‘Supply’ is going to be altogether a new concept in the indirect taxation, far away from manufacture (central excise), provision of service (service tax) or sale (value added tax). This concept will change the citus of taxation from ‘origin’ to ‘destination’ and is thus a total ‘U-turn’ from the present day taxation regime.
Meaning of Supply [Section 2(f)]
The term ‘supply’ has been defined to mean the same as defined in section 3 of the CGST Act, 2016 which provides for meaning and scope of ‘supply’.
This section provides for the meaning and scope of supply of goods and services. There is no concept of supply of goods and services in the present law either in Service Tax or Central Excise. In the proposed law, supply of goods or services shall include the following:
- lease or disposal, and
- Importation of services
- Supply as per Schedule-I (supply without consideration)
In relation to ‘supply’ for the purpose of GST, following points may be noted –
- supply shall be goods and / or services
- supply should be made or agreed to be made
- supply should be for a consideration
- supply should be made by person
- supply should be made in the course of or furtherance of business
- supply shall include importation of service, irrespective of whether for consideration or not and whether in the course of or furtherance of business or not.
- supply shall include supply as per Schedule-I made without a consideration
It also includes a supply which is made or agreed to be made without a consideration and specified in Schedule-I to the Act, i.e., matters to be treated as supply without consideration which are as follows:
- Permanent transfer/disposal of business assets.
- Temporary application of business assets to a private or non-business use.
- Services put to a private or non-business use.
- Self supply of goods and/or services.
- Assets retained after deregistration.
- Supply of goods / services by a taxable person to another taxable or non-taxable person in the course or furtherance of business.
As Schedule-I includes matters to be treated as supply without consideration, the scope of ‘supply’ becomes much wider or unlimited. It shall cover services put to any private or non-business use and supply of goods or services by a taxable person to another taxable or non-taxable person in the course of or furtherance of business. (e.g., free gifts or samples, free services to friends etc).
It may however, be noted that supply of goods by a registered person to a job worker as per section 43A dealing with special procedure for removal of goods will not be treated as supply of goods.
Schedule II to Model GST law shall govern supply of goods or services in relation to transfer, land and building treatment or process, transfer of business assets, certain specified services etc.
The provision empowers the Central or State Governments to specify by notification, the treatment of transactions. On the recommendation of the GST Council, such notification may notify that the transaction be treated –
- as supply of goods and not as a supply of services
- as supply of services and not as supply of goods
- neither as supply of goods nor as supply of services
Chapter II (section 3 and 3A) of the IGST, Act provide for the provisions for determining supply of goods and services in the course of inter-state and intra-state trade or commerce Chapter IV (sections 5 and 6) provide for determining place of supply of goods and place of supply of services respectively.
According to charging section (section 4),
- There shall be levied a tax called the Integrated Goods and Service Tax on all supplies of goods and /or services made in the course of inter-State trade or commerce at the rate specified in the Schedule to this Act and collected in such manner as may be prescribed.
- The Integrated Goods and Service Tax shall be paid by every taxable person in accordance with the provisions of this Act.
Supply of goods / services in inter-state trade or commerce
section 3 of the IGST Act provides for principles for determining supply of goods and /or services in the course of inter-state trade or commerce. Accordingly,
- Subject to the provisions of section 5, a supply of goods shall be deemed to take place in the course of inter-State trade or commerce if the location of the supplier and the place of such supply are in different States.
- Subject to the provisions of section 6, a supply of services shall be deemed to take place in the course of inter-State trade or commerce if the location of the service provider and the place of supply of service are in different States.
This section corresponds to sections 3 to 5 of CST Act, 1956. The provisions of section 3 shall determine as to when supply of goods or services shall take place or shall be deemed to have taken place, subject to provisions of section 5 in case of place of supply of goods and section 6 in place of supply of services in the course of inter-state trade or commerce.
Supply of goods and / or services shall be deemed to take place in the course of inter-state trade or commerce if –
- In case of goods, location of supplier and the place of supply of goods are in different states
- In case of services, location of service provider and place of supply of service are in different states.
Thus, for a supply to be inter-state, it will be seen that –
- Supply shall be of goods / services
- in course of trade or commerce
- Location of supplier / service provider and place of supply should be in different states
- Supply should be in course of business or its furtherance.
The aforementioned provision is subject to provision of place of supply of goods and services in sections 5 and 6 of the Act.
Supply of goods and/or services in the course of intra-state trade or commerce
Services 3A of the IGST Act provides for the supply of goods and / or services in the course of intra-state trade or commerce as follows –
- Subject to the provisions of section 5, intra-state supply of goods means any supply where the location of the supplier and the place of supply are in the same State.
- Subject to the provisions of section 6, intra-state supply of services means any supply where the location of the supplier and the place of supply are in the same State.
Accordingly, whereas place of supply of goods or services shall be determined in terms of section 5 and 6 respectively, intra-state supply shall mean-
- in case of goods – any supply of goods where location of the supplier and place of supply are located in the same state.
- in case of services – any supply of services where the location of supplier and place of supply are in the same state.
These principles can be better understood by the following matrix illustration –
Supply of Goods / Services
Place of supply
State B (Other than State A)
State A (Same State)
In may be noted that ‘Goods’ and ‘Services’ have been defined in section 2(48) and 2(88) of GST Act respectively.
Once we move on to GST regime, efforts will also be required to align financial statements and accounting or tax accounting standards to meet the challenges thrown by the GST regime. The manner of recognizing revenue will change for the tax purposes as there are bound to be mismatches between figures of ‘sale’ and ‘supply’. Similarly, work – in-progress or in-transit figures will be hit because of GST in view of ‘time of supply’ provisions. While removal of goods may not be relevant, supply of goods will have to be recognized as earlier of event of dispatch, receipt, payment or invoicing as the case may be.
By: Dr. Sanjiv Agarwal – July 19, 2016