Concept of “Supply” Under GST

“Supply” – The Taxable Event Under GST

Taxable event under GST is supply. The concept of a supply is broader than a sale is illustrated by the British case involving the taxpayer’s sale of a known stolen car at auction (Customs and Excise Commissioners v Oliver, [1980] 1 All ER 353). Although the sale may be void as a matter of local law, the Queen’s Bench held that a supply “is the passing of possession in goods pursuant to an agreement whereunder the supplier agrees to part with and the recipient agrees to take possession” of the goods, even if, as in this case, the innocent purchaser at auction may have to give up the car.

Another British case (Carlton Lodge Club v Customs and Excise Commissioners, [1974] 3 All ER 798) held that serving a member a drink for a consideration in a nonprofit member’s club was a supply for VAT purposes. Selling is not a necessary prerequisite for a supply.

Meaning of ‘Supply’ Under GST – Section 3

Definition of supply under Sec. 3 of GST Law is inclusive which means that other than the list of supplies given in the section, any transaction which falls under the normal definition of supply shall be included. The definition of supply has four parts to it.

concept of supply under gst

Part I : Transactions in the Course of Business For Consideration

First part covers transactions such as sale, transfer, barter, exchange, license, rental, lease or disposal made in the course of business for a consideration.

Business is defined u/s 2(17) of Model Act to include any trade, commerce, manufacture, profession, vocation or any similar activity. It also includes activity of club, association, society to its members.

Necessary elements that constitute supply under GST Law

In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.-

(i) supply of goods and/ or services;

(ii) supply is for a consideration;

(iii) supply is made in the course or furtherance of business;

(iv) supply is made in the taxable territory;

(v) supply is a taxable supply; and

(vi) Supply is made by a taxable person.

Part II : Transaction of Supply Without Consideration (Schedule-I)

Second part covers deemed transactions of supply made without consideration listed under Schedule – I. List is as under:

  • 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

Part III : Transaction of Importation

Third part covers transactions of importation of service even for personal use. Under Sec. 9(3)(c) a threshold shall be provided above which only registration shall be necessary in case of importation of service for personal use.

Part IV : Transactions Deemed as Supply (Schedule- II)

Fourth part provides a list of transactions (Schedule – II) which shall be deemed as supply of goods or as supply of service. Same is as under:

Transactions Deemed as Supply Of Goods

  • Any transfer of the title in goods is a supply of goods
  • Hire purchase
  • Transfer or disposal of business assets
  • Disposal by a creditor/ financial institution
  • Closing goods on cessation of business unless business is continued
  • Supply of goods by any unincorporated association or body of persons to a member thereof

Transactions Deemed as Service

  • Transfer of right to use l Lease of land or building
  • Treatment or process on another person’s goods
  • Private use of business goods/assets
  • Temporary transfer or permitting the use or enjoyment of any intellectual property right
  • Development, design, programming, customization, adaptation, up -gradation, enhancement, implementation of information technology software
  • Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act
  • Supply of goods, being food or any other article for human consumption or any drink

Taxability of self-supplies under GST?

Inter-state self-supplies such as stock transfers will be taxable as a taxable person has to take state wise registration in terms of Schedule 1(5). Such transactions have been made taxable even if there is no consideration. However, intra-state self-supplies are not taxable.

Faqs on “Supply”

Can a transaction in which any one or more of the above criteria is not fulfilled, be still considered as supply under GST?

Ans. Yes. Under certain circumstances such as importation of service (Section 3(1) (b)) or supplies made without consideration, specified under Schedule-I of MGL, where one or more ingredients specified in answer to question no. 4 are not satisfied, it shall still be treated as supply under GST Law.

Importation of Goods is conspicuous by its absence in Section 3. Why?

Ans. Importation of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty.

Whether transfer of title and/or possession is necessary for a transaction to constitute supply of goods?

Ans. Title as well as possession both have 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 service in terms of Schedule II (1). In some cases, possession may be transferred immediately but titled may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.

What do you mean by “supply made in the course or furtherance of business”?

Ans. No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:

1. Is the activity, a serious undertaking earnestly pursued?

2. Is the activity is pursued with reasonable or recognisable continuity?

3. Is the activity conducted in a regular manner based on sound and recognised business principles?

4. Is the activity predominantly concerned with the making of taxable supply for consideration/ profit motive?

The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.

An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of MGL? Give reasons for the answer.

Ans. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

A dealer of air-conditioners transfers an air conditioner from his stock in trade, for personal use at his residence. Will the transaction constitute a supply?

Ans Yes. As per Schedule-I (1) business assets put to a private or non-business use without consideration will be treated as supply.

Whether provision of service or goods by a club or association or society to its members will be treated as supply or not?

Ans. Yes. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of MGL.

What are inter-state supplies and intra-state supplies?

Ans. Inter-state and intra-state supplies have specifically been defined in Section 3 & 3A of IGST Act respectively. Broadly, where the location of the supplier and the place of supply are in same state it will be intra-state and where it is in different states it will be inter-state supplies.

Whether transfer of right to use goods will be treated as supply of goods or supply of service? Why?

Ans. Transfer of right to use goods shall be treated as supply of service because there is no transfer of title in such supplies. Such transactions are specifically treated as supply of service in Schedule-II of MGL

Whether Works contracts and Catering services will be treated as supply of goods or supply of services? Why?

Ans. Works contract and catering services shall be treated as supply of service as specified in Schedule-II of MGL.

Whether goods supplied on hire purchase basis will be treated as supply of goods or supply of services? Why?

Ans. Supply of goods on hire purchase shall be treated as supply of goods as there is transfer of title, albeit at a future date.

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