Supply Under GST: Meaning, Scope, Types and Taxability | Taxation for CA Intermediate PDF Download

Introduction

The Indian government introduced the Goods and Services Tax Act 2017 and the concept of supply under GST to address complex indirect tax policies. The primary goal of this new tax framework was to eliminate the cascading impact of taxes on interstate goods supply.

According to the GST Act, the term "supply of goods" denotes the transfer of goods ownership between two parties through agreement. Given that GST operates as a destination-based tax, meaning goods are taxed at their delivery destination rather than their origin, the determination of the place of supply for GST-affected goods is a pivotal aspect of the tax system.

Explore further to understand the various types of supplies under GST and their corresponding tax treatments.

What is Supply under GST?

In economics, the supply of goods and services is straightforward, representing the net production value within a specific timeframe. However, under GST, supply is defined as a taxable event that encompasses the following activities:

• Sale or transfer of ownership of goods and services.
• Leasing and transfer of assets and goods without transferring ownership.
• Exchange or barter of goods and services, with or without monetary transactions.
• Licensing or periodic payments for the use of certain privileges or property owned by others.

Supply serves as a mechanism to advance business activities or provide charitable contributions. Additionally, the definition of supply extends to the importation of goods and services for personal or business purposes.

Scope of Supplies under GST

The GST Act defines the scope of supply as follows:

• Consideration is the fundamental basis for supply.
• Entrepreneurs should view supply as a means to advance business activities.
• Taxable persons must adhere to supply regulations.
• Supply should be taxable and within reasonable boundaries.

There are six different types of supply defined in the Act:

• Sale: This involves the transfer of property, regardless of its specifications, and can include cash or deferred payments. It essentially refers to the transfer of goods' property for cash or rights to use any goods.
• Transfer: This refers to the conveyance of property from one individual to another within a specified time frame.
• Barter: It entails exchanging one commodity for another, including swapping, transferring for cash, etc.
• Exchange: This pertains to commodity exchanges, with GST calculated based on the original price or valuation of goods.
• Licence: Obtaining special privileges such as licenses or mining rights against payment of fees or royalties.
• Rental: Income from renting out commercial or residential complexes, with no GST calculated on rent as per the GST Act.

However, goods and services supplied without consideration are exempt from GST. Importation of services and goods also falls under the scope of supply.

What are the Types of Supply?

The GST definition of supply encompasses two primary variants – taxable and non-taxable supplies, which can be further classified as follows:

Taxable supplies: This category includes all goods and services subject to GST taxation, with taxpayers eligible to claim refunds on tax payments. Taxable supplies are further categorized into three main types:

• Regular taxable supplies: These refer to any goods or services that attract a positive tax amount.
• Nil-rated supplies: Goods and services that are not taxed.
• Zero-rated supplies under GST: Certain supplies exported to Special Economic Zones (SEZ) or other business entities are not taxed but are subject to taxation when sold domestically.

Non-taxable supplies: These are goods and services exempt from GST, including:

• Exempt supplies: Certain goods and services within the taxable category are exempt from GST payments.
• Non-GST supplies: Goods and services falling outside the GST tax scope.

Activities under Schedule I, II, and III

Here are the activities considered as supply according to the three Schedules of the GST Act:

Activities falling under the supply of goods: This includes the transfer of business assets with or without consideration. For non-taxable individuals, supply refers to business assets presumably provided to them. However, this is not applicable if the business changes hands or is continued by a taxed representative.

Activities under the supply of services: These encompass activities related to land or building ownership and the transfer of business assets. It includes lease, rent, tenancy, licenses for land or building occupancy, and letting of commercial or industrial complexes. Business asset transfer covers dealings with assets for personal use, construction, temporary transfer of intellectual property rights, renting immovable properties, and software development or rights transfer.

Activities excluded from the supply of goods and services: Certain services are not classified as supply, such as:

• Services provided by an employee to an employer.
• Gifts up to Rs. 50,000 from an employer to an employee.
• Funeral, burial, or mortuary services, including transporting the deceased.
• Services provided by courts and tribunals.
• Services by government officials or individuals in designated roles as per the Constitution.
• Sale of land or building without construction and receivable considerations.
• Speculative and actionable claims except lottery or betting.

Elements of Supply under GST

The GST law of 2017 outlines key aspects that define the fundamental elements of supply. These elements include place, value, and time.

• Place: Goods and services supply is location-specific and varies based on the location's nature, be it intra-state, inter-state, or designated for exports. GST is levied based on these locations.
• Value: The value addition by manufacturers to goods or services, determined by their utility and production methods, influences GST calculations.
• Time: Time is crucial for GST calculation, setting time limits, due dates, and payment schedules.

Taxable Supply under GST

In simple terms, a taxable supply refers to goods and services that are subject to GST under the CGST Act, 2017. The payment of taxes on these supplies depends on their actual transaction value and the price paid by buyers. Valuing a taxable supply involves:

• Including any legal taxes, duties, or charges related to the goods and services as per the State Goods and Services Act, Union Territory Goods and Services Act, etc.
• Considering any liabilities that the supplier is responsible for but are actually incurred by the buyer and not included in the goods' price.
• Adding any additional expenses like packing and commissions charged by the supplier to the buyers.
• Factoring in interests, late fees, and penalties due to delays in supply.
• Excluding subsidies unless specifically provided for by government policies.

Under Schedule II of the GST law, regular GST calculations apply to mixed and composite supplies. Mixed supplies involve multiple orders or bulk deliveries of items that can be sold separately and are not interdependent. On the other hand, composite supplies consist of complementary goods that are inseparable, and their utility is realized only when consumed together.

How is Composite Supply Defined under the GST Act?

The GST concept of Supply generally covers clearly identifiable transactions. However, recognizing the complexities of real-world transactions involving multiple goods and services, a special provision is needed.

When goods and services are bundled together in a single transaction, it falls under the category of composite supply in GST. Composite supplies include:

• Two or more taxable supplies of goods and services in any combination.
• Complementary goods and services that are bundled together for simultaneous enjoyment.
• One of the items in the bundle is considered the principal supply.

GST rates for composite supplies are applicable to the entire bundle, not each item separately. For instance, if a railway ticket includes additional insurance, GST applies to the principal supply only, which in this case would be the travel expenses.

Examples of Composite Supply in GST

Composite goods or services always include a main product or service known as the principal or primary supply. The additional elements enhance the value of the principal supply.

For example, a charge of Rs. 4000 inclusive of GST for one night in a hotel room includes complimentary breakfast and laundry services. In this scenario, the room rent itself constitutes the principal supply, and the complimentary benefits are derived from this primary supply. As a result, the complementary goods and services cannot be sold separately, and GST is calculated based on the composite supply of goods and services.