MEANING AND SCOPE OF ‘SUPPLY’ UNDER MODEL GST LAW

[Mr. M. GOVINDARAJAN]

Taxable event

The taxable event in respect of services is for the services provided or to be provided.  The taxable event also depends upon the place of provision of service and point of taxation.  Likewise the taxable event in excise duty is the removal of excisable goods manufactured or produced.  In VAT the taxable event is the time of sale of goods.  The taxable events under the existing indirect laws shall stand subsumed in the taxable event known as ‘supply’ in the model GST law.

Meaning and Scope of ‘Supply’

Section 2(92) of the Act defines the term ‘supply’ as having the meaning as assigned in Section 3.  Section 3(1) provides that ‘supply’ includes-

• 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 of furtherance of business;
• importation of service, whether or not for a consideration and whether or not in the course of furtherance of business, and
• a supply specified in Schedule I, made or agreed to be made without a consideration

Section 3(4) provides that notwithstanding anything contained in Section 3(1) the supply of any branded service by an aggregator, under a brand name or trade name owned by him shall be deemed to be a supply of the said service by the said aggregator.

Consideration

Since the taxable event on supply is mainly on ‘consideration’ it is imminent to know the definition of ‘Consideration’ in this Act.  Section 2(28) defines the term ‘consideration’ in relation to the supply of goods and/or services to any person, includes-

• any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person;
• the monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the said person or by any other person.

Deposit – consideration?

The proviso to Section 2(28) provides that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplies applies the deposit as consideration of the supply.  Under service tax provisions the deposit is not liable to pay tax but the advance payment received for any service to be provided will be liable for taxation under service tax provisions.   Litigation may arise for interpretation of the term ‘deposit’ unless it is clearly defined.

Supply without consideration

Schedule I to the Act gives the list of matters to be treated as supply without consideration-

• Permanent transfer/disposal of business assets;
• Temporary application of business assets to a private or non business use;
• Services put to a private or non business use;
• Assets retained after deregistration;
• Supply of goods and/or services by a taxable person to another taxable or non taxable person in the course or furtherance of business.

The proviso to this Schedule provides that the supply of goods by a registered taxable person to a job worker in terms of Section 43A shall not be treated as supply of goods.

Determination of service

Section 3(2) provides that Schedule II, in respect of matters mentioned therein , shall apply for determining what is, or is to be treated as a supply of goods or supply of services.

Deemed Supply

Section 3(2A) provides that where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.

Government to notify supply

Section 3(3) provides that subject to Section 3(2), the Central or the State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as-

• a supply of services and not as a supply of goods; or
• neither a supply of goods nor a supply of services.

Essential ingredients to supply

In order to constitute a ‘supply’ the following element are required to be satisfied-

• supply of goods and/or services;
• supply is for a consideration;
• supply is made in the course of furtherance of business;
• supply is made in the taxable territory;
• supply is a taxable supply;
• supply is made by a taxable person.

Under certain circumstances such as importation of service or supplies made without consideration, where one or more ingredients are not satisfied, it shall be treated as supply.

Inter-state self supplies such as stock transfer will be taxable as a taxable person has to take state wise registration.  Such transactions have been made taxable even if there is no consideration.  However intra state supplies are not taxable.

Title as well as possession both has to be transferred for a transaction to be considered as a supply of goods.   In case title is not transferred, the transaction would be treated as supply of services in terms of Schedule II (1).  In some cases, possession may be transferred immediately but tile may be transferred at a future date.  Such transactions will also be treated as supply of goods.

Types of supplies

The Act gives various types of supplies.

• Inward supply and outward supply;
• Continuous supply of goods and continuous supply of services;
• Composite supply;
• Exempt supply;
• Zero rated supply.

Inward supply

Section 2(61) defines the term ‘inward supply’ in relation to a person, shall mean receipt of goods and/or services whether by purchase, acquisition or any other means and whether or not for any consideration

Outward supply

Section 2(73) defines the term ‘outward supply’ in relation to a person, shall mean supply of goods and/or services, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made by such person in the course of furtherance of business except in case of such supplies where the tax is payable on reverse charge basis.

Continuous supply of goods

Section 2(30) defines the term ‘continuous supply of goods’ as a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or period basis.

Continuous supply of services

Section 2(31) defines the term ‘continuous supply of services’ as a supply of services which is provided or agreed to be provided, continuously or on recurrent basis, under contract, for a period exceeding three months with periodic payment obligations and includes supply of such service as the Central Government or a State Government may, whether or not subject to any condition, by notification, specify.

Composite supply

Section 2(27) defines the term ‘composite supply’ as a supply consisting of-

• two or more goods;
• two or more services; or
• a combination of goods and services.

provided in the course of furtherance of business, whether or not the same can be segregated.

Exempt Supply

Section 2(42) defines the term ‘exempt supply’ as supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which are specified in the Schedule …..(to be specified) of the Act or which may be exempt from tax under Section 10.

Zero rated supply

Section 2(109) defines the term ‘zero rated supply’ as a supply of any goods and/or services on which no tax is payable but credit of the input tax related to that supply is admissible.  Exports shall be treated as zero-rated supply.

As already told the term ‘supply’ has wide amplitude in the Act.  It finds place in many of the definitions of the Act and also in other provisions of the Act.  Some important definitions may be seen.

Export of service

Section 2(44) provides that the supply of any service shall be treated as ‘export of service’ when-

(a) the supplier of service is located in India;

(b) the recipient of service is located outside India;

(c) the place of supply of service is outside India;

(d) the payment of such service has been received by the supplier of service in convertible foreign exchange; and

(e) the supplier of service and recipient of service are not merely establishment of a distinct person.

The explanation to this section provides that for the purposes of clause (e) an establishment of a person in India and any of his establishment outside India shall be treated as establishments of distinct persons.

Import of service

Section 2(52) provides that the supply of any service shall be treated as ‘import of service’, if-

(a) the supplier of service is located outside India;

(b) the recipient of service is located in India;

(c) the place of supply of service in India; and

(d) the supplier of service and the recipient of service are not merely establishments of a distinct person.

Explanation 1 to this section provides that an establishment of a person in India and any of his other establishment outside India shall be treated as establishments of distinct person.

Explanation 2 to this section provides that a person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory.

It is felt that the term ‘supply’ has much impact in the GST Act and will cover almost all sort of transactions. Its interpretation will lead to much litigation on the implementation of GST unless otherwise the term supply is rationally placed in the provisions of the Act and Rules.