The whole GST law revolves around one taxable event “Supply”. Supply is the event that triggers GST applicability on a Transaction.
But before explaining the concept of GST, Let's understand some relevant definition
1. Goods and Services
Goods refer to all types of movable property, including actionable claims, growing crops, grass, and things attached to the land that are agreed to be severed before supply or under a contract of supply. Excludes securities and money.
Services mean anything other than goods, money, and securities but include 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;
2. Consideration
- Payment in money or
- Monetary Value of any act of forbearance
Note
- Consideration excludes Subsidy given by CG/SG
- Deposit to be considered as payment only when supplier applies such deposit as consideration for the said supply.
- GST shall not be levied on Gift or donations made to a charitable organization if the purpose of such donation or gift is no commercial gain and no advertisement
- Artwork sent by artists to galleries for the exhibition is not considered as supply as per circular and GST shall be levied on such transaction only at the time of actual sale to a buyer.
3. Supplier and Recipient
Supplier means person supplying the said goods or service or both and shall include an agent acting on behalf of such supplier in relation to the goods or service or both supplied
Recipient
- If Consideration is payable for Supply of Goods and Service- a person who is liable to pay consideration
- No Consideration payable for the supply of Goods-Person to whom goods are delivered or made available or to whom possession given
- No Consideration is payable for the supply of Services-To whom service is rendered
Shall include an agent acting on behalf of such Recipient in relation to the goods or service or both supplied.
Now let's understand the definition of Supply
Definition of Supply is given under Section 7 of CGST Act
The definition is broadly divided into 3 parts
1. Supply scope {Sec 7(1)}
2. Classification of supply as goods and service (Schedule II) {Sec 7(1A}
3. Activities or transactions are treated neither as a supply of goods or a supply of service.
(Schedule III or notified by govt on the recommendation of council) {Sec 7(2)}
Let us first understand Meaning and Scope of Supply {Sec 7(1)}. Supply includes
All forms of supply such as {Section 7(1)(a)}
- Sale-Transfer of ownership in goods
- Transfer-Right to use goods without the transfer of title
- A barter-Exchange commodity without money
- exchange-To swap or transfer equivalent to money
- License-Permission granted by the competent authority
- Rental-Periodical payment for the use of immovable property
- lease-Contract to allow the right to use
- Disposal-To part with
Made or agreed to be made for a consideration by a person in the course or furtherance of business
Note: What do you mean by made or agreed to be made?
Made: goods already been delivered or provided
Agree to be made-Agreement for the supply of goods or services or advance has been received against the supply of goods or services
Examples
- Sale of Pen by the shopkeeper
- Transfer of goods from its factory to Depot for sale purpose
- Purchase of a new car in exchange for an old car
FAQ by Department
Mr A buys Car for personal use and after a year sells it to a car dealer. This will not be considered as supply as it is not in course of business.
Mrs B Sold her old gold bangles and earnings to a jeweller. This will not be considered as supply as it is not in course of business.
Importation of Service for a Consideration Whether or not in course of Business {Section 7(1)(b)}
Example: Mr A Proprietor receives Architect service for his house from an Architect located outside India for consideration of $ 2000. The import of services by Mr A is a supply under section 7(1)(b) though it is not in the course or furtherance of business.
Activities without consideration-Deemed Supply {Section 7(1)(c)}
a) Permanent transfer/Disposal of the Business asset on which ITC has been availed
It covers transactions between holding and subsidiary for nil consideration
Example: Dhruv gives an old laptop used in business free of cost to a friend. This will be considered as supply provided ITC has been taken on the laptop.
b) Supply between the related person or Distinct persons
What is a related person?
Related persons are defined u/s 2(84) of the GST Act. Persons shall be deemed to be related if they fall under any of the categories below:
- Officer or director of one business is the officer/ director of another business
- Businesses legally recognized as partners
- An employer and an employee
- Any person who holds at least 25% of shares in another company, either directly or indirectly
- One of them controls the other directly or indirectly
- They are under common control or management
- The entities together control another entity
- The promoters or managerial persons are members of the same family
Persons include a legal person who can be individuals, HUF, company, firm, LLP, co-operative society, a body of individuals, local authority, government, or an artificial juridical person.
It also includes entities incorporated outside India. Persons who are associated with one another’s business or is a sole agent or sole distributor or sole concessionaire shall be deemed to be related
What is a distinct person?
A person who has obtained or is required to obtain more than one registration whether in one state/UT or more than one State/UT then such person in respect of each such registration treated as a distinct person
Eg: Mr. A is registered under GST in both Delhi and Mumbai then Delhi and Mumbai will be treated as a distinct person
A person who has obtained or required to obtain registration whether in a state/UT in respect of an establishment has an establishment in another State or UT then such establishment be treated as a distinct person
Eg: Mr. A is registered under GST in Delhi as a restaurant service and has an unregistered liquor shop in Uttarakhand as in Uttarakhand Alcoholic liquor for human consumption is a non-taxable supply then Delhi and Non registered establishments in Uttarakhand will be treated as a distinct person
c) Supply of goods by principal to agent or agent to his principal where principal undertakes to supply or receive such goods on behalf of the principal
INVOICE FOR FURTHER SUPPLY IN NAME OF AGENT-FALL WITHIN PARA 3 AND IT’S A SUPPLY
INVOICE FOR FURTHER SUPPLY IS IN THE NAME OF PRINCIPAL-IT DOESN’T FALL WITHIN PARA 3 SO NOT A SUPPLY
d) Importation of service by a person from a related person or establishment outside India in the course or Furtherance of Business.
- No consideration+ Business and profession-Supply under 7(1)(c)
- consideration+ Business and profession-Supply under 7(1)(a)
- consideration+ No Business and profession-Supply under 7(1)(b)
- No consideration+ No Business and profession-Not a supply
Schedule III: Negative List under GST (NON-SUPPLIES)
Now our discussion will proceed will revolve around the negative list under GST i.e. that transactions are not considered as supplies
Non-Supplies Listed in Schedule III
i. Service by an employee to the employer in course of employment
- E.g.: Amount received by the employee by employer Premature Termination of contract of employment. It's in relation to employment hence not a supply
- E.g.: Non-compete Fees paid by the employer to employee. This is not in relation to employment hence a supply
ii. Service by a court or tribunal established under any law
E.g.: District court fees. But fees charged by the arbitral tribunal is liable for GST
iii. (a) Functions performed by MP, MLA, Member of Panchayat, Member of Municipality, and Member of other local authorities
(b) Duties performed by the constitution post holder
Eg: PM, CM. President of India, Chief Justice of India, CAG, etc.
(c) Duties performed by any person as a chairperson or director in a body established by CG/SG/LA who is not deemed to be an employee
iv. Service of Funeral, Burial, Crematorium or mortuary including transportation of Deceased
v. Sale of Land and Building subject to Schedule II Para 5(b)
vi. Actionable Claim other than lottery, betting, and Gambling
vii. Supply of goods from Non-taxable territory to Non-Taxable territory without such goods entering into India
E.g.: X purchased goods from the USA and sold to Z in Australia without bringing goods to India
viii. (a) Supply of warehoused goods to any person before clearance for human consumption
E.g.: Mr Shayam imported goods in India and kept them in the bonded warehouse without clearing for Home Consumption. In the Meantime, Sell to Mr. ram. This transaction is not a supply.
(b) High Sea Sale
E.g.: Mr Sanjay imported some goods from Japan. While the goods were on high seas, Mr Sanjay sold the goods to Jinesh in India by way of a document of title of goods.
Non-Supplies Notified Vide Notification
Service by way of any activity in relation to a function entrusted to a panchayat under article 243G of the constitution or to be Municipality under article 243W of the constitution
Non-Supplies Clarified by way of clarification
Grant of Alcoholic liquor license by the State government
Note: Service provided by the govt to a business entity including by way of grant of privileges, licenses, mining rights, natural resources against payment of consideration in the form of fee, royalty, etc are taxable under GST
Interstate movement of various modes of conveyance such as bus, truck, etc carrying goods or passenger or both or for repair and maintenance
Note: If such movement is for further supply of same conveyance, then it will be a supply and GST will be levied.
Inter-state movement of rigs, tools and spares and all goods wheels like cranes
Note: If such movement is for further supply of the same good, then it will be a supply and GST will be levied.
Also, GST is leviable on repairs and maintenance are done for such goods
Schedule II: Classify the transactions as Supply of good or service
- Transfer of Title in goods now or at some future date-Supply of goods
- Transfer of Right in goods without the transfer of title in goods-Supply of Services
- Leasing /letting out land or Building-Supply of Services
- Treatment or Process applied on another person goods (Job Work)-Supply of service
- Permanent transfer/ Disposal of Business Assets-Supply of Goods
- Goods held for business are put to use for private use or any purpose other than business-Supply of Services
- 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
(i) the business is transferred as a going concern to another person; or
(ii) the business is carried on by a personal representative who is deemed to be a taxable person.
Shall be Supply of goods
8. Renting of Immovable Property-Supply of Services
9. Sale of Constructed Complex, building, Civil Structure, etc on which entire consideration is received after issuance of completion certificate by the competent authority or first occupation whichever is earlier-Supply of Services
10. Temporary transfer or permitting use or enjoyment of any intellectual property-Supply of service
11. Development of IT software or License to use pre-packed software-Supply of Service Sale of Pre-Packed Software-Supply of Goods
12. Agreeing to refrain from an act or tolerate an act-Supply of Services
13. Transfer of Right to use any goods for any purpose-Supply of Services
14. Works Contract Services-Supply of Services
15. Restaurant and Catering Services-Supply of Services
16. Supply of goods by unincorporated AOP/BOI to their members for consideration-Supply of Goods
Source:
ICAI Material & GST Act
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