Sail through on what is Supply

By : CA Alok Krishan


GST is a tax on Supply. Thus understanding GST would first require knowledge on what supply is. We in India are accustomed to certain terms in Indirect Taxes which have almost become a way of talking of people involved with these. To illustrate, we talk of Transfer of Property in goods when we talk of sale. Services to us means provisioning and thus we say Provision of Services when we talk of them, and when we talk of Excise the event  which triggers the imposition of tax is manufacturing.

In GST the concepts of transfer of property in goods or providing services or manufacturing take a back seat. They all in totality are called supply. Thus, when we talk of supply, we mean to include all the activities that go into the taxation ambit under this law. To illustrate, we used to sell cars but now we will supply cars; we used to provide services as a Chartered Accountant but now we will supply Chartered Accountant services. Therefore, now the basic way of communication in business is going to change and the new terminology has to be adopted.

The concept of supply in GST is defined in Section 7 of the Central Goods and Service Tax Act. It provides the definition of what would be covered in supply. But to understand the contents of supply we cannot simply rely upon Section 7 as supply and its details are contained in complete Chapter 3 (Sections 7 to 10). In addition reference to Schedule I, Schedule II and Schedule III appended to this act is also required.

Here a question comes up as to what the schedules are. Just like Service Tax where all services were taken into the ambit of taxation, except those specifically mentioned in Mega Exemption Notification or Negative List, under this Act too, some supplies have been  exempted from tax. These exemptions are contained in schedule III of the Act. Similarly there are certain transactions which may otherwise not be a part of supply, but due to the provisions contained in Schedule I attached to this Act, they also are to be considered as supply. These are the deemed supplies. To avoid any issues or problems in classification of supplies as goods or services, Schedule II has been appended, and it contains certain transactions and their classification as to goods or services under this Act.

It is by going to Section 7 to Section 10 and Schedules I, II and III attached to the Act that we can actually derive whether there is supply or not, and if we are supplying then whether the supply is that of goods or of services or both.


Why distinquish ?

But when we have a single Act for taxation of both goods and services being supplied, then why do we need to distinguish between goods and services in our supplies? Yes, a single Act governing these transactions would mean a single governing authority for a taxpayer, instead of the present system or dual or triple governance due to multiplicity of taxes. But that does not mean that a single set of rules would be sufficient for all types of transactions that take place under the sun. The transactions are varied in nature and when we classify them into goods or services, we try to mitigate the errors in taxing them and in properly defining the place at which the supplies are taking place, the time of supply and the value of the supplies made.  However this article shall be limited to understanding supply and will not dwell upon the place, time or value of supply. The place, time and value will be discussed in a separate article.


Definition of Supply

Section 7 of the Central Goods and Service Tax Act defines  supply to include all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made or agreed to be made for a consideration by a person in the furtherance of business.  It also includes import of services for a consideration whether or not in the course of furtherance of business; the activities specified in Schedule I made or agreed to be made without consideration, and the activities to be treated as supply of goods or supply services as referred to in schedule II.  It goes on to state that activities or transactions specified in schedule III of the Act or such activities or transaction undertaken by the Central Government and State Government or any Local Authority in which they are engaged as public authorities as may be notified by the government on the recommendation of the council shall be treated as neither as supply of goods, and nor supply of services.

It also empowers the government to notify on the recommendations of the council, the transactions that are to be treated as supply of goods and not supply of service, or alternatively supply of service and not as  supply of goods.


Mixed and Composite Supply

The provisions of the Act make an attempt to clarify on the status of more than one goods or services or both being bundled together, and in determining the nature of such supplies as a mixed supply or a composite supply.

Composite supply is understood to be a supply in which more than one goods or services are bundled together – out of which one is a principal supply. In such a case the component determined as principal supply shall be the type of supply and the various provisions of law shall be applied accordingly.

However in case of a mixed supply all the supplies are bundled together which may be good or services, but they are not necessarily required to be bundled together. They are bundled more so for convenience and not by compulsion. In such a case, the total supply shall be taxed at the rate which is the highest of all the commodities contained in that mixed supply.


Direct Charge and Reverse Charge

In any transaction of supply there are two parties involved, namely the supplier of services or good or both, and the recipient of services or goods or both. In normal business parlance, tax is paid by the supplier of goods or services or both.

However the government has  the power to specify goods or services or both where tax shall be paid by the recipient on reverse charge basis. This is not the only instance where reverse charge is attracted. Reverse charges is also attracted in import from outside taxable territory subject to conditions and where a registered dealer takes a supply from unregistered person.


Continuous Supply

While discussing supply we need to discuss continuous supply as well. When we talk of continuous supply, we mean to include the cases when the supply is made  in a series of continuous transactions over a period of time, not necessarily by means of a wire or a pipe.

In case of services, supply would be considered continuous only if the period of supply exceeds three months. Special provision has been made for deciding the time of supply in case of continuous supply.


Composition Scheme

Like in the present regime, composition scheme has also been provided under GST.  A registered person whose aggregate turnover in the preceding financial year did not exceed Rs. 50 lacs can opt for the composition scheme. However the scheme is available only to manufacturers, traders in goods and people engaged in providing restaurant service. All other services are outside the ambit of Composition Scheme.

Certain restrictions on trade however go with the Composition Scheme. A dealer under the Scheme cannot make interstate sales. Similarly, as and when his turnover exceeds Rs 50 lacs he shall be out of the composition scheme. He shall not charge tax on the supply made by him and will also not be permitted to sell through E-Commerce Operator. In case a dealer opts for Composition Scheme in one place, he shall be required to opt for the same in all other places where he supplies under the same PAN. Rates of Tax have been prescribed as under in the composition scheme :

Nature of Work Rate of CGST Rate of SGST
Manufacturer 1% 1%
Trader 0.5% 0.5%
Services referred to in para 6(b) of Schedule II ie. Restaurants and Catering services 2.5% 2.5%


CA Alok Krishan is a practicing Chartered Accountant with a professional degree in law at Chandigarh. He has a strong 22 years post qualification experience out of which around 10 years has been with corporates and the balance as a practising Chartered Accountant  with specialisation in Indirect Taxes. Presently is a Partner with S Tandon & Associates at Chandigarh.