Supply – Taxable Event Under GST — Section 7

Scope of Supply – Taxable Event Under GST — Section 7

For any transaction to be taxed under the law there has to be an existence of a taxable event, which is the event that attracts the levy of tax. Under GST laws, this taxable event is referred to as supply. GST is levied on all inter-state and intra-state supplies of goods or services or both. So any transaction to be taxed under the GST laws needs to be checked whether it is a supply. In this article, we are going to understand the core concept of supply in detail.

DEFINITION OF SUPPLY

As per Sec 7 of CGST Act 2016, Supply includes

• All forms of supply of goods or services or both 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.
• The transaction or activities, by a person, other than an individual, to its members or constituents or vice versa, for deferred payment, cash, or other valuable consideration.
  This means that the person or its members or constituents shall be deemed to be two distinguished and separate persons and the supply of transaction inter se shall be deemed to take place from one person to another.
• Importation of services for a consideration whether or not in the course or furtherance of business.

ESSENTIALS OF SUPPLY

1. Supply of goods and services
   A transaction is considered a supply of goods if there exists a transfer of title. For instance, when we buy groceries from a retailer, the ownership is transferred from the shopkeeper to us, the end consumer. When there is no transfer of title but transfer of right of use, it is considered as a supply of service. For instance, leasing out a building from the contractor and availing the right to use that building while the ownership stays with the contractor.
2. Taxable supply
   Supply can either be non-taxable or taxable. Taxable supplies are those which attract GST and no taxable supplies include zero rates and exempt supplies.
3. Consideration
   Consideration does not always mean money it also covers anything which may be money or maybe kind. Supply made without any consideration is out of the scope of supply. A prepayment deposit towards a future supply can also be accepted as a consideration.
4. In the course or furtherance of business
   GST is applicable only on business-related translation i.e. commercial transactions. Hence, only those supplies that are in the ambit of GST that are in the course or furtherance of business qualify as supply under GST. Hence, any supplies made by an individual in a personal capacity do not come under the scope of supply.

Here Business includes vocation, sale of goods or services even as a vocation irrespective of volume, frequency, regularity, or continuity of such transaction.

ELEMENTS OF SUPPLY

1. Value: Manufacturers add value to the transaction based on modes of production and their usability. The intrinsic value of the transaction determines the GST to be computed on these goods or services.
2. Place: Supply is dependent on location and subject to change based on the location change. Hence supply can be interstate, intrastate, or specifically meant for exports. GST is computed on the supply of these transactions to their whereabouts.
3. Time: Time is a significant aspect of GST which determines the GST calculation. It determined the timeline for GST computation and payments apart from the statutory due dates.

GOODS VS SERVICES

Goods mean every kind of movable property except money and securities bu including actionable claims and growing crops, grass, and things attached to or forming part of the land which are agreed to be served before supply under a contract of supply.

Services mean anything other than goods except money and securities including activities relating to the use of money, conversion of money by cash or by any other mode, from one currency or denomination to another for which a separate consideration is charged, and facilitating or arranging transactions in securities.

COMPOSITE SUPPLY AND MIXED SUPPLY

There are various instances where more than one principal supply is involved in the transaction. According to the GST law, every supply can be categorized as either a supply of goods or services depending on the principal supply. While goods or services could be supplies separated they can also be bundled together and supplied using the following ways

Composite Supply

Here, goods and services or both are naturally bundled and supplied together with each other in the ordinary course or furtherance of business of which one i a principal supply.

Principal supply is the supply that constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. The tax rate applicable to this kind of supply will be the one applicable to the principal supply.

Mixed Supply

When two or more individual supplies are bundled together for a single price such supply does not form a composite supply i.e. if a supply is not naturally bundling together in the ordinary course of business is referred to as mixed supply.

A mixed supply comprising multiple supplies should be treated as a supply of that particular supply that attracts the highest rate of GST.

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