Updated: Feb 7
GST is payable when an event of supply occurs as per GST Act. Thus, it is important to know the nature of trade or transaction and whether such transaction is a supply in the light of the scope of supply.
Prior to GST, the indirect taxation in the form of Service Tax or VAT or any such other tax was levied on supply but there was no concept of the scope of supply. So, the tax was levied at different stages in the different acts. For instance, Service Tax had a concept of Point of Taxation, according to which service tax liability was determined. A value of Goods or Services was considered for the levy of VAT. Scope of supply has been defined in GST Act under Section 7.
Scope of Supply under GST: Section 7
As per Sub Section (1), if a person is providing or involved in any of the following activities
sale (transfer of ownership of goods)
transfer (transfer of goods/right in goods without the transfer of the title)
exchange (to swap or transfer for an equivalent using money e.g. exchange of old tv against new TV)
barter (exchange of commodity without money)
license (permission granted to exercise certain privileges)
rental (payment at agreed intervals for using else's property)
lease (right to use for a certain period without transfer of title)
disposal (business goods or property disposed of without consideration e.g. old assets donated)
- course of business or furtherance of business
- for consideration,
is considered as supply under GST. Thus if any of this is not met it is not considered a sale.
e.g. If Mr. ABC has purchased a Computer for personal use and he sold it after a few months to a dealer, This is not considered as supply under CGST as this is not done by Mr. ABC for the furtherance of business, however, if MR. ABC had purchased a laptop for business use and later on disposes of it by donating it to the orphanage, it would constitute a supply under GST.
However, Schedule I of the GST Act considers certain transactions as supply even if no consideration is involved.
Types of Supply under GST
Composite supply and Mixed Supply:
WHAT IS COMPOSITE SUPPLY?
A supply that consists of two or more goods/services must be delivered together in accordance with common workflows in that area. To put it another way, these goods can't be ordered separately. In the entire transaction, there is a primary supply and a secondary supply. The tax rate on the primary supply will apply to the total supply in such instances.
For example, Ordering goods online includes services like packaging and shipping, thus primary product, packaging, and Shipping charges altogether make it a composite supply.
In simple words, naturally bundled goods and/or services, that are typically sold together and cannot be separated constitute a composite supply.
WHAT IS MIXED SUPPLY?
A mixed Supply is a bundle of Goods/Services that are not dependent on each other and are not naturally a bundle and each item can be sold or offered separately. For instance, Mobile phones and headsets are sold in a single package, but they can be separated and customers may buy each item separately as per their convenience.
Import of Goods/Services:
Importing goods or services for a fee is considered a supply, whether for personal or commercial usage.
Paragraph 7 of Schedule II has been eliminated and with a new provision in Section 7. (aa). As a result, any unincorporated organization or body of persons supplying goods to its members will be considered a supplier. (21st Dec 2021).
A new clause was added to the definition of supply in Section 7 of the CGST Act. Activities or transactions in which a person, other than an individual, provide products or services to its members or constituents in exchange for cash, deferred payment, or other valuable consideration. Previously, this supply would have been treated as the only supply of commodities under Schedule II. As a result, the levy's reach has been widened. (01st Feb 2021).
Schedule III of the GST Act classifies some activities or transactions as neither sales of goods nor sales of services.
Services by an employee to employer
Gifts from an employer to an employee up to the amount of Rs.50,000/- in a financial year
Funeral, burial, cremation, or mortuary services, as well as transportation of the deceased.
Duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority
Services by any court or Tribunal
Duties of MP/MLA/MLC Members of Local Bodies
Duties performed by any individual holding a position in such capacity in accordance with the Constitution's provisions
Sale of Land
Sale of Building (In case, if a portion of the payment is received before completion of a complex/building intended for sale to a buyer, it will be classified as Supply of Services.)
Actionable claims (such as claims for money due on insurance, for arrears of rent etc), other than lottery, betting, and gambling
We have tried to simplify the scope of supply as per section 7under GST.