Supply under GST with examples

Scope of Supply: Section 7 of CGST Act 2017 provides for the scope of supply as under:-

As per Sec 7(1) 'Supply' includes

(a) all forms of supply of goods and/or services 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,

(b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business,

(c) the activities specified in Schedule I, made or agreed to be made without consideration and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

SCHEDULE I: ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

1. Permanent transfer or disposal of business assets where ITC has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons, when made in the course or furtherance of business.

(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.)

3. Supply of goods

(a) by a principal to his agent

(b) by an agent to his 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.

SCHEDULE II: ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. Transfer

(a) any transfer of the title in goods(Supply of Goods)

(b) any transfer of right in goods without the transfer of title thereof(Supply of Services)

(c) any transfer of title of goods at future date on payment of full consideration as agreed. (Supply of Goods)

2. Land and Building (Supply of Services)

(a) any lease, tenancy, easement, licence to occupy the land.

(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly.

3. Any treatment or process which is applied to another person's goods. (Supply of Services)

4. Transfer of business assets

(a) where goods of a business are transferred or disposed off by the registered person, whether or not for a consideration.(Supply of Goods)

(b) where goods 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. (Supply of Services)

(c) 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 a supply (Supply of Goods) 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 a taxable person.

5. Supply of services

(a) renting of immovable property

(b) construction of a complex, building, civil structure or a part thereof except where the entire consideration has been received after issuance of the completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

(c) temporary transfer or permitting the use or enjoyment of any intellectual property right

(d) development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act

(f) transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration.

6. Composite supply

(a) works contract(Supply of Goods)

(b) 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 is for cash, deferred payment or other valuable consideration.(For e.g. Catering)

7. Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

Supply not treated as Supply of Goods or Services

(a) activities or transactions specified in schedule III; or

(b) activities or transactions undertaken by the Central Government, State Government or any local authority in which they are engaged as public authorities.

SCHEDULE III: ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.

2. Services by any court or Tribunal.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) 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.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and building.

6. Actionable claims, other than lottery, betting and gambling.

Tax Liabilities on Composite & Mixed Supply

The tax liability on a composite or a mixed supply shall be determined in the following 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.

Example 1. XYZ Ltd is engaged in the business of automobiles. He supplied 200 motorcycles having a GST rate of 28% to ABC Ltd. He also charge freight(18%) Rs. 50000/-. Insurance(18%) Rs. 60000/- & insurance charges(18%) of Rs.100000/-.

Determine the nature of supply & calculate tax liability if the price per motorcycle is Rs. 50000/-

(Assume both registered persons are from different State)

Solution: Composite Supply is 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. So, this is a composite supply.

As per Sec 8, the tax liability on a composite supply shall be the rate of a principal supply. Therefore this supply is chargeable to 28% GST Rate.

The tax liability will be arrived as under

Table

Example 2. What if XYZ Ltd is engaged in the business of cereals & supplied rice (GST Rate 0%) in place of motorcycle?

Solution: As per Sec 8, the tax liability on a composite supply shall be the rate of a principal supply. Therefore this supply is chargeable to 0% GST Rate because rice is a principal supply.

Example 3. Jairam Ltd is a manufacturer of cosmetics products supplied a package consisting of hair oil(18%), sunscreen cream (28%), shampoo(28%) & comb(12%). The price per package is Rs.50/- (exclusive of taxes). 5000 packages were supplied by the company to its dealers. Determine the nature of supply & its tax liability.

Solution: This supply would be regarded as mixed supply since in this case of the goods in the package have been individual identity and can be supplied separately, but are deliberately supplied conjointly for a single consolidated price.

As per Section 8, the tax rate applicable in the case of mixed supply is the highest amongst all supplies. Therefore the package will be chargeable to 28% GST Rate.

The tax liability will be arrived as under

Table

Example 4: A gift-wrapped box of chocolates. Here, the chocolates are the principal supply, while the box, gift wrapper, message card and gift wrapping service offered by the salesperson are supporting elements that cannot be supplied individually without the chocolates. This is a composite supply, and its GST rate will be the same as the rate for the chocolates.

Example 5: A dealer sells a brand-new vehicle along with registration, insurance, a tool kit and first aid kit, and 4 free maintenance services. This is a composite supply, because vehicle insurance, registration and free maintenance services cannot be supplied without the vehicle (which is the principal supply)

Example 6: A plant nursery sells cut flowers, ornamental plants, and gardening services together as a bundle. When they’re sold separately, the plants and flowers incur GST at a rate of 5%, and the gardening services incur GST at a rate of 18%. When they’re offered together as a bundle, the whole bundle will incur GST at the 18% rate.

Example 7: A travel and tour package includes hotel rooms (room rent Rs.1000, so GST exempt), taxi service (GST 5%), and meals (non-AC restaurant GST 12%) bundled together. This is a mixed supply because each of these can be offered individually. The meals have the highest GST tax rate, so it is treated as the principal supply, but the hotel rooms and taxi service could still be sold separately if the supplier wished.