The concept of ‘Supply’ is introduced first time in Indian Taxation System the taxation event will be decided by the Supply under GST Law. In earlier law the event levy of tax was provided separately for each tax levied by government:

Existing Indirect Tax Law Taxable Event
The Customs Act, 1962 Entry of goods in the territory of India
The Central Excise Act, 1944 Manufacture of Excisable Goods
The Finance Act 1994 (Chapter V) i.e. Service Tax Provision of a Taxable Service
Respective State VAT Act Sale of goods

Thus the levy of GST is occurred at the time of ‘Supply of Goods or Services’. It is pertinent here to discuss the relevant statutory provision reads as under:

Section 7 of the CGST Act 2017: Scope of supply.

(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;

(b)  import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

(2) Notwithstanding anything contained in sub-section (1),–

(a)  activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a 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 of goods nor a supply of services.

(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, 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.

From simple reading of above provisions it may be presumed that the definition of supply is inclusive and thus of the widest possible connotation. The Supply is defined to include all forms of supply of goods and/or services 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 or furtherance of business. It also includes importation of services for a consideration whether or not in the course or furtherance of business.

It may be noted that a supply will involve two independent persons. However, GST makes transactions between two branches of the same legal entity in different States/ countries or two different registrations within the same State also taxable under GST. Transactions of supply of goods between principals and agents which are not subject to tax in present regime are taxable supplies under GST as these have been treated as supplies under Schedule I of the CGST Act.

Activity or Transaction Without Consideration is also ‘Supply’

Clause (1)(c) of section 7 specifically provided that following items of schedule I to the CGST Act, 2017 will be treated as ‘Supply’ even the transactions entered into without consideration:

1.Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2.Supply of goods or services or both between related persons or between distinct persons as specified in section 25, 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.

3.Supply of goods—

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4.Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Activity or Transaction Not to be Treated as ‘Supply’:

Sub-section (2) of section 7 of the CGST Act 2017 provides that following are the activities or transactions shall be treated neither as a supply of goods nor a supply of services meaning thereby that these are specifically excluded from the scope of ‘Supply’:

1.Services by an employee to the employer in the course of or in relation to his employment.

2.Services by any court or Tribunal established under any law for the time being in force.

3.(a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c)  the 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 and who is not deemed as an employee before the commencement of this clause.

4.Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5.Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6.Actionable claims, other than lottery, betting and gambling.

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