision of service also. Thus, in the pre-GST Regime works contract was subject to VAT/CST on the value of goods and service portion was subject to service tax.

However, in the GST Regime, Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be treated as supply of service only even though in such contract transfer of property in goods either as goods or in any other form is also involved. Therefore it shall be taxable at the rate which as applicable to this category of service and time of supply and place of supply and other provisions of CGST/SGST or IGST shall also be applicable as apply to the supply of service of the same category.

Similarly, supply of goods without transfer of ownership for specified period for a consideration shall also be considered supply of service irrespective of the fact whether effective control or possession is parted to the lessee or not.

In the earlier law where effective control and possession was transferred, it was considered as deeming sale in terms of Article 369A of the constitution. However in GST deeming sales of this kind is also considered as service as provided in Schedule-II to the CGST Act, 2017.

2. Supply of Goods or Services must be made for a Consideration unless otherwise specifically provided in Schedule 1

As per section 2(31) of the CGST Act, “consideration” in relation to the supply of goods or services or both includes—

(a) any payment made or to be made,

— whether in money or otherwise,

— in respect of, in response to, or for the inducement of, the supply of goods or services or both,

— whether by the recipient or by any other person

— but shall not include any subsidy given by the Central Government or a State Government.

However, 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.

(b) the monetary value of—

— any act or forbearance,

— in respect of, in response to, or for the inducement of, the supply of goods or services or both,

— whether by the recipient or by any other person

but shall not include any subsidy given by the Central Government or a State Government.

Thus, it can be inferred that ‘consideration’ means ‘quid pro quo’ i.e. something in return. Further, ‘consideration’ may be an act (doing something) or forbearance (not doing something) or a promise to do or not to do something.

For instance, A agrees to pay to B a stipulated sum if B does not file a suit against A. Here, B’s abstinence i.e. negative act of not filing a suit against A is a valid consideration for A’s promise to pay the stipulated sum.

In addition, consideration may be past, present or future. It may take following two forms:

(i) Monetary consideration; or

Monetary consideration means any consideration received in the form of money and includes not only cash but also cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller’s cheque, money order, postal or electronic remittance or any such similar instrument.

(ii) Non-monetary consideration.

Non-monetary consideration essentially means compensation in kind such as the following:

>> Supply of goods and services in return for provision of service

>> Refraining or forbearing to do an act in return for provision of service

>> Tolerating an act or a situation in return for provision of a service

>> Doing or agreeing to do an act in return for provision of service

Illustration

If……	And in return…
A agrees to dry clean B’s clothes	B agrees to click A’s photograph
A agrees not to open dry clean shop in B’s neighbourhood	B agrees not to open photography shop in A’s neighbourhood
A agrees to design B’s house	B agrees not to object to construction of A’s house in his neighbourhood
A agrees to construct 3 flats for B on land owned by B	B agrees to provide one flat to A without any monetary consideration

In such situations

For the services provided by A to B, the acts of B specified in 2nd column are non- monetary consideration provided by B to A. Conversely, for services provided by B to A, similar reasoning will be adopted.

However, the non-monetary consideration also needs to be valued for determining the tax payable on the taxable supply of service since GST is levied on the value of consideration received which includes both monetary consideration and money value of non-monetary consideration.

Schedule 1 specifically provides the activities which shall be treated as supply even if such supply is made or agreed to be made without a consideration (See para 2.1(C))

3. The supply of Goods or Services is made in the course or furtherance of business

GST is a tax only on those supplies that are in the course or furtherance of business. Any supply made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business.

Example

R buys a car for personal use and after a year he sells it to a car dealer. Such transaction of supply is not made by R in the course of furtherance of business in terms of CGST/SGST Act. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use. Hence, sale of car by R it is not a supply under CGST Act/ SGST Act. However, if the dealer subsequently sells the car, it will be treated as supply of goods in the course or furtherance of business.

As per section 2(17) of the CGST Act, 2017, “business” includes—

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker in such club; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.

Thus, business includes any trade, commerce, manufacture, profession, vocation, etc. whether or not undertaken for a pecuniary benefit. Business also includes any activity or transaction which is incidental or ancillary to the aforementioned listed activities. In addition any activity undertaken by the Central Government or a State Government or any local authority in which they are engaged as public authority shall also be construed as business. From the above, if may be noted that any activity undertaken included in the definition for furtherance or promoting of a business could constitute a supply under GST law.

Any activity undertaken in course/for furtherance of business would constitute a supply. Since ‘business’ includes vocation, sale of goods or service even as a vocation is a supply under GST.

Example

Amitabh Bachan, a famous actor, clicks some photographs and sells them on the condition that the consideration from such sale is to be donated to a Charitable Trust. The sale of photographs by the actor qualifies as supply even though it is a one time occurrence.

Provision of facilities by a club, association, society or any such body to its members for consideration shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of the CGST/SGST Act.

4. Meaning of Taxable Territory [Section 2(109) of CGST Act, 2017]

“Taxable territory” means the territory to which the provisions of this Act apply.

5. Taxable Supply of Goods or Services [Section 2(108) of CGST Act, 2017]

GST is attracted only when the supply is taxable.

Meaning of “Taxable supply”:

“Taxable supply” means a supply of goods or services or both which is leviable to tax under this Act.

6. Taxable Person [Section 2(107) of CGST Act, 2017]

A supply must be made by a taxable person to attract GST. However, the recipient of goods can be either taxable or non taxable person. Supply made by a non taxable person to another non taxable person shall not constitute taxable supply under GST.

Meaning of “Taxable Person”:

“Taxable person” means a person who is registered or liable to be registered under section 22 or section 24.

The term “person” has been defined as under, vide section 2(84) of the CGST Act, 2017:

“person” includes—

(a) an individual;

(b) a Hindu Undivided Family;

(d) a firm;

(e) a Limited Liability Partnership;

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in section 2(45) of the Companies Act, 2013;

(h) any body corporate incorporated by or under the laws of a country outside India;

(i) a co-operative society registered under any law relating to co-operative societies;

(j) a local authority;

(k) Central Government or a State Government;

(l) society as defined under the Societies Registration Act, 1860;

(m) trust; and

(n) every artificial juridical person, not falling within any of the above

It is to be noted that ‘supply’ need not be made by one person to another because self-supply shall also be taxable under GST. The taxing of self-supply is a new concept in GST.

7. Types of Supply of Goods or Services under GST

The following are the different types of supplies under the GST law:

(i) Taxable and exempt supplies, (For exempt supplies see Chapter 4)

(ii) Inter-State and Intra-State supplies, (For details see Chapter 3)

(iii) Composite and mixed supplies, (For details see Chapter 5)

(iv) Zero rated supplies

1. “Taxable supply” means a supply of goods or services or both which is leviable to tax under this Act.

2. “Exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.

As per section 11 of CGST Act and section 6 of the IGST Act, in the public interest, the Central or the State Government can exempt either wholly or partly, on the recommendations of the GST council, the supplies of goods or services or both from the levy of GST either absolutely or subject to conditions. Further the Government can exempt, under circumstances of an exceptional nature, by special order any goods or services or both. It has also been provided in the SGST Act and UTGST Act that any exemption granted under CGST Act shall be deemed to be exemption under the said Act.