Basic Concepts
Table of content:
A taxable event is any transaction or occurrence that results in a tax consequence. Before levying any tax, taxable event needs to be ascertained. It is the foundation stone of any taxation system; it determines the point at which tax would be levied.
Under the earlier indirect tax regime, the framework of taxable event in various statutes was prone to catena of interpretations resulting in litigation since decades. The controversies largely related to issues like whether a particular process amounted to manufacture or not, whether the sale was pre-determined sale, whether a particular transaction was a sale of goods or rendering of services etc.
The concept of ‘supply’ is the key stone of the GST architecture. The provisions relating to the meaning and scope of supply are contained in Chapter III of the CGST Act read with various Schedules given under the said Act. Following sections and schedules shall be discussed in this chapter to understand the concept of supply:
The definition of ‘supply’ as contained in section 7 is an inclusive definition and does not define the term exhaustively. It defines the scope of supply in an inclusive manner. Clause (a) of sub-section (1) illustrates the forms of supply, but the list is not exhaustive. This is further substantiated by the use of words ‘such as’ in the definition.
| Provisions of scope of supply under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act. |
The meaning and scope of supply in terms of section 7 can be understood in terms of following parameters:
1. Supply should be of goods or services.
2. Supply should be made for a consideration.
3. Supply should be made in the course or furtherance of business.
The activities or transactions (involving supply of goods or services) between a person, other than an individual, (i.e. association, club, etc.) and its members or constituents, for cash, deferred payment or other valuable consideration are covered within the ambit of ‘supply’ as per section 7(1)(aa).
Further, explanation to clause (aa) to section 7(1) clarifies that for the purpose of this clause, such person (association, club, etc.) and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions between them shall be deemed to take place from one such person to another. The explanation starts with a non-obstante clause and shall therefore, shall have an overriding effect over anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority.
Activities/transactions specified under Schedule III: Section 7(2)(a) provides activities or transactions specified in Schedule III shall be treated neither as a supply of goods nor a supply of services. Schedule III specifies transactions/ activities which shall be neither treated as supply of goods nor as supply of services. Thus, the activities/transactions specified under this schedule can be termed as Non-Supplies under the GST regime. In a way, it is a “Negative list” for the purposes of taxation in GST.
It is important to note that apart from the activities specified in Schedule III, some activities have been notified by the Government vide different notifications, which are also to be considered as non-supplies. Further, some circulars have been issued clarifying that certain transactions are to be considered as non-supplies.
Hence, our discussion under this heading will revolve around the following:
A. Non-supplies listed in Schedule III
B. Non-supplies notified vide notification
C. Non-supplies clarified by way of circular
An easy Mnemonic to learn Schedule III of GST is TABLE:
For a supply to attract GST, primarily two additional conditions need to be satisfied. These are – (i) supply must be made by a taxable person and (ii) supply must be a taxable supply. These two additional conditions have been discussed hereunder:
(i) Supply by a taxable personA supply to attract GST should be made by a taxable person.
The restriction of being a taxable person is only on the supplier whereas the recipient can be either taxable or non-taxable.
(ii) Taxable supply
For a supply to attract GST, the supply must be taxable. Taxable supply has been broadly defined and means any supply of goods or services or both which, is leviable to tax under the GST Law [Section 2(108)] [Refer Chapter-3: Charge of GST in this Module of the Study Material for detailed discussion on leviability of GST].
Composite supply means a supply made by a taxable person to a recipient and:
• comprises two or more taxable supplies of goods or services or both, or any combination thereof.
• which are naturally bundled and supplied in conjunction with each other, in the ordinary course of business
• one of which is a principal supply [Section 2(30)].
This means that in a composite supply, goods or services or both are bundled owing to natural necessities. The elements in a composite supply are dependent on the
‘principal supply’.
Mixed supply means:
❑ two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person
❑ for a single price where such supply does not constitute a composite supply [Section 2(74)].
The individual supplies are independent of each other and are not naturally bundled.
How to determine if a particular supply is a mixed supply?: In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply.
A supply can be a mixed supply only if it is not a composite supply. As a corollary,it can be said that if the transaction consists of supplies not naturally bundled in
the ordinary course of business, then the possibility of it being a mixed supply needs to be checked.
Understanding the nuances of taxable events, the expansive scope of 'supply' under the CGST Act, and distinguishing between composite and mixed supplies are fundamental for navigating the GST landscape. The GST regime marks a significant shift in taxation principles, aiming for clarity, efficiency, and reduced litigation. As we delve into the complexities and exceptions outlined within the legislation, it becomes evident that meticulous comprehension and application are essential for businesses and practitioners alike. Embracing these concepts empowers stakeholders to navigate GST regulations effectively, fostering compliance and facilitating seamless operations within the realm of indirect taxation.
Ruchika Saboo
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