GST : Meaning and Scope of Supply

What is GST?

Goods & Services Tax is a destination base tax on consumption of Goods and Services that will be levied on every value addition of supply of goods or services.

It is to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer.

GST (Goods & Services Tax), a single unified tax system aims at uniting India’s complex taxation structure to a ‘One Nation- One Tax’ regime. It is the biggest tax reform since India’s independence.

Supply of Goods o Services [Section 7(1)]

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;

• The activities specified in Schedule I, made or agreed to be made without a consideration
• The activities to be treated as supply of goods or supply of services as referred to in Schedule II
• The activities / transactions as neither supply of goods nor of services – Schedule III

Schedule I

There are certain activities that are construed as supply even if there is no consideration involved. Such supplies are referred to as “Deemed Supplies” under GST. Following are the list of all such activities:

• Permanent transfer or disposal of business assets. Provided Input Tax Credit has been availed on such assets.
• Supply of goods or services between related persons or distinct persons as mention under section 25. Provided such a supply is made in the ordinary course of business or for furtherance of business.
• Principal supplying goods to his agent. Provided the agent undertakes to supply such goods on behalf of the principal.
• Agent supplying goods to his Principal. Provided the agent undertakes to receive such goods on behalf of the principal.
• Taxable person importing services from either a related person or any of his establishments outside India.

Schedule II

Activities Treated As Supply of Goods

Following are the activities that form “Supply of Goods” under GST:

1. Any transfer of title in Goods
2. Transfer of title in goods under an agreement stipulating that the property in goods shall pass at a future date upon payment of full consideration as agreed.
3. Goods forming part of the assets of a business transferred or disposed of by or under the direction of the person carrying on the business. Provided such goods are transferred so that they no longer form part of those assets. Moreover, such a transfer takes place whether or not for a consideration.
4. There are cases where a person ceases to be a taxable person. In such a case, goods forming part of the assets of any business carried on by the said person shall be deemed to be supplied by him in the course or furtherance of his business. Provided such goods are supplied immediately before the person ceases to be a taxable person, unless:
   1. The business is transferred as a going concern to another person
   2. Business is carried on by a personal representative who is deemed to be taxable
5. Supply of goods by any unincorporated association to a member for cash, deferred payment or other valuable consideration.

Activities Treated As Supply of Services

Following are the activities that form “Supply of Services” under GST:

1. Transfer of right in goods or of undivided share in goods without the transfer of title
2. Any lease, tenancy, easement, licence to occupy land
3. Lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly
4. Any treatment or process which is applied to another person’s goods
5. Transfer of business assets:
   1. By or under the direction of a person carrying on a business
   2. Goods held assets or used for the purposes of the business are put to any private use or
   3. Are used, or made available to any person for use, for any purpose other than the purpose of the business, whether or not for a consideration
6. Renting of immovable property
7. Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly. This is except the cases where:
   1. the entire consideration has been received after issuance of completion certificate, where required by the competent authority or
   2. after its first occupation, whichever is earlier.
8. Temporary transfer or permitting the use of any intellectual property right
9. Development, design, programming, customization, adaptation, up-gradation, enhancement, implementation of information technology software
10. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
11. Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
12. Composite supply of works contract as defined in clause (119) of section 2.
13. Composite supply:
    1. by way of or as part of any service or
    2. in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink. (other than alcoholic liquor for human consumption).
       Provided such supply or service is for cash, deferred payment or other valuable consideration.

Schedule III

There are certain activities that are not to be treated as Supply under GST. Hence, following activities are neither treated as supply of goods not supply of services:

• Services given by an employee to the employer
• Any person performing duties as a Chairperson or a Member or a Director of a government body. Provided the person is not regarded as an employee before the commencement of this clause.
• Functions performed by members of:
  • Parliament
  • State Legislature
  • Panchayats
  • Municipalities
  • Other Local Authorities
• Duties performed by a person holding any designation in order to pursue constitutional provisions.
• Funeral, burial, crematorium or mortuary including transporting the deceased.
• Sale of land
• Actionable claims besides lottery, gambling and betting
• Sale of building subject to clause (b) of paragraph 5 of Schedule II

“Composite Supply”

Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration — Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

“Mixed Supply”

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.

 Illustration — A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately;