The Meaning and Scope of Supply - Section 7 - GST Ready Reckoner - GST

The Meaning and Scope of Supply (Section 7) Section 7(1) - For the purposes of this Act, the expression, supply includes - (a) 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 course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. [ Clause (aa) inserted vide Finance Act, 2021, w.r.e.f 1st July 2017 ] Explanation . For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another; Example A : There are 4 members in the JV including the operating member and each one contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating member purchases machinery for Rs 400 for the JV to be used in oil production. Example A will not be the subject matter of GST for the reason that the operating member is not carrying out an activity for another for consideration. In example A, the money paid for purchase of machinery is merely in the nature of capital contribution and is therefore a transaction in money. Example B: There are 4 members in the JV including the operating member and each one contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating member thereafter uses its own machine and performs exploration and production activities on behalf of the JV. On the other hand, in example B, the operating member uses its own machinery and is therefore providing service within the scope of supply of CGST Act, 2017. This is because in this scenario, the operating member is recovering the cost appropriated towards machinery and services from the other JV members in their participating interest ratio. (b) import of services for a consideration whether or not in the course or furtherance of business is considered as supply, even if the transaction does not involve consideration, it still falls under the scope of supply. (c) the activities specified in Schedule I , made or agreed to be made without a consideration. Some examples are permanent transfer/disposal of business assets where ITC is availed on such assets, supply of goods/services/both between related persons etc. Commentary : Supply is an important event determining the taxability of all transaction, whether commercial or otherwise. Thus, determining whether a transaction falls under scope of supply is most important to decide GST applicability of the transaction. The term Supply has been inclusively defined in the Act. The meaning and scope of supply under GST can be understood in terms of following six parameters, which can be adopted to characterize a transaction as supply: 1. Supply of goods or services. Supply of anything other than goods or services does not attract GST 2. Supply should be made for a consideration 3. Supply should be made in the course or furtherance of business 4. Supply should be made by a taxable person 5. Supply should be a taxable supply 6. Supply between the club/ association and its members shall be a taxable supply. The term goods and services have been defined in section 2(52) and 2(102) of the CGST Act. The term consideration is defined in section 2(31) of the CGST Act. The phrase agreed to be 'made signifies that tax is not only payable on supply, that has already been made, but would also be payable in respect to a supply that has been agreed to be made. Hence, even advances received prior to supply is taxable even if the same is in 2 connection to a supply agreed to be made. Clarification - Issue - Various clarification issued by CBIC on Supply of goods or services in respect of warranty replacement of parts and repair services during warranty period, whether it is supply or not and that is liable to pay GST or not. [ Circular No. 195/07/2023-GST dated 17.07.2023 ] The original equipment manufacturers /suppliers offer warranty for the goods / services supplied by them. During the warranty period, replacement goods /services are supplied to customers free of charge and as such no separate consideration is charged and received at the time of replacement. In respect of GST liability as well as liability to reverse ITC against such supplies of replacement of parts and repair services during the warranty period without any consideration from the customers. Further Clarification issued in respect of GST liability and input tax credit (ITC) availability in cases involving Warranty/ Extended Warranty, in furtherance to Circular No. 195/07/2023-GST dated 17.07.2023 . [ Circular No. 216/10/2024-GST dated 26.06.2024 ] Issue - Whether the insurance company is liable to pay GST on the salvage/ wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle? [ Circular No.-215/9/2024-GST dated 26.06.2024 ] Clarification In case where the insurance contract provides for settlement of claim on full IDV, without deduction of value of salvage/ wreck, the insured will be paid for full claim amount without any deductions on account of salvage value. In such a situation, the salvage becomes the property of Insurance Company after settling the claim for the full amount and the insurance company is obligated to deal with the same or dispose of the same. In such cases, the outward GST liability on disposal/sale of the salvage is to be discharged by the insurance companies. In case where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as deductibles from the claim amount, the salvage remains the property of insured and insurance companies are not liable to discharge GST liability on the same. In such Situation where the insurance claim is settled on full claim amount, without deduction of value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer. Issue - Whether the activity of providing loans by an overseas affiliate to its Indian affiliate or by a person to a related person, where there is no consideration in the nature of processing fee/ administrative charges/ loan granting charges etc., and the consideration is represented only by way of interest or discount, will be treated as a taxable supply of service under GST or not. [ Circular No. 218/12/2024-GST dated 26.06.2024 ] CASE LAW IN RE: M/S. CALTECH POLYMERS PVT. LTD. ( 2018 (10) TMI 1313 - APPELLATE AUTHORITY FOR ADVANCE RULING, KERALA ) it was held that, the supply of food items to the employees for consideration in the canteen run by the appellant company would come under the definition of 'supply' and would be taxable under GST. Section 7(1A) - Deemed supply Inserted by Finance Act, 2018 w.e..f. 1.7.2017 where certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II . Following services are treated as deemed supply: Barter system. Permanent transfer or disposal of business assets. Supply of goods/services between related person or distinct person as defined in section 25. Principal supply of goods to his agents. Agents supplying goods to his principal. Import of services either from related person or any establishment outside India. Section 7(2) - No supply Activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services . [ section 7(2)(a) ] Government may by notification specify the activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities which shall be treated neither as a supply of goods nor a supply of services. [ section 7(2)(b) ] Notification No. 25/2019-Central Tax (Rate) Dated: 30-9-2019 hereby notifies the grant of alcoholic liquor licence neither a supply of goods nor a supply of service as per Section 21(i) of UTGST Act read with Section 7(2) of CGST Act, 2017. [ Read with Circular no. 121/40/2019-GST Dated 11th October, 2019 ] Notification No. 14/2017-Central Tax (Rate) dated 28-06-2017 Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution Shall be treated as neither a supply of goods nor supply of service. Case law IN RE: M/S. TIRUPPUR CITY MUNICIPAL CORPORATION ( 2021 (6) TMI 562 - AUTHORITY FOR ADVANCE RULING, TAMILNADU ) The activity (1) Fee from Parks; (2) Market fee-daily; (3) Market fee-weekly; or Fish - Fee weekly (4) Fees for bays in bus-stand; (7) Slaughter house fees; (8) Fees on pay use toilets; (9) Cycle stand, Scooter, auto stand in the bus-stand are activities etc. in relation to functions entrusted under Article 243G and Article 243W of the Constitution and are treated as neither supply of goods nor services when provided by the applicant as Public authority as per Notification No. 14/2017-C.T.(Rate) dated 28th June 2017 as amended time to time. Howsoever In respect of activity Locker Rent in the bus-stand, the activity is not in relation to the functions entrusted under Article 243G and 243W of the Constitution and therefore is treated as Services and Locker Rent is liable to GST. Section 7(3) - Classification as Goods or services Subject to the provisions of sections 7 (1)/(1A) and (2), The Government may, on the recommendations of the Council, may specify, by notification, the transactions that are to be treated as: (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods Following are the essential ingredient for any transaction to be considered as Supply 1. Supply should be of goods or services. supply of anything to be other than goods or services like money, securities etc. does not attract GST. Read with Activity or Transaction - Section 7(1A) read with Schedule II - whether it is Supply of Goods or Services 2. Supply should be made for a consideration. Exception Supply Includes Without Consideration -Section 7(1)(c) Schedule I 3. Supply should be made in the course or furtherance of business . 4. Activities or Transaction Excluded from Supply - Section 7 Schedule III Type of Supply Taxable Supply Non Taxable Supply Exempt Supply