Supply under GST: Key Concepts and Provisions

Introduction

Supply is a cornerstone concept under the Goods and Services Tax (GST) in India. The GST framework is built around the taxation of supplies of goods and services. Therefore, understanding what constitutes “supply” under GST is crucial for businesses to ensure compliance. This article explores the fundamental aspects of supply under GST, including its definitions, scope, and related provisions.

Definition of Supply

As per Section 7 of the CGST Act, 2017, the term “supply” is broadly defined to include various transactions. It states:

“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.”

This definition is expansive, covering most types of commercial activities.

Inclusions in Supply

The CGST Act, 2017 further clarifies the scope of supply by including specific activities within its ambit. Notably, Section 7(1)(c) mentions:

“The activities specified in Schedule I, made or agreed to be made without a consideration.”

Schedule I lists activities like the transfer of business assets, transactions between related persons or distinct persons, and supplies made by a principal to an agent or vice versa. Even in the absence of consideration, these activities are treated as supplies under GST.

Exclusions from Supply

However, not all transactions are considered a supply under GST. Section 7(2) of the CGST Act specifies certain transactions that do not qualify as supplies. It mentions:

“Activities or transactions specified in Schedule III; such activities or transactions shall be treated neither as a supply of goods nor a supply of services.”

Schedule III includes activities such as services by an employee to the employer, functions performed by MPs, MLAs, etc., and the sale of land and, subject to certain conditions, the sale of buildings. These activities are outside the scope of GST.

Composite and Mixed Supply

Understanding the concepts of composite and mixed supply is crucial for determining the correct GST treatment.

• Composite Supply: As defined under Section 2(30) of the CGST Act:

“Composite supply means 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.”

For example, a hotel offering a stay along with breakfast is providing a composite supply, where the principal supply is the accommodation, and breakfast is ancillary to it.

• Mixed Supply: Section 2(74) defines mixed supply as:

“Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.”

An example of a mixed supply would be a gift hamper containing chocolates, toys, and a bottle of wine. Each item could have different GST rates, but they are supplied together for a single price.

Importance of Determining Supply in GST

Correctly determining whether a transaction is a supply, and if so, whether it is a composite or mixed supply, is vital for calculating the applicable GST. The GST rate, place of supply, and time of supply are all dependent on these determinations. Misclassification can lead to incorrect tax payments and potential penalties.

Conclusion

Supply is a foundational concept in GST that dictates the applicability of tax on various transactions. Understanding what constitutes supply, the distinction between composite and mixed supplies, and the specific exclusions under Schedule III is crucial for businesses to ensure proper GST compliance. By mastering these concepts, businesses can better navigate the GST landscape and avoid common pitfalls.

More information on supply-related provisions under GST – https://www.gstcouncil.gov.in/

Key GST Provisions – https://caprateekmitruka.com/understanding-gst-provisions/