Supply under GST – Section 7 – Simplified

Supply under GST for both goods and services has been made the single comprehensive taxable event. Taxable event is an important criteria in the taxation system as it determines the point at which the tax is to be levied. Before the introduction of GST in India, the determination of taxable event was different for different indirect tax laws such as, the taxable event under Excise laws was when the goods manufactured were taken out of the factory, under the VAT laws the taxable event was the sale of goods or provision of services and under Service Tax, the taxable event was ascertained by the Point of Taxation Rules. However, these laws were subsumed into the GST Act in 2017.

Supply under GST – Meaning and Scope of supply – Section 7(1)

Supply includes –

• All forms of supply under GST 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 of furtherance of business,
• 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,

It has been clarified that it shall be deemed that the person and its members or constituents are two separate persons and the supply under GST of activities or transactions inter se shall be deemed to take place from one such person to another,

• Import of services for a consideration whether or not in the course or furtherance of business,

However, the essential conditions regarding import of service covered in supply under GST are as under:-

• It is applicable only for services and not for goods.
• Services should be provided for a consideration.
• Services may be in course or furtherance of business or not. This implies that import of services even for personal consumption would qualify as ‘supply’ and therefore would be liable to tax.
• The activities specified in Schedule I, made or agreed to be made without a consideration.

Supply under GST – Whether supply of goods or services – Section 7(1A)

Where certain activities or transactions constitute a supply in accordance with Section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.

Supply under GST – Negative List – Section 7(2)

Notwithstanding anything contained in Section 7(1),

• The activities or transactions specified in Schedule III, or
• Such activities or transactions undertaken by the Central Government, State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply under GST of goods nor a supply of services.

Supply under GST – Goods or Services as per Government notification – Section 7(3)

The Government may on, the recommendations of the Council, specify, by notification, the transactions that are to be treated as:-

• A supply of goods and not as a supply of service; or
• A supply of services and not as a supply of goods.

Types of Supply under GST –

The supply under GST can be broadly categorized as taxable and non-taxable supplies. However, these supplies can be further classified depending on the nature of the supply as under:-

• Taxable Supplies – These are supplies of goods or services that are taxable under GST. These supplies are eligible for claiming ITC i.e. the registered taxpayers can avail the ITC or claim refund on taxes paid during purchases. The taxable supplies can be further classified under the following 3 categories :-
• Regular taxable supplies – These are the supplies that attract GST rates above 0% within India.

Example – Sale of furniture attracting 18% GST.

• Nil Rated Supplies – These are the supplies that attract 0% GST by default.

Example – Sale of fresh fruits attracting 0% GST.

• Zero rated supplies – Exports, supplies to a SEZ unit or deemed exports under GST, the GST associated with the items or services involved becomes 0 even though the same would attract a GST rate greater than 0% when sold within India. Such supplies are deemed as zero rated supplies.

Example – Sale of handicrafts are zero rated supplies.

• Non-taxable supplies –
• Exempt supply under GST – The supply of exempt goods or services does not attract GST even though they are within the purview of GST. That said, the registered taxpayer cannot claim ITC on inputs used for making such supplies.

Example – Sale of bread is an exempted supply.

• Non-GST supply – This refers to supply of items which are outside the purview of the GST law.

Example – Electricity supply is a non-GST supply.

Composite Supply and Mixed Supply

Goods and services can be supplied individually or bundled together, thus giving rise to the concept of composite supply and mixed supply.

• Composite Supply – If the goods and services supplied together are a natural bundle (wherever it makes more sense to provide them together than to sell them individually), then it is known as a composite supply.
• Mixed Supply – If the goods and services supplied together are not naturally bundled together (they are not interdependent and can also be sold separately), then such a supply is known as mixed supply.

Schedule I -Activities specified in Schedule I, made or agreed to be made without a consideration covered in the scope of supply

As per Schedule I, the following activities specified that are made or agreed to be made without a consideration will be covered in the scope of supply u/s 7 of the CGST Act, 2017:-

• Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
• Supply of goods or services or both between related persons or between distinct persons, when made in the course or furtherance of business.

However, gifts not exceeding Rs. 50,000/- in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

• Supply under GST of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal or by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
• Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Schedule II – Whether supply under GST to be treated as supply of goods or supply of services

One of the major reasons for litigation during the previous indirect tax regime was confusion regarding whether the sale is to be treated as sale of goods or of services. To remove this ambiguity, Section 7(1A) of the Act refers to Schedule II for determining whether a particular transaction is a supply of goods or service.

Activity/Transaction	Type	Nature of Supply
Transfer	Transfer of the title in goods	Supply of Goods
	Transfer of right in goods or of undivided share in goods without the transfer of title thereof	Supply of Services
	Transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed.	Supply of Goods
Land and Building	Lease, tenancy, easement, licence to occupy land	Supply of Services
	Lease or letting out, either wholly or partly of the building including a commercial, industrial or residential complex for business or commerce	Supply of Services
Treatment or Process	Treatment or process which is applied to another person’s goods	Supply of Services
Transfer of Business Assets	Goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets	Supply of Goods
	Goods held/used for business are put to private use or are made available to any person for use for any purpose other than business, by/under directions of person carrying on the business	Supply of Services
	Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless – (i) The business is transferred as a going concern to another person (ii) The business is carried on by a personal representative who is deemed to be a taxable person	Supply of Goods
Renting/ Construction	(i) Renting of immovable property; (ii) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier; (iii) Temporary transfer or permitting the use or enjoyment of any intellectual property right; (iv) Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (v) Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and (vi) Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration	Supply of Services
Composite Supply	Following composite supplies:- (i) Works contract as defined in Section 2(119); and (ii) Supply, by way of or part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration	Supply of Services

Schedule III – Neither supply of goods nor services

Section 7(2) lists down the activities which shall not be considered as supply under GST. The said activities can be termed as Negative list under the GST regime. This includes the activities or transactions specified in Schedule III which are as under:-

• Services by an employee to the employer in the course of or in relation to his employment.
• Services by any court or Tribunal established under any law for the time being in force.
• The functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities, Members of other local authorities, any person who is a Chairman, or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
• Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
• Sale of land and subject to clause (b) or part 5 of Schedule II, sale of building.
• Actionable claims, other than lottery, betting and gambling.
• Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.
• Supply of warehoused goods to any person before clearance for home consumption or supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
• The Central Government may notify such other transactions to either qualify as supply of goods or as supply of services. This notification must be issued only upon recommendations from the Council.