Ch 2 - Taxable Event in GST | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 2 - Taxable event i n GST 
 
 
 
 
 
CHAPTER 2 
 
Taxable event in GST 
EXECUTIVE SUMMARY 
?   Supply of goods or services or both is 'taxable event' in GST as that event tri ggers liability to pay 
GST. 
?   Supply of goods and services for consideration is always taxable. 
?   Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no 
amount is charged. 
?   This will cover transactions between group companies (like deputation of persons, supply of goods 
on loan basis, common facilities shared by group companies),  transactions  between branches in 
di fferent States. 
?   Free gifts to related persons will be subject to GST. 
?   Employer and Employee have been defined as 'related persons'. Hence, GST will be payable on 
fringe  benefits  by  employer  to  employees  like  transport,  meals,  telephone  etc.  provided  to 
employees. Gifts upto Rs 50,000 to employees will not be subject to GST, but input tax credit will 
have to be reversed. 
?   Supply between two distinct persons in course of business is subject to GST. This will cover inter- 
state stock transfers, branch transfers, services by Banks and telecom companies in one State to 
their own branches in another State and the like. 
?   Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. 
However, commission agent has to pay GST only on his commission as he does not deal with goods 
or services. 
?   Import of services from related person or from business establishment outside India is subject to 
GST even if there is no consideration. Branch/Head Office in India receiving free services from Head 
Office/outside India will be subject to GST. 
?   Lottery, betting and gambling is subject to GST. 
?   Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to 
betting and gambling. 
?   Some services provided by Government are taxable and mostly will be subject to reverse charge. 
2.1 Meaning of taxable  event 
 
'Taxable  event' is that on happening of which the charge is fixed. It is that event, which on its occurrence 
creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even 
though taxable event happens to be at a particular point of time, the levy and co lection of such tax may be 
postponed for administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana  (1990) 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 2 - Taxable event i n GST 
 
 
 
 
 
CHAPTER 2 
 
Taxable event in GST 
EXECUTIVE SUMMARY 
?   Supply of goods or services or both is 'taxable event' in GST as that event tri ggers liability to pay 
GST. 
?   Supply of goods and services for consideration is always taxable. 
?   Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no 
amount is charged. 
?   This will cover transactions between group companies (like deputation of persons, supply of goods 
on loan basis, common facilities shared by group companies),  transactions  between branches in 
di fferent States. 
?   Free gifts to related persons will be subject to GST. 
?   Employer and Employee have been defined as 'related persons'. Hence, GST will be payable on 
fringe  benefits  by  employer  to  employees  like  transport,  meals,  telephone  etc.  provided  to 
employees. Gifts upto Rs 50,000 to employees will not be subject to GST, but input tax credit will 
have to be reversed. 
?   Supply between two distinct persons in course of business is subject to GST. This will cover inter- 
state stock transfers, branch transfers, services by Banks and telecom companies in one State to 
their own branches in another State and the like. 
?   Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. 
However, commission agent has to pay GST only on his commission as he does not deal with goods 
or services. 
?   Import of services from related person or from business establishment outside India is subject to 
GST even if there is no consideration. Branch/Head Office in India receiving free services from Head 
Office/outside India will be subject to GST. 
?   Lottery, betting and gambling is subject to GST. 
?   Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to 
betting and gambling. 
?   Some services provided by Government are taxable and mostly will be subject to reverse charge. 
2.1 Meaning of taxable  event 
 
'Taxable  event' is that on happening of which the charge is fixed. It is that event, which on its occurrence 
creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even 
though taxable event happens to be at a particular point of time, the levy and co lection of such tax may be 
postponed for administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana  (1990) 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
76 STC 71 (SC) = 188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State 
of Kerala v. Alex George 2004 AIR SCW 6552 (SC 3 member bench). 
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the 
taxable event - KalwaDevadallain  v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner 
(1964) 15 STC 487 (A l HC). 
Tax can be imposed only on 'taxable event'. However, a l taxable events are not covered in legislative entries 
in Seventh Schedule to Constitution -Godfrey Philips India v. State of UP AIR 2005 SC 1103 = 139 STC 
537 (SC 5 member Constitution Bench). 
 
2.1-1 Supply of goods or services is 'taxable event' in GST 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. 'Consideration' is not required for supply. 
Thus, inter-state stock transfers, branch transfers will also get covered under GST net. 
Luckily, goods sent for job work will not be liable to pay GST. 
2.1-2 Charging section in CGST, SGST, UTGST and IGST 
 
Section 9(1) of CGST Act is the charging section for CGST. 
 
Subject to section 9(2) of CGST Act, there shall be levied a tax ca led the Central Goods and Services Tax 
(CGST) on a l intra-State supplies of goods or services or both, except on supply of alcoholic liquor for 
human consumption, on the value determined under section 15 of CGST Act and at such rates not exceeding 
20% as may be notified by Central Government, on the recommendation of GST Council and co lected in 
such manner as may be prescribed. 
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST on the supply of 
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine 
fuel shall be levied with effect from such date as may be notified by the Government on the recommendations 
of the GST Council - section 9(2) of CGST Act. 
Section 5(1) and 5(2) of IGST Act have para lel provisions in respect of IGST. 
 
2.2 General Meaning of 'supply' 
 
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or need etc.) - 
Concise Oxford Dictionary 
Supply - 'Supply' is that which is or can be supplied, available aggregate of thi ngs needed or demanded, an 
amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha Aiyar 
Supply - furnish, substitute for - Co lins Gem Dictionary. 
Thus, 'Supply' is a very broad word. 
'Supply' does not need 'consideration'. 
 
Further, two separate legal entities are not required. One branch or division or depot can 'supply' goods or 
services to another branch, division or depot. 
2.2-1 Supply as per GST law 
 
Section 7(1) of CGST Act, states that for the purpose of CGST Act, the expression 'supply' includes — 
 
(a)   a l forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 2 - Taxable event i n GST 
 
 
 
 
 
CHAPTER 2 
 
Taxable event in GST 
EXECUTIVE SUMMARY 
?   Supply of goods or services or both is 'taxable event' in GST as that event tri ggers liability to pay 
GST. 
?   Supply of goods and services for consideration is always taxable. 
?   Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no 
amount is charged. 
?   This will cover transactions between group companies (like deputation of persons, supply of goods 
on loan basis, common facilities shared by group companies),  transactions  between branches in 
di fferent States. 
?   Free gifts to related persons will be subject to GST. 
?   Employer and Employee have been defined as 'related persons'. Hence, GST will be payable on 
fringe  benefits  by  employer  to  employees  like  transport,  meals,  telephone  etc.  provided  to 
employees. Gifts upto Rs 50,000 to employees will not be subject to GST, but input tax credit will 
have to be reversed. 
?   Supply between two distinct persons in course of business is subject to GST. This will cover inter- 
state stock transfers, branch transfers, services by Banks and telecom companies in one State to 
their own branches in another State and the like. 
?   Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. 
However, commission agent has to pay GST only on his commission as he does not deal with goods 
or services. 
?   Import of services from related person or from business establishment outside India is subject to 
GST even if there is no consideration. Branch/Head Office in India receiving free services from Head 
Office/outside India will be subject to GST. 
?   Lottery, betting and gambling is subject to GST. 
?   Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to 
betting and gambling. 
?   Some services provided by Government are taxable and mostly will be subject to reverse charge. 
2.1 Meaning of taxable  event 
 
'Taxable  event' is that on happening of which the charge is fixed. It is that event, which on its occurrence 
creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even 
though taxable event happens to be at a particular point of time, the levy and co lection of such tax may be 
postponed for administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana  (1990) 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
76 STC 71 (SC) = 188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State 
of Kerala v. Alex George 2004 AIR SCW 6552 (SC 3 member bench). 
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the 
taxable event - KalwaDevadallain  v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner 
(1964) 15 STC 487 (A l HC). 
Tax can be imposed only on 'taxable event'. However, a l taxable events are not covered in legislative entries 
in Seventh Schedule to Constitution -Godfrey Philips India v. State of UP AIR 2005 SC 1103 = 139 STC 
537 (SC 5 member Constitution Bench). 
 
2.1-1 Supply of goods or services is 'taxable event' in GST 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. 'Consideration' is not required for supply. 
Thus, inter-state stock transfers, branch transfers will also get covered under GST net. 
Luckily, goods sent for job work will not be liable to pay GST. 
2.1-2 Charging section in CGST, SGST, UTGST and IGST 
 
Section 9(1) of CGST Act is the charging section for CGST. 
 
Subject to section 9(2) of CGST Act, there shall be levied a tax ca led the Central Goods and Services Tax 
(CGST) on a l intra-State supplies of goods or services or both, except on supply of alcoholic liquor for 
human consumption, on the value determined under section 15 of CGST Act and at such rates not exceeding 
20% as may be notified by Central Government, on the recommendation of GST Council and co lected in 
such manner as may be prescribed. 
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST on the supply of 
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine 
fuel shall be levied with effect from such date as may be notified by the Government on the recommendations 
of the GST Council - section 9(2) of CGST Act. 
Section 5(1) and 5(2) of IGST Act have para lel provisions in respect of IGST. 
 
2.2 General Meaning of 'supply' 
 
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or need etc.) - 
Concise Oxford Dictionary 
Supply - 'Supply' is that which is or can be supplied, available aggregate of thi ngs needed or demanded, an 
amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha Aiyar 
Supply - furnish, substitute for - Co lins Gem Dictionary. 
Thus, 'Supply' is a very broad word. 
'Supply' does not need 'consideration'. 
 
Further, two separate legal entities are not required. One branch or division or depot can 'supply' goods or 
services to another branch, division or depot. 
2.2-1 Supply as per GST law 
 
Section 7(1) of CGST Act, states that for the purpose of CGST Act, the expression 'supply' includes — 
 
(a)   a l forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
rental, lease or disposal made or agreed to be made for a consideration by a person in the course or 
furtherance of business 
(b)   importation 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. 
2.2-2 Activities which are neither supply of goods nor supply of services 
 
Notwithstanding anything contained in sub-section 7(1) of CGST Act, (a) activities or transactions specified in 
schedule III; or (b) 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 Central Government 
on the recommendation of GST Council, shall be treated neither as a supply of goods nor a supply of services 
- section 7(2) of CGST Act. 
 
2.2-3 Changes in scope of supply of goods or services 
 
Subject to section 7(2) and section 7(3), the Central Government may, on recommendation 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; or (c) neither a supply of goods nor a 
supply of services - section 7(3) of CGST Act. 
Section 7(3) is subject to section 7(1) and 7(2) of CGST Act. Thus, notification issued under section 7(3) of 
CGST Act cannot override any provision of section 7(1) or section 7(2) of CGST Act. 
 
2.2-4 Coverage of 'supply' is very wide as definition is 'inclusive' 
 
The definition of 'supply' in section 7(1) of CGST Act is 'inclusive' definition. Thus, any supply of goods or 
services would get covered, even if not specified in any of sub-sections of section 7(1) of CGST Act. 
2.2-5 Main part of definition covers all supplies  for consideration 
 
Main part of definition in section 7(1)(a) of CGST Act makes it clear that a l supplies made for consideration 
in course of business are subject to GST. 
Import of services for consideration will be subject to GST even if not made in course of business. Thus, even 
import for charity activities will get covered, even if they are not in course of business - section 7(1)(b) of 
CGST Act. 
2.2-6 Tax liability in case of Mixed supply and composite  supply 
 
The tax liability on a composite  or a mixed supply shall be determined  in the fo lowing manner — (a) a 
composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a 
supply of such principal supply (b) a mixed supply comprising two or more supplies shall be treated as supply 
of that particular supply which attracts the highest rate of tax - section 8 of CGST Act. 
"Principal supply" means the supply of goods or services which constitutes  the predominant  element of a 
composite supply and to which any other supply forming part of that composite supply is anci lary - section 
2(90) of CGST Act. 
 
"Composite  supply"  means a supply made by a taxable person to a recipient comprising of two or more 
taxable supplies of goods or services or both, or any combination thereof, which are natura ly 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 - section 
2(30) of CGST Act. 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 2 - Taxable event i n GST 
 
 
 
 
 
CHAPTER 2 
 
Taxable event in GST 
EXECUTIVE SUMMARY 
?   Supply of goods or services or both is 'taxable event' in GST as that event tri ggers liability to pay 
GST. 
?   Supply of goods and services for consideration is always taxable. 
?   Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no 
amount is charged. 
?   This will cover transactions between group companies (like deputation of persons, supply of goods 
on loan basis, common facilities shared by group companies),  transactions  between branches in 
di fferent States. 
?   Free gifts to related persons will be subject to GST. 
?   Employer and Employee have been defined as 'related persons'. Hence, GST will be payable on 
fringe  benefits  by  employer  to  employees  like  transport,  meals,  telephone  etc.  provided  to 
employees. Gifts upto Rs 50,000 to employees will not be subject to GST, but input tax credit will 
have to be reversed. 
?   Supply between two distinct persons in course of business is subject to GST. This will cover inter- 
state stock transfers, branch transfers, services by Banks and telecom companies in one State to 
their own branches in another State and the like. 
?   Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. 
However, commission agent has to pay GST only on his commission as he does not deal with goods 
or services. 
?   Import of services from related person or from business establishment outside India is subject to 
GST even if there is no consideration. Branch/Head Office in India receiving free services from Head 
Office/outside India will be subject to GST. 
?   Lottery, betting and gambling is subject to GST. 
?   Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to 
betting and gambling. 
?   Some services provided by Government are taxable and mostly will be subject to reverse charge. 
2.1 Meaning of taxable  event 
 
'Taxable  event' is that on happening of which the charge is fixed. It is that event, which on its occurrence 
creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even 
though taxable event happens to be at a particular point of time, the levy and co lection of such tax may be 
postponed for administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana  (1990) 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
76 STC 71 (SC) = 188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State 
of Kerala v. Alex George 2004 AIR SCW 6552 (SC 3 member bench). 
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the 
taxable event - KalwaDevadallain  v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner 
(1964) 15 STC 487 (A l HC). 
Tax can be imposed only on 'taxable event'. However, a l taxable events are not covered in legislative entries 
in Seventh Schedule to Constitution -Godfrey Philips India v. State of UP AIR 2005 SC 1103 = 139 STC 
537 (SC 5 member Constitution Bench). 
 
2.1-1 Supply of goods or services is 'taxable event' in GST 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. 'Consideration' is not required for supply. 
Thus, inter-state stock transfers, branch transfers will also get covered under GST net. 
Luckily, goods sent for job work will not be liable to pay GST. 
2.1-2 Charging section in CGST, SGST, UTGST and IGST 
 
Section 9(1) of CGST Act is the charging section for CGST. 
 
Subject to section 9(2) of CGST Act, there shall be levied a tax ca led the Central Goods and Services Tax 
(CGST) on a l intra-State supplies of goods or services or both, except on supply of alcoholic liquor for 
human consumption, on the value determined under section 15 of CGST Act and at such rates not exceeding 
20% as may be notified by Central Government, on the recommendation of GST Council and co lected in 
such manner as may be prescribed. 
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST on the supply of 
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine 
fuel shall be levied with effect from such date as may be notified by the Government on the recommendations 
of the GST Council - section 9(2) of CGST Act. 
Section 5(1) and 5(2) of IGST Act have para lel provisions in respect of IGST. 
 
2.2 General Meaning of 'supply' 
 
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or need etc.) - 
Concise Oxford Dictionary 
Supply - 'Supply' is that which is or can be supplied, available aggregate of thi ngs needed or demanded, an 
amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha Aiyar 
Supply - furnish, substitute for - Co lins Gem Dictionary. 
Thus, 'Supply' is a very broad word. 
'Supply' does not need 'consideration'. 
 
Further, two separate legal entities are not required. One branch or division or depot can 'supply' goods or 
services to another branch, division or depot. 
2.2-1 Supply as per GST law 
 
Section 7(1) of CGST Act, states that for the purpose of CGST Act, the expression 'supply' includes — 
 
(a)   a l forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
rental, lease or disposal made or agreed to be made for a consideration by a person in the course or 
furtherance of business 
(b)   importation 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. 
2.2-2 Activities which are neither supply of goods nor supply of services 
 
Notwithstanding anything contained in sub-section 7(1) of CGST Act, (a) activities or transactions specified in 
schedule III; or (b) 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 Central Government 
on the recommendation of GST Council, shall be treated neither as a supply of goods nor a supply of services 
- section 7(2) of CGST Act. 
 
2.2-3 Changes in scope of supply of goods or services 
 
Subject to section 7(2) and section 7(3), the Central Government may, on recommendation 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; or (c) neither a supply of goods nor a 
supply of services - section 7(3) of CGST Act. 
Section 7(3) is subject to section 7(1) and 7(2) of CGST Act. Thus, notification issued under section 7(3) of 
CGST Act cannot override any provision of section 7(1) or section 7(2) of CGST Act. 
 
2.2-4 Coverage of 'supply' is very wide as definition is 'inclusive' 
 
The definition of 'supply' in section 7(1) of CGST Act is 'inclusive' definition. Thus, any supply of goods or 
services would get covered, even if not specified in any of sub-sections of section 7(1) of CGST Act. 
2.2-5 Main part of definition covers all supplies  for consideration 
 
Main part of definition in section 7(1)(a) of CGST Act makes it clear that a l supplies made for consideration 
in course of business are subject to GST. 
Import of services for consideration will be subject to GST even if not made in course of business. Thus, even 
import for charity activities will get covered, even if they are not in course of business - section 7(1)(b) of 
CGST Act. 
2.2-6 Tax liability in case of Mixed supply and composite  supply 
 
The tax liability on a composite  or a mixed supply shall be determined  in the fo lowing manner — (a) a 
composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a 
supply of such principal supply (b) a mixed supply comprising two or more supplies shall be treated as supply 
of that particular supply which attracts the highest rate of tax - section 8 of CGST Act. 
"Principal supply" means the supply of goods or services which constitutes  the predominant  element of a 
composite supply and to which any other supply forming part of that composite supply is anci lary - section 
2(90) of CGST Act. 
 
"Composite  supply"  means a supply made by a taxable person to a recipient comprising of two or more 
taxable supplies of goods or services or both, or any combination thereof, which are natura ly 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 - section 
2(30) of CGST Act. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
"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, aerated drink and fruit juices 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 - section 2(74) of CGST Act. 
Comment on definition  of mixed supply - The i lustration given in 'mixed supply' does not match with the 
definition of 'mixed supply'. Definition of 'mixed supply' does not refer to fact whether these can be supplied 
separately and independently. Even in case of 'composite supply', it is possible that the supplier may treat them 
as separate items e.g. he may charge separately for packing, outward transport and insurance. 
Real di fference is that in case of 'composite supply', the items are 'natura ly bundled', but not in case of 'mixed 
supply'. 
The term 'natura ly bundled' is not defined in CGST Act. 
 
2.3 Transactions that will be taxable  as 'supply'even if no consideration 
 
A supply specified in Schedule I, made or agreed to be made without a consideration is 'supply' for purpose of 
CGST Act - section 7(1)(c) of CGST Act. 
 
Thus, these transactions will be subject to GST, even if there is no consideration. The valuation for purpose of 
GST will be as per GST Valuation Rules. 
 
The Schedule I of CGST Act reads as follows - 
 
Schedule  I [section 7]- Activities to be treated as supply even if made  without  consideration 
 
(1)   Permanent  transfer/disposal of business  assets where  input tax credit has been availed  on such 
assets. 
(2)   Supply of goods or services between related persons, or between distinct persons as specified in 
section 25, when made in the course or furtherance of business. 
(3)   Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods 
on behalf of the principal, or (b) by an agent to his principal where the agent undertakes to receive 
such goods on behalf of the principal. 
(4)   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. 
2.3-1 Related persons and distinct  persons as per section 25 
 
The term 'Related Person' has been defined in section 15(9) of CGST Act. This definition is for a l purposes of 
CGST Act and hence will apply to Schedule I also, 
 
The definition is discussed in chapter on GST Valuation. 
 
As per section 25 of CGST Act, person who has obtained di fferent registrations under GST will be treated as 
di fferent persons. Establishment of a person in another State or Union Territory will also be di fferent person, 
even if that establishment in another State or Union Territory is not registered under GST. 
This will cover inter-state stock transfers and branch transfer of goods. It will also cover services provided by 
Head Office/Branch in one State or Union territory to branch/Head Office in another State or Union territory. 
Free samples will not be subject to GST but input tax credit will have to be reversed. 
2.3-2 Transaction between principal and agent 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 2 - Taxable event i n GST 
 
 
 
 
 
CHAPTER 2 
 
Taxable event in GST 
EXECUTIVE SUMMARY 
?   Supply of goods or services or both is 'taxable event' in GST as that event tri ggers liability to pay 
GST. 
?   Supply of goods and services for consideration is always taxable. 
?   Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no 
amount is charged. 
?   This will cover transactions between group companies (like deputation of persons, supply of goods 
on loan basis, common facilities shared by group companies),  transactions  between branches in 
di fferent States. 
?   Free gifts to related persons will be subject to GST. 
?   Employer and Employee have been defined as 'related persons'. Hence, GST will be payable on 
fringe  benefits  by  employer  to  employees  like  transport,  meals,  telephone  etc.  provided  to 
employees. Gifts upto Rs 50,000 to employees will not be subject to GST, but input tax credit will 
have to be reversed. 
?   Supply between two distinct persons in course of business is subject to GST. This will cover inter- 
state stock transfers, branch transfers, services by Banks and telecom companies in one State to 
their own branches in another State and the like. 
?   Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. 
However, commission agent has to pay GST only on his commission as he does not deal with goods 
or services. 
?   Import of services from related person or from business establishment outside India is subject to 
GST even if there is no consideration. Branch/Head Office in India receiving free services from Head 
Office/outside India will be subject to GST. 
?   Lottery, betting and gambling is subject to GST. 
?   Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to 
betting and gambling. 
?   Some services provided by Government are taxable and mostly will be subject to reverse charge. 
2.1 Meaning of taxable  event 
 
'Taxable  event' is that on happening of which the charge is fixed. It is that event, which on its occurrence 
creates or attracts the liability to tax. Such liability does not accrue at any earlier or later point of time. Even 
though taxable event happens to be at a particular point of time, the levy and co lection of such tax may be 
postponed for administrative convenience, to a later date - Goodyear India Ltd. v. State of Haryana  (1990) 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
76 STC 71 (SC) = 188 ITR 402 = 1990 UPTC 198 = AIR 1990 SC 781 - - quoted with approval in State 
of Kerala v. Alex George 2004 AIR SCW 6552 (SC 3 member bench). 
Tax becomes payable when liability to pay tax arises and liability to pay tax arises by the happening of the 
taxable event - KalwaDevadallain  v. UOI (1963) 49 ITR 165 (SC) * M A Co. v. Asstt Commissioner 
(1964) 15 STC 487 (A l HC). 
Tax can be imposed only on 'taxable event'. However, a l taxable events are not covered in legislative entries 
in Seventh Schedule to Constitution -Godfrey Philips India v. State of UP AIR 2005 SC 1103 = 139 STC 
537 (SC 5 member Constitution Bench). 
 
2.1-1 Supply of goods or services is 'taxable event' in GST 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. 'Consideration' is not required for supply. 
Thus, inter-state stock transfers, branch transfers will also get covered under GST net. 
Luckily, goods sent for job work will not be liable to pay GST. 
2.1-2 Charging section in CGST, SGST, UTGST and IGST 
 
Section 9(1) of CGST Act is the charging section for CGST. 
 
Subject to section 9(2) of CGST Act, there shall be levied a tax ca led the Central Goods and Services Tax 
(CGST) on a l intra-State supplies of goods or services or both, except on supply of alcoholic liquor for 
human consumption, on the value determined under section 15 of CGST Act and at such rates not exceeding 
20% as may be notified by Central Government, on the recommendation of GST Council and co lected in 
such manner as may be prescribed. 
CGST, SGST, UTGST and IGST on petroleum products at later stage - The CGST on the supply of 
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine 
fuel shall be levied with effect from such date as may be notified by the Government on the recommendations 
of the GST Council - section 9(2) of CGST Act. 
Section 5(1) and 5(2) of IGST Act have para lel provisions in respect of IGST. 
 
2.2 General Meaning of 'supply' 
 
Supply - provide or furnish (a thing needed), provide, meet or make up for (a deficiency or need etc.) - 
Concise Oxford Dictionary 
Supply - 'Supply' is that which is or can be supplied, available aggregate of thi ngs needed or demanded, an 
amount sufficient for a given use or purpose - Law Lexicon - P Ramanatha Aiyar 
Supply - furnish, substitute for - Co lins Gem Dictionary. 
Thus, 'Supply' is a very broad word. 
'Supply' does not need 'consideration'. 
 
Further, two separate legal entities are not required. One branch or division or depot can 'supply' goods or 
services to another branch, division or depot. 
2.2-1 Supply as per GST law 
 
Section 7(1) of CGST Act, states that for the purpose of CGST Act, the expression 'supply' includes — 
 
(a)   a l forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
rental, lease or disposal made or agreed to be made for a consideration by a person in the course or 
furtherance of business 
(b)   importation 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. 
2.2-2 Activities which are neither supply of goods nor supply of services 
 
Notwithstanding anything contained in sub-section 7(1) of CGST Act, (a) activities or transactions specified in 
schedule III; or (b) 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 Central Government 
on the recommendation of GST Council, shall be treated neither as a supply of goods nor a supply of services 
- section 7(2) of CGST Act. 
 
2.2-3 Changes in scope of supply of goods or services 
 
Subject to section 7(2) and section 7(3), the Central Government may, on recommendation 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; or (c) neither a supply of goods nor a 
supply of services - section 7(3) of CGST Act. 
Section 7(3) is subject to section 7(1) and 7(2) of CGST Act. Thus, notification issued under section 7(3) of 
CGST Act cannot override any provision of section 7(1) or section 7(2) of CGST Act. 
 
2.2-4 Coverage of 'supply' is very wide as definition is 'inclusive' 
 
The definition of 'supply' in section 7(1) of CGST Act is 'inclusive' definition. Thus, any supply of goods or 
services would get covered, even if not specified in any of sub-sections of section 7(1) of CGST Act. 
2.2-5 Main part of definition covers all supplies  for consideration 
 
Main part of definition in section 7(1)(a) of CGST Act makes it clear that a l supplies made for consideration 
in course of business are subject to GST. 
Import of services for consideration will be subject to GST even if not made in course of business. Thus, even 
import for charity activities will get covered, even if they are not in course of business - section 7(1)(b) of 
CGST Act. 
2.2-6 Tax liability in case of Mixed supply and composite  supply 
 
The tax liability on a composite  or a mixed supply shall be determined  in the fo lowing manner — (a) a 
composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a 
supply of such principal supply (b) a mixed supply comprising two or more supplies shall be treated as supply 
of that particular supply which attracts the highest rate of tax - section 8 of CGST Act. 
"Principal supply" means the supply of goods or services which constitutes  the predominant  element of a 
composite supply and to which any other supply forming part of that composite supply is anci lary - section 
2(90) of CGST Act. 
 
"Composite  supply"  means a supply made by a taxable person to a recipient comprising of two or more 
taxable supplies of goods or services or both, or any combination thereof, which are natura ly 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 - section 
2(30) of CGST Act. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
"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, aerated drink and fruit juices 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 - section 2(74) of CGST Act. 
Comment on definition  of mixed supply - The i lustration given in 'mixed supply' does not match with the 
definition of 'mixed supply'. Definition of 'mixed supply' does not refer to fact whether these can be supplied 
separately and independently. Even in case of 'composite supply', it is possible that the supplier may treat them 
as separate items e.g. he may charge separately for packing, outward transport and insurance. 
Real di fference is that in case of 'composite supply', the items are 'natura ly bundled', but not in case of 'mixed 
supply'. 
The term 'natura ly bundled' is not defined in CGST Act. 
 
2.3 Transactions that will be taxable  as 'supply'even if no consideration 
 
A supply specified in Schedule I, made or agreed to be made without a consideration is 'supply' for purpose of 
CGST Act - section 7(1)(c) of CGST Act. 
 
Thus, these transactions will be subject to GST, even if there is no consideration. The valuation for purpose of 
GST will be as per GST Valuation Rules. 
 
The Schedule I of CGST Act reads as follows - 
 
Schedule  I [section 7]- Activities to be treated as supply even if made  without  consideration 
 
(1)   Permanent  transfer/disposal of business  assets where  input tax credit has been availed  on such 
assets. 
(2)   Supply of goods or services between related persons, or between distinct persons as specified in 
section 25, when made in the course or furtherance of business. 
(3)   Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods 
on behalf of the principal, or (b) by an agent to his principal where the agent undertakes to receive 
such goods on behalf of the principal. 
(4)   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. 
2.3-1 Related persons and distinct  persons as per section 25 
 
The term 'Related Person' has been defined in section 15(9) of CGST Act. This definition is for a l purposes of 
CGST Act and hence will apply to Schedule I also, 
 
The definition is discussed in chapter on GST Valuation. 
 
As per section 25 of CGST Act, person who has obtained di fferent registrations under GST will be treated as 
di fferent persons. Establishment of a person in another State or Union Territory will also be di fferent person, 
even if that establishment in another State or Union Territory is not registered under GST. 
This will cover inter-state stock transfers and branch transfer of goods. It will also cover services provided by 
Head Office/Branch in one State or Union territory to branch/Head Office in another State or Union territory. 
Free samples will not be subject to GST but input tax credit will have to be reversed. 
2.3-2 Transaction between principal and agent 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Supply of goods— (a) by a principal to his agent where the agent undertakes to supply such goods on behalf 
of the principal, or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf 
of the principal- - will be subject to GST - clause 3 of Schedule I CGST Act. 
As per clause (a), the agent will be liable for GST on value goods or services only if he undertakes to supply 
any goods or services or both on behalf of any principal (like consignment agent). However, if the agent does 
not supply goods or services, he is not liable for GST on value of goods or services. He will be liable for GST 
only on his commission. 
Clause (b) will cover cases where agent returns goods to Principal. 
 
"Agent" means  a  person,  including  a  factor,  broker,  commission  agent,  arhatia,   del  credere  agent,  an 
auctioneer or any other mercantile agent, by whatever name ca led, who carries on the business of supply or 
receipt of goods or services or both on behalf of another-section 2(6) of CGST Act. 
"Principal" means a person on whose behalf an agent carries on the business of supply or receipt of goods or 
services or both - section 2(88) of CGST Act. 
2.4 Business 
 
Section 2(17) of CGST Act defines 'Business' as follows — 
 
'"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 anci lary to (a) above. 
(c)   any activity or transaction in the nature of (a) above, 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.' 
2.4-1 Broad definition of 'Business' 
 
The definition of 'business' is inclusive definition. 
 
Fo lowing points emerge from the definition of 'business' — 
 
Profit motive irrelevant  - Profit motive is immaterial. 
 
Occasional  transactions are subject to GST - Business norma ly implies something done on regular basis. 
However,  since  business  includes  'Adventure', occasional transactions  may also  be  covered.  Adventure 
implies some 'speculation'. 
Incidental or ancillary activities taxable - Incidental or anci lary business is also covered.