Now let us understand the meaning of ‘supply’ in the context of gst..
Supply has not been explained directly but it has been described as inclusive definition. One part of supply mentions that “Supply includes all forms of supply of goods or service or both such as sale, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business”.
Let us now analyse the first part of the meaning of the supply. Supply means any form of supply of goods or service or both. Dictionary meaning of supply means “make available to someone” or “to provide”. It also exemplify few transactions like
1. Sales – Dictionary meaning – the exchange for money,
2. Barter – Dictionary meaning – exchange (goods or services) for other goods or services without using money,
3. Exchange – Dictionary meaning – give something and receive something of the same kind in return,
4. License – Dictionary meaning – a permit from an authority to own or use something,
5. Rental – Dictionary meaning – an arrangement to rent something,
6. Lease – Dictionary meaning – a contract by which one party conveys land, property, services, etc. to another for a specified time, usually in return for a periodic payment, and
7. Disposal – Dictionary meaning – a act or process of transferring something to or providing something for another.
And thus we can see that the definition of ‘Supply’ has covered all type of possible transactions exhaustively.
Now let us look at the other important aspects of the meaning of ‘Supply”:
- “made or agreed to be made” – which means that not only the transactions of the current period are covered by the definition but the transactions to be carried out in near future for which deal/surety has already been made are also covered. In commercial language it can be said that the advances received in current period shall also be taxable.
- “for a consideration” – which means that transaction is carried out with intention to get something in exchange. Transactions for which consideration is not required to be paid is not to be taxed under GST for example Gifts.
- “in the course of furtherance of business” – which means that only commercial activities are covered.
Aforementioned texts was the first part of the meaning of the word “Supply”.
Second part of the word “Supply” includes – import of services for a consideration whether or not in the course or furtherance of business. This means that if a person receives some service from outside India and if such person is supposed to pay for such service then it shall be taxed under GST. Such transaction shall be taxed even if such transaction is carried out on personal capacity and not for commercial use.
Third part of the word “Supply” includes – the activities listed in Schedule I, made or agreed to be made without a consideration. We shall be discussing the activities as mentioned in Schedule I in the later part of this article. But such transactions shall be taxed irrespective of the fact that such transactions have been carried out without the payment of consideration in exchange.
Forth & last part of the word “Supply” includes – the activities specifically listed as ‘supply of goods’ or ‘supply of service’ in Schedule II which we shall discuss in the later part of this article.
Now let us understand the transactions mentioned in Schedule I which are taxable even if no consideration is paid for such supply:
Schedule I – ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION:
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets earlier. In this case, it is necessary to physically transfer the assets from one person to another. And therefore mere writing off of business assets in the books is not covered under this clause (interpretation of author).
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. Section 25 mentions that if a person who registers itself or its establishments for more than once in one state or Union territory or in more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purpose of GST. One of the condition of such transaction is that it should be for the purpose of business.
Also proviso of this clause states “Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both” which means that gifts given by an employer to an employee shall be taxable if the value of such gifts is more than fifty thousand.
3. Supply of goods by a principle to an agent or by an agent to a principle where agent has been authorised to receive or supply goods on behalf of Principle. It means that whenever goods are transferred from Principle to Agent or from Agent to Principle, each such movements shall be taxable under GST.
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. It means that such import of service shall be taxable only if it is procured for business purpose.
Now let us understand the transactions mentioned in Schedule II which have been specifically considered as supply of goods or supply of services and are taxable under GST:
Schedule II – ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES:
1. Transfer relating to goods:
Transfer of title in goods shall mean as supply of goods. It covers transactions like sale in transit, sales in the course of export or sales in the course of import where title of goods is transferred by mere documentation and possession is directly taken by end user later on.
Transfer of right in goods without the transfer of title shall be considered as supply of services. It covers transactions like temporary rental of goods.
Any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods. This covers hire purchase transactions or instalment purchase transactions.
2. Land and Building relating transaction:
Any lease, tenancy, easement, licence to occupy land is a supply of services. This covers renting of land or letting other use the land.
Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. This covers the letting out of building on lease or rental only for commercial purpose whether it be commercial building or industrial or residential.
3. Treatment or process –
Any treatment or process carried on upon another person’s goods is a supply of services.
4. Transfer of business assets
‘Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person’. This means that when part of the assets is sold off or disposed or scraped and even if no consideration is received for such disposal, GST shall be applicable. As mentioned above on clause # 1 of Schedule I, in this case also, it is necessary to physically transfer the assets from one person to another. And therefore mere writing off of business assets in the books is not covered under this clause (interpretation of author). More clarification is awaited.
‘Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.’ This provision is quite impractical as when business asset is put to any private use, no person running the business maintains record of such usage. This kind of transactions are personal in nature. And for such transaction, in most of the cases no consideration is received by the lender of business assets. And therefore it is difficult to maintain record of such usage.
‘Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless the business is transferred as a going concern to another person; or the business is carried on by a personal representative who is deemed to be a taxable person’. Here the legislator has tried to tax the person who has taken the credit on procurement of the business assets and later on such person becomes non-taxable due to any event. So on such event, person shall have to pay the tax on the value of business assets. Valuation shall be decided as per the valuation provisions in this regards. The two exclusions given in this clause:
- The business is transferred as a going concern to another person. For example, son inherits the business of the father &
- The business is carried on by a personal representative who is deemed to be a taxable person. For example, a representative of a deceased carrying on the business of deceased.
5. Supply of services –
Renting of immovable property,
‘Construction of a complex, building, civil structure or a part thereof’ – this covers service of a contractor who undertakes civil construction.
‘Construction of a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier’ – this means that the builder receiving the bookings or advance for flats or house before receiving the occupation certificate shall be taxable as service.
The word “construction” not only includes new construction but also includes additions, alterations, replacements or remodelling of any existing civil structure.
‘Temporary transfer or permitting the use or enjoyment of any intellectual property right’ – i.e. letting others use brand name or trade name or copyrights etc.
‘Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software’ – i.e. sale or service relating to software shall be considered as service only.
‘Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act’ – i.e. Money given for not doing something is covered by this clause.
‘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’ – i.e. renting of goods to others.
6. Composite supply:
Following composite supplies shall be considered as service –
- ‘Works contract’ – here works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.
- ‘Supply, by way of or as part of any service or 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), where such supply or service is for cash, deferred payment or other valuable consideration’ – i.e. Catering service or Food bills of Restaurants etc.
7. Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration’ – Such supply has been made taxable overriding the concept of Mutuality. For example food bills of the member in the restaurant of the Club etc.
Now let us understand the other aspects of supply.
Following transactions shall not be considered as supply:
- ‘Services by an employee to the employer in the course of or in relation to his employment’. – i.e. duty performed by an employee in the course of his employment is not supply.
- ‘Services by any court or Tribunal established under any law for the time being in force’.
- ‘The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities’.
- ‘The duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity’. For example duties performed by Nominee Director or Commissioners of department or Members of Board.
- ‘The duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause’.
- ‘Services of funeral, burial, crematorium or mortuary including transportation of the deceased’.
- Sale of land and sale of building (Other than by way of point # 5 of Schedule II).
- Actionable claims, other than lottery, betting and gambling.
- Activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.
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