Chapter 2 - Supply Under GST - Notes

Chapter 2 – Supply Under GST
Taxable Event in GST

GST is levied on the “supply” of “goods” or “services” or both. Therefore, the taxable event in GST is
“supply”. In this chapter, we’ll understand the meaning of these terms and understand the scope of
supply.
Section 7: Scope of Supply

(1) Supply includes:
(a) all forms of supply 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 or furtherance of business,
(aa) 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 is hereby clarified that, notwithstanding anything contained in any other law for the
time being in force or any judgment, decree or order of any Court, tribunal or authority,
the person and its members or constituents shall be deemed to be two separate
persons and the supply of activities or transactions inter se shall be deemed to take
place from one such person to another.
(b) import of services for a consideration whether or not in the course or furtherance of
business; and
(c) the activities specified in Schedule I, made or agreed to be made without a
consideration.
(1A) Where certain activities or transactions constitute a supply in accordance with the provisions
of Section 7(1), they shall be treated either as supply of goods or supply of services as referred
to in Schedule II.
(2) Notwithstanding anything contained in Section 7(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 Section 7(1), 7(1A) and 7(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 supply of services; or
(b) a supply of services and not as supply of goods.
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Diagrammatic Representation of Steps to Determine Whether an
Activity is a Supply or Not
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Analysis of Section 7(1)(a)
The supply should be of goods or services. If anything other than goods or services is supplied, it won’t
attract GST.
Understanding Sale, Transfer, Barter, Exchange, License, Rental, Lease,

Disposal
The list of transactions “sale, transfer, barter, exchange, license, rental, lease, or disposal” is not an
exhaustive list, but only an illustrative list. This is clear by the use of words “such as”.
Understanding “Made or Agreed to be Made”

The words “made or agreed to be made” indicate that even if advance money is received, it is treated
as supply.
Understanding “Consideration”
• The supply should be for a consideration.
• "Consideration" refers to anything of value that is given or promised in exchange for the supply
of goods or services.
• This can include payment in the form of money or other valuable items, as well as any act or
forbearance (refraining from doing something) that is provided to induce the supply of goods
or services.
• However, it does not include any subsidy given by the Central Government or a State
Government.
• In simpler terms, consideration is what is given or promised in exchange for something else,
such as a product or service.
• Apart from above, there’s a proviso to Section 2(31) which says that deposit given in respect
of the supply of goods or services or both shall not be considered as payment made for such
supply unless the supplier applies such deposit as consideration for that supply.
o “Deposit” is basically kind of a security money which is not specifically earmarked to
any particular obligation. For example, when you take a house on rent, you need to
given some money to the landlord as “deposit”, which you get back when you leave
the house. So, this “deposit” is not a consideration.
o However, if the landlord at some later point appropriates this deposit against your
rent liability, then it will be treated as consideration.
• The difference between advance and deposit has been clarified. An advance has to be utilized
for the specific purpose for which the advance is made, whereas utilization of a deposit
depends entirely on the person with whom it is deposited.
• It has also been clarified by a notification that when an artist supplies his art work to galleries
for exhibition, the galleries don’t pay anything to him, therefore, there is no consideration.
However, when somebody selects a particular item provided by the artist and wishes to buy
it, then actual supply takes place and GST applies.
• An important feature of consideration is quid pro quo [something for something]. Donations
received by the charitable organisations are treated as consideration only if there exists, quid
pro quo, i.e., there is an obligation on part of recipient of the donation or gift to do anything
(supply a service).
Question 1
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Bhushan donated a blackboard to Yoganisht Sansthan – a charitable yoga institution. Yoganisht
Sansthan printed underneath the blackboard so donated - “Good wishes from Mr. Bhushan”. Is this a
consideration?
Solution
Since there is no reference or mention of any business activity of the donor which otherwise would
have got advertised, this is not consideration.
Question 2
Smt. Durga Devi donated some money to a temple in the memory of her late father. The Temple Trust
constructed a room in the temple complex from such donation and wrote “Donated by Smt. Durga
Devi in the memory of her father” on the door floor of the room. Is this a consideration?
Solution
Since there is no reference or mention of any business activity of the donor which otherwise would
have got advertised, this is not consideration.
Question 3
Rishabh buys a car for his personal use and after a year sells it to a car dealer. Is it a supply?
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Solution
Sale of car by Rishabh to car dealer is not a supply under CGST Act because said supply is not made by
Rishabh in the course or furtherance of business.
Question 4
Manikarnika sold her old gold bangles and earrings to ‘Aabhushan Jewellers’. Is it a supply?
Solution
Sale of old gold jewelry by an individual to a jeweler will not constitute supply as the same cannot be
said to be in the course or furtherance of business of the individual.
Question 5
Sundaram Acharya, a famous actor, paints some paintings and sells them. The consideration from such
sale is to be donated to a Charitable Trust – ‘Kind Human’. Is it a supply?
Solution
The sale of paintings by the actor qualifies as supply even though it is a one-time occurrence.
Question 6
A Resident Welfare Association provides the service of depositing the electricity bills of the residents
in lieu of some nominal charges. Is it a supply?
Solution
Provision of service by a club or association or society to its members is treated as supply as this is
included in the definition of ‘business’.
Question 7
Are services by way of admission to circus, cinema halls, amusement parks including theme parks,
water parks, etc. are considered as supply?
Solution
Yes, as these are services by way of admission of persons to any premises for a consideration.
Question 8
Royal Turf Race Club is engaged in facilitating the wagering (betting) transactions on horses placed
through totalizator. For providing the service of facilitating wagering transactions, Royal Turf Race Club
gets commission which is deducted and retained by the club from the total bet value. Is it a supply?
Solution
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Said services amount to supply as the activities of a race club are included in business.
Question 9
Does sale of goods in an exhibition, participation in a trade fair, warranty supplies, supply of free
samples to induce customers to purchase other goods, sale of used assets, etc. constitute a supply?
Solution
Yes, as these activities are in the course or furtherance of business.
Analysis of Section 7(1)(aa)

Whether an unincorporated association or body of persons supplies any goods, such as air
conditioners, or a service, such as payment of their electricity bills, it is treated as a supply.
Question 10
Resident Welfare Association (RWA) of Sanskriti Society supplies air-conditioners to its members at a
concessional price. Is this a supply of goods or a supply of services?
Solution
Supply of goods by an unincorporated association or body of persons to a member thereof for cash,
deferred payment or other valuable consideration is treated as a supply of goods. Therefore, supply of
air-conditioners to the members by RWA is treated as a supply of goods.
Analysis of Section 7(1)(b)

• As per Section 7(1)(b), supply includes import of services for a consideration whether or not in
the course or furtherance of business.
• This section is applicable only for the import of services, and not for the import of goods. This
means that if you import goods for a consideration which are not in the course or furtherance
of business, it won’t be treated as a supply.
• Services should be provided for a consideration. This means that if you import services without
consideration, it won’t be treated as a supply.
• Services imported could be in the course or furtherance of business or not. This means that
even if you import some services for a consideration for personal use, it will constitute a
supply.
Question 11
Ramaiyaa, a proprietor, has received the architect services for his house from an architect located in
New York at an agreed consideration of $5,000. Is this a supply?
Solution
The import of services by Ramaiyaa is supply under section 7(1)(b) though it is not in course or
furtherance of business.
Analysis of Section 7(1)(c)

• As per Section 7(1)(c), supply includes the activities specified in Schedule I, made or agreed to
be made without a consideration.
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• This means that if an activity is mentioned in Schedule I, then even if it is undertaken without
a consideration, it will be treated as supply.
Activities Mentioned in Schedule I

There are four Paras in Schedule I.
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 ₹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 person from a related person or from any of his other establishments
outside India, in the course or furtherance of business.
Analysis of Para 1 of Schedule I

• As per Para 1 of Schedule I, permanent transfer or disposal of business assets where input tax
credit has been availed on such assets is considered as supply even it is without any
consideration.
• Therefore, in order to qualify as supply, following three conditions need to be satisfied:
o There must be a disposal or transfer of business assets
o Such transfer or disposal must be permanent
o ITC must have been availed on such business assets
• Please note that when a Holding Company transfers assets to its Subsidiary Company at NIL
value, that also constitutes a taxable supply.
Question 12
Dhruv gives old laptops being used in his business to his friend free of cost. Input tax credit has been
availed by Dhruv on such laptops. Is this a supply?
Solution
As per Para 1 of Schedule I, permanent transfer or disposal of business assets without consideration is
treated as supply only if ITC has been availed on such assets. In the present case, since ITC was availed
by Dhruv, the transaction constitutes a taxable supply.
Question 13
A dealer of air-conditioners permanently transfers the motor vehicle free of cost. ITC on said motor
vehicle is blocked. Is this a supply?
Solution
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treated as supply only if ITC has been availed on such assets. In the present case, since ITC was blocked,
therefore, the question of its availment does not arise. Hence, this transaction is not treated as a
supply.
Question 14
An organization undertakes renovation of office and on that account transfers its old furniture, on
which input tax credit has been availed, without consideration to a charitable institution. Is this a
supply?
Solution
treated as supply only if ITC has been availed on such assets. In the present case, since ITC has been
availed on the business assets which are permanently transferred, it is treated as a supply.

As per Para 2 of Schedule I, 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 is
treated as supply even if it is made without consideration.
Understanding Related Persons

• A person who is under the influence of another person is called a related person. For example,
members of the same family, subsidiaries of a group company, etc.
• Related Person is defined in explanation to section 15. Following is a diagrammatic
representation of the definition of related person:
• Please note that even though employer and employee are related persons, the services
provided by the employee to the employer in the course of employment are not covered under
supply of services as per Schedule III (we’ll study it later).
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• Also, if the employer gifts an amount upto ₹50,000 to the employee, it is not treated as a
supply. However, if the amount of gift exceeds ₹50,000, and such gift is in the course or
furtherance of business, then it is treated as a supply.
• Perquisites by employer to employee:
o Since services provided by the employee to the employer are not treated as supply,
the consideration to the employee by way of perquisites as per the contractual
agreement between them would also not be subjected to GST.
o Therefore, if the services such as membership of a club, health and fitness center etc.
are provided free of charge to all the employees by the employer, the same shall not
be subject to GST.
o The same would hold true for free housing to the employees, when the same is
provided in terms of the contract between the employer and employee and is part and
parcel of the cost-to company.
Question 15
Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of XYZ Ltd. Discuss.
Solution
Since Ms. Priya controls both ABC Ltd. and XYZ Ltd., by holding ≥ 25% voting stock in each of them, ABC
Ltd. and XYZ Ltd. are related persons.
Question 16
Q Ltd. has a deciding role in corporate policy, operations management, and quality control of R Ltd.
Discuss.
Solution
It can be said that Q Ltd. controls R Ltd. Thus, Q Ltd. and R Ltd. are related.
Understanding Distinct Persons Under Section 25

• Before we go through the statutory provisions of ‘distinct persons’, let us first have an
overview of the registration provisions for better understanding of the concept of distinct
persons.
• Under GST law, a supplier is required to obtain State-wise registration.
• He has to obtain registration in every State/UT from where he makes a taxable supply provided
his aggregate turnover exceeds a specified threshold limit.
• Thus, he is not required to obtain registration from a State/UT from where he makes a non-
taxable supply.
• Since registration in GST is PAN based, once a supplier is liable to register, he has to obtain
registration in each of the States/UTs in which he operates [and makes a taxable supply] under
the same PAN.
• Further, he is normally required to obtain single registration in a State/UT.
• However, where he has multiple places of business in a State/UT, he has the option either to
get a single registration for said State/UT or to get separate registrations for each place of
business in such State/UT.
• Now, let us understand the concept of distinct persons in simple terms.
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• The establishments of a person with separate registrations whether within the same State/UT
or in different States/UTs are considered as distinct persons.
Question 17
Mohan, a Chartered Accountant, has a registered head office in Delhi. He has also obtained registration
in the State of West Bengal in respect of his newly opened branch office. Will Mohan be treated as
distinct persons in respect of registrations in West Bengal and Delhi?
Solution
The establishments of a person with separate registrations whether within the same State/UT or in
different States/UTs are considered as distinct persons. Therefore, Mohan shall be treated as distinct
persons in respect of registrations in West Bengal and Delhi.
Understanding Distinct Persons Under Section 25 (Contd.)

• If a person having one registered establishment in a State/UT has another establishment in a
different State/UT [not necessarily registered], these establishments are considered as
establishments of distinct persons.
Question 18
Rishabh Enterprises, a registered supplier, owns an airconditioned restaurant in Virar, Maharashtra. It

has opened a liquor shop in Raipur, Uttarakhand for trading of alcoholic liquor for human consumption.
Since supply of alcoholic liquor for human consumption in Uttarakhand is a non-taxable supply,
Rishabh Enterprises is not required to obtain registration with respect to the same in Uttarakhand. Will
the supply of anything by Maharashtra restaurant to Uttarakhand shop qualify as a supply?
Solution
Where a person having one registered establishment in a State/UT has another establishment in a
different State/UT [not necessarily registered], these establishments are considered as establishments
of distinct persons. In this case, air-conditioned restaurant in Maharashtra and liquor shop [though
unregistered] in Uttarakhand shall be treated as establishments of distinct persons. Supply by
Maharashtra restaurant to Uttarakhand shop, in course or furtherance of business, even without
consideration will qualify as supply.
Understanding Distinct Persons Under Section 25 (Contd.)

• Stock transfers or Branch transfers: Under GST, transactions undertaken without consideration
will qualify as supply, provided the transfer of goods or services is between:
o different locations (with separate GST registrations) of same legal entity as these are
transactions between distinct persons, or
o establishments of distinct persons.
• These transactions are termed as self-supplies.
• However, transfer between two units of a legal entity under single registration (apparently
within same State) will not be considered as supply.
Question 19
Raghubir Fabrics transfers 1000 shirts from his factory located in Lucknow to his retail showroom in
Delhi so that the same can be sold from there. The factory and retail showroom of Raghubir Fabrics
are registered in the States where they are located. No consideration is charged. Is this a supply?
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Solution
Transfer of goods and services between different locations (with separate GST registrations) of same
legal entity without consideration qualifies as supply as it is a transaction between distinct persons.
Therefore, although no consideration is charged, supply of goods from factory to retail showroom
constitutes supply.
Question 20
Raghubir Fabrics transfers 1000 shirts from his factory located in Lucknow to his retail showroom in
Kanpur so that the same can be sold from there. It has taken one registration in the State of Uttar
Pradesh declaring Lucknow factory as its principal place of business and Kanpur showroom as its
additional place of business. No consideration is charged. Is this a supply?
Solution
Transfer between two units of a legal entity under single registration (apparently within same State) is
not considered as supply. Since no consideration is charged, supply of goods from factory to retail
showroom in same State under single registration does not constitute supply. However, in the above
example, if Raghubir Fabrics obtains separate registrations for Lucknow factory and Kanpur showroom,
stock transfer between the Lucknow factory and Kanpur showroom will constitute supply.

• As per Para 3 of Schedule I, supply of goods by a principal to his agent, without consideration,
where the agent undertakes to supply such goods on behalf of the principal is considered as
supply.
• Similarly, supply of goods by an agent to his principal, without consideration, where the agent
undertakes to receive such goods on behalf of the principal is considered as supply.
• Therefore, supply of goods by principal to his agent or by agent to his principal even if made
without consideration will be considered as supply.
• Please note that only supply of goods is covered here. This means that supply of services
between principal and agent without consideration won’t constitute supply.
• “Agent” means a person, including a factor, broker, commission agent, arhatia, del credere
agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on
the business of supply or receipt of goods or services or both on behalf of another.
• “Principal” means a person on whose behalf an agent carries on the business of supply or
receipt of goods or services or both.
Question 21
A company is located in the suburbs and employs an agent in the city to undertake sales on behalf of
the company. Accordingly, the company transfers goods to the premises of the agent in the city. Does
this qualify as a supply?
Solution
Yes, this qualifies as a supply because there clearly exists a principal-agent relationship. Supply of
goods, even without consideration, therefore, would qualify as a supply.
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Question 22
HML Motors Ltd. engages Bhagwati Cars Ltd. as an agent to sell cars on its behalf. For the purpose,
HML Motors Ltd. has supplied 20 cars to the showroom of Bhagwati Cars Ltd. located in Haryana. Does
this quality as a supply?
Solution
Yes, this qualifies as a supply because there clearly exists a principal-agent relationship. Supply of
goods, even without consideration, therefore, would qualify as a supply.
Analysis of Para 3 of Schedule I (Contd.)

• In order to determine whether a particular principal-agent relationship falls within the ambit
of the Para 3 of Schedule I as discussed above or not, the deciding factor is whether the invoice
for the further supply of goods on behalf of the principal is being issued by the agent or not?
• In other words, the crucial point is whether or not the agent has the authority to pass or receive
the title of the goods on behalf of the principal.
• If the invoice for further supply is being issued by the agent in his name, then, any provision of
goods from the principal to the agent would fall within the fold of Para 3 above.
• If the invoice is issued by the agent to the customer in the name of the principal, such agent
shall not fall within the ambit of Para 3 above.
• If the goods being procured by the agent on behalf of the principal are invoiced in the name
of the agent, then further provision of the said goods by the agent to the principal would be
covered by Para 3 above.
Question 23
Anmol appoints Bholu to procure certain goods from the market. Bholu identifies various suppliers
who can provide the goods as desired by Anmol and asks the supplier (Golu) to send the goods and to
issue the invoice directly to Anmol. Does this fall within the ambit of Para 3 of Schedule I?
Solution
In this scenario, Bholu is only acting as the procurement agent, and has in no way involved himself in
the supply or receipt of the goods. Hence, in accordance with the provisions of this Act, Bholu is not
an agent of Anmol for supply of goods in terms of Para 3 of Schedule I.
Question 24
Manimani Bank, a banking company, appoints Mandaar (auctioneer) to auction certain goods. The
auctioneer arranges for the auction and identifies the potential bidders. The highest bid is accepted,
and the goods are sold to the highest bidder by Manimani Bank. The invoice for the supply of the goods
is issued by Manimani Bank to the successful bidder. Does this fall within the ambit of Para 3 of
Schedule I?
Solution
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In this scenario, the auctioneer is merely providing the auctioneering services with no role played in
the supply of the goods. Even in this scenario, Mandaar is not an agent of Manimani Bank for the supply
of goods in terms of Para 3 of Schedule I.
Question 25
Gautam, an artist, appoints Gambhir (auctioneer) to auction his painting. Gambhir arranges for the
auction and identifies the potential bidders. The highest bid is accepted, and the painting is sold to the
highest bidder. The invoice for the supply of the painting is issued by Gambhir on the behalf of Gautam
but in his own name and the painting is delivered to the successful bidder. Does this fall within the
ambit of Para 3 of Schedule I?
Solution
In this scenario, Gambhir is not merely providing auctioneering services, but is also supplying the
painting on behalf of Gautam to the bidder and has the authority to transfer the title of the painting
on behalf of Gautam. This scenario is covered under Para 3 of Schedule I.
Question 26
A Carry and Forward (C&F) agent or commission agent takes possession of the goods from the principal
and issues the invoice in his own name. Does this fall within the ambit of Para 3 of Schedule I?
Solution
In such cases, the C&F commission agent is an agent of the principal for the supply of goods in terms
of Para 3 of Schedule I. The disclosure or non-disclosure of the name of the principal is immaterial in
such situations.
Question 27
Ravi sells agricultural produce by utilizing the services of Kavi who is a commission agent as per the
Agricultural Produce Marketing Committee Act (APMC Act) of the State. Kavi identifies the buyers and
sells the agricultural produce on behalf of Ravi for which he charges a commission from Ravi. As per
the APMC Act, the commission agent is a person who buys or sells the agricultural produce on behalf
of his principal or facilitates buying and selling of agricultural produce on behalf of his principal and
receives, by way of remuneration, a commission or percentage upon the amount involved in such
transaction. Does this fall within the ambit of Para 3 of Schedule I?
Solution
In cases where the invoice is issued by Kavi to the buyer, Kavi is an agent covered under Para 3 of
Schedule I. However, in cases where the invoice is issued directly by Ravi to the buyer, the commission
agent (Kavi) doesn’t fall under the category of agent covered under Para 3.
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• As per Para 4 of Schedule I, import of services by a person from a related person or from his
establishments located outside India, without consideration, in the course or furtherance of
business shall be treated as “supply”.
• Importation of services a covered by Section 7(1)(b) does not include importation without
consideration.
• Therefore, this clause is inserted to cover such services that are received from related persons
or their establishments outside India without consideration, in the course or furtherance of
business.
• Thus, even if no amount is paid in such case, the value must be determined as per the rules
and tax is required to be paid.
• A summary chart of importation of services is given below for better understanding:
Question 28
Jhumroo Associates received legal consultancy services from its head office located in Malaysia. The
head office has rendered such services free of cost to its branch office. Does this qualify as supply?
Solution
Since Jhumroo Associates and the head office are related persons, services received by Jhumroo
Associates will qualify as supply even though the head office has not charged anything from it.
Question 29
Chakmak, a proprietor registered in Delhi, has sought architect services from his son located in US,
with respect to his newly constructed house in Delhi. Does this qualify as supply?
Solution
Although services have been received by Chakmak without consideration from his son – a related
person, yet it will not qualify as supply since the same has not been received in course or furtherance
of business.
Question 30
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Ms. Pragati received legal advice for some personal problems and paid £1,000 as legal fees to Miss
Unnati of London (UK). Explain whether the above activity of import of service would amount to supply
under section 7 of the CGST Act, 2017?
Solution
As per Section 7(1)(b), the term ‘supply’ includes import of services for a consideration whether or not
in the course or furtherance of business. Thus, legal advice received by Ms. Pragati for her personal
problems for a consideration will be covered under the ambit of supply.
Question 31
Ms. Pragati received legal advice for some personal problems from Miss Unnati of London (UK). Both
of them are sisters and no consideration is paid by Ms. Pragati to Miss Unnati. Explain whether the
above activity of import of service would amount to supply under section 7 of the CGST Act, 2017?
Solution
As per Section 7(1)(c) read with Schedule I, 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 will be
treated as supply. In this case, though Pragati and Unnati are related persons, legal services received
will not be covered under the ambit of supply, since the said services are not received by her in the
course or furtherance of business.
Question 32
Ms. Pragati received legal advice for her business problems from Miss Unnati of London (UK). Both of
them are sisters and no consideration is paid by Ms. Pragati to Miss Unnati. Explain whether the above
activity of import of service would amount to supply under section 7 of the CGST Act, 2017?
Solution
As per Section 7(1)(c) read with Schedule I, 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 will be
treated as supply. In this case, Ms. Pragati has received legal advice from her sister for her business
without consideration. Since it is in the course or furtherance of her business, it will be covered under
the ambit of supply.
Analysis of Section 7(1A)

As per Section 7(1A), where certain activities or transactions constitute a supply in accordance with
the provisions of Section 7(1), they shall be treated either as supply of goods or supply of services as
referred to in Schedule II.
Schedule II – Para 1
The matters listed out in Schedule II are primarily those which had been entangled in litigation in the
earlier regime owing to their complex nature and susceptibility to double taxation. These are as
follows:
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Para Activity/ Type Nature of
No. Transaction Supply
1 Transfer (a) Any transfer of title in goods. Supply of
Goods
(b) Any transfer of right in goods/undivided share in Supply of
goods without transfer of title thereof. Services
(c) Any transfer of title in goods under an agreement Supply of
which stipulates that property in goods shall pass at Goods
a future date upon payment of full consideration as
agreed.
Question 33
Shivaji sells ready-made garments to its customers. Is this a supply of goods or supply of services?
Solution
This is clearly a transfer of title in goods. Therefore, it is treated as a supply of goods as per Para 1(a)
of Schedule II.
Question 34
Genius Equipments Ltd. gives a machinery on rent to Suhaasi Manufacturers. Is this a supply of goods
or supply of services?
Solution
Any transfer of right in goods/undivided share in goods without transfer of title thereof is considered
to be a supply of services as per Para 1(b) of Schedule II. In the present case, since the machinery is
transferred on rent, the title of goods has not been transferred. Therefore, this is a supply of services.
Question 35
Dhruva Capitals supplied goods on hire purchase basis to customers. Is this a supply of goods or supply
of services?
Solution
Any 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 is considered as a supply of goods as per
Para 1(c) of Schedule II. In the present case, since the goods are supplied on hire purchase basis, it’ll
be treated as a supply of goods.
Question 36
Optima Manufacturers supplies toys to retailers on ‘sale or return basis’. Is this a supply of goods or
supply of services?
Solution
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Para 1(c) of Schedule II. In the present case, since the goods are supplied on sale or return basis, it’ll
Question 37
Mr. X provides certain goods to Mr. Y and he permits Mr. Y to use the goods, provided Mr. Y pays for
the goods at the end of one month, when the property of goods will be transferred to Mr. Y. Is this a
supply of goods or supply of services?
Solution
Para 1(c) of Schedule II. In this case, the ownership is transferred in future. Therefore, it’ll be treated
as a supply of goods.
Schedule II – Paras 2 & 3

2 Land and (a) Any lease, tenancy, easement, licence to occupy land. Supply of
Building For example, lease agreement of a land. Services
(b) Any lease or letting out of building including a Supply of
commercial, industrial or residential complex for Services
business or commerce, wholly or partly.
For example, a shop lent out in a busy market area.
3 Treatment or Any treatment or process which is applied to another Supply of
Process person’s goods Services
Question 38
Damani Dying House dyes the clothes given by Shubham Textiles Ltd. on job work basis. Is this a supply
of goods or supply of services?
Solution
As per Para 3 of Schedule II, any treatment or process which is applied to another person’s goods is
treated as a supply of services. Therefore, this is clearly a case of supply of services.
4 Transfer of (a) Goods forming part of business assets are transferred Supply of
Business or disposed off by/under directions of person Goods
Assets carrying on the business so as no longer to form part
of those assets.
(b) Goods held/used for business are put to private use Supply of
or are made available to any person for use for any Services
CA NISHANT KUMAR 17
purpose other than business, by/under directions of
person carrying on the business.
(c) Goods forming part of assets of any business carried Supply of
on by a person who ceases to be a taxable person, Goods
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. However, following are
the two exceptions:
(i) Business is transferred as a going concern to
another person
(ii) Business is carried on by a personal
representative who is deemed to be a
taxable person.
Question 39
Mr. X is carrying on the business of consumer durable products. He disposed off a defective refrigerator
for ₹50,000 to G whereas its normal price is ₹3,50,000. Is this a supply of goods or supply of services?
Solution
As per Para 4(a) of Schedule II, when goods forming part of business assets are transferred or disposed
off by/under directions of person carrying on the business so as no longer to form part of those assets,
it is treated as a supply of goods. Therefore, in the present case as well, it will be treated as a supply
of goods.
Question 40
Managing Director of a company is using car provided by the company for personal purpose for a
consideration of ₹50,000. Is this a supply of goods or a supply of services?
Solution
As per Para 4(b) of Schedule II, when 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, it is treated as a supply of services. Therefore, in the present case, it will be
treated as a supply of services.
Question 41
Arun, a trader, is winding up his business. What would be the treatment of any goods left in his stock?
Solution
As per Para 4(c) of Schedule II, goods forming part of assets of any business carried on by a person who
ceases to be a taxable person, 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. In the present case, Arun is winding
up the business. Any goods left in stock shall be deemed to be supplied by him. This supply will be
treated as a supply of goods.
CA NISHANT KUMAR 18
Question 42
Mr. X and Mr. Y are running a partnership firm and having goods A and B in stock. Mr. X & Mr. Y decide
to dissolve the partnership and the goods A & B are taken over by Mr. X and Mr. Y respectively. The
business is not continued further. Is this taking over of goods considered a supply? If yes, is it a supply
of goods, or a supply of services?
Solution
As per Para 4(c) of Schedule II, goods forming part of assets of any business carried on by a person who
ceases to be a taxable person, 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. In the present case, Mr. X and Mr.
Y are winding up the partnership. The taking over of goods by them is treated as supply. Further, it will
Para Activity/Transaction Nature
No. of
Supply
5 (a) Renting of immovable property Supply of
(b) Construction of a complex, building, civil structure or a part thereof, services
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.
Explanations:
(i) The term construction includes additions, alterations,
replacements, or remodeling of any existing civil structure.
(ii) The expression competent authority means the Government or
any authority authorized to issue completion certificate under
any law for the time being in force and in case of
nonrequirement of such certificate from such authority, from
any of the following, namely:
1. an architect registered with the Council of Architecture
constituted under the Architects Act, 1972; or
2. a chartered engineer registered with the Institution of
Engineers (India); or
3. a licensed surveyor of the respective local body of the city
or town or village or development or planning authority.
(c) Temporary transfer or permitting use or enjoyment of any intellectual
property right
(d) Development, design, programming, customization, adaptation,
upgradation, enhancement, implementation of IT software
(e) Agreeing to obligation to refrain from an act, or to tolerate an act or
situation, or to do an act.
(f) Transfer of right to use any goods for any purpose (whether or not for
specified period) for cash, deferred payment or other valuable
consideration.
CA NISHANT KUMAR 19
Question 43
Is renting of a commercial complex a supply of goods or supply of services?
Solution
As per Para 5(a) of Schedule II, renting of immovable property is treated as a supply of services.
Therefore, renting of a commercial complex is a supply of services.
Question 44
Is renting of precincts of a religious place a supply of goods or supply of services?
Solution
Therefore, renting of precincts of a religious place is a supply of services.
Question 45
Is renting of property to an educational institution a supply of goods or supply of services?
Solution
Therefore, renting of property to an educational institution is a supply of services.
Question 46
Is permitting use of immoveable property for placing vending/dispensing machines a supply of goods
or supply of services?
Solution
Permitting the use of an immovable property is, in a way renting only. Therefore, permitting use of
immoveable property for placing vending/dispensing machines is a supply of services.
Question 47
Rathi Builders has constructed individual residential units for agreed consideration of ₹1.2 crore per
unit. ₹90 lakh per unit were received before issuance of completion certificate by the competent
authority and balance after completion. Is this a supply of goods or a supply of services?
Solution
As per Para 5(b) of Schedule 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, is considered to be a
supply of services. However, where the entire consideration has been received after issuance of
completion certificate, where required, by the competent authority or after its first occupation,
CA NISHANT KUMAR 20
whichever is earlier, it is not considered as a supply of services. In fact, such a transaction constitutes
sale of immovable property, which is not leviable under GST.
In the present case, part consideration was received before the competent authority issued the
completion certificate, and the balance consideration was received after the completion of
construction. Therefore, this is a supply of services.
Question 48
Mr. X, a promoter, sells a flat in his new building to Mr. Y. Date of completion certificate is 11-03-2021.
Part of consideration is received on 10-03-2021 by Mr. X. Is this a supply of goods or a supply of
services?
Solution
As per Para 5(b) of Schedule 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, is considered to be a
supply of services. However, 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, it is not considered as a supply of services. In fact, such a transaction constitutes
sale of immovable property, which is not leviable under GST.
In the present case, part consideration was received before the competent authority issued the
completion certificate, and the balance consideration was received after the completion of
construction. Therefore, this is a supply of services.
Question 49
Pizza Bakers allows the use of its patented process to Domino’s Pizza against consideration of ₹15
crore. Is this a supply of goods or a supply of services?
Solution
As per Para 5(c) of Schedule II, temporary transfer or permitting use or enjoyment of any intellectual
property right is treated as a supply of services. In the present case, Pizza Bakers has temporarily
allowed Domino’s Pizza to use its intellectual property right, i.e., the patented process of baking pizza.
Hence, this is a supply of services.
Question 50
A company pays programmers to develop an in-house accounting software against payment of ₹25
lakhs. Is this a supply of goods or a supply of services?
Solution
As per Para 5(d) of Schedule II, development, design, programming, customization, adaptation,
upgradation, enhancement, implementation of IT software is treated as a supply of services.
Therefore, this transaction is a supply of services.
CA NISHANT KUMAR 21
Question 51
Cable operator - Sakharam has entered into an agreement with Cable operator - Aatmaram that
Sakharam will not provide cable connections in the specified areas where Aatmaram is providing the
connections. Is this a supply of goods or a supply of services?
Solution
As per Para 5(e) of Schedule II, agreeing to obligation to refrain from an act, or to tolerate an act or
situation, or to do an act are considered as a supply of services. The present case is an agreement to
refrain from an act. Therefore, it is a supply of services.
Question 52
Mr. X, an employee of Z Ltd. agrees not to work in the same industry for at least 2 years by signing a
non-compete agreement and against payment of ₹15 lakhs. Is this a supply of goods or a supply of
services?
Solution
situation, or to do an act are considered as a supply of services. The present case is an agreement to
refrain from an act. Therefore, it is a supply of services.
Question 53
Late delivery charges are recovered from supplier for non-fulfilment of contract within stipulated time.
Is this a supply of goods or a supply of services?
Solution
situation, or to do an act are considered as a supply of services. In the present case, since the supplier
didn’t fulfil the contract within stipulated time, the recipient of the services tolerated it. Therefore,
this is a supply of services.
Question 54
Notice pay recovered from employee for leaving the job before agreed period of notice for leaving a
job. Is this a supply of goods or a supply of services?
Solution
situation, or to do an act are considered as a supply of services. In the present case, since the employee
is leaving the job before agreed period, the employer tolerated it. Therefore, this is a supply of services.
Question 55
CA NISHANT KUMAR 22
A machinery is given on hire by Mr. X to Mr. Y for ₹15,00,000. Is this a supply of goods or a supply of
services?
Solution
As per Para 5(f) of Schedule II, transfer of right to use any goods for any purpose (whether or not for
specified period) for cash, deferred payment or other valuable consideration is treated as a supply of
services. Therefore, machine given on hire is a supply of services.
Para Activity/Transaction Nature
No. of
Supply
6 Following composite supplies: Supply
(a) Works contract; and of
(b) Supply, by way of or as part of any service or in any other manner Services
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.
Works Contract means a contract for:
Building; Construction; Fabrication; Completion;
Erection; Installation; Fitting Out; Improvement;
Modification; Repair; Maintenance; Renovation;
Alteration or Commissioning
of any immovable property wherein transfer of property in goods (whether as
goods or in some other form) is involved in the execution of such contract.
Analysis of Section 7(2)

• As per Section 7(2)(a), activities or transactions specified in Schedule III shall be treated neither
as a supply of goods nor a supply of services.
• As per Section 7(2)(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.
Analysis of Section 7(2)(a) – Schedule III

Certain activities which are mentioned in Schedule III are neither treated as supply of goods, nor supply
of services.
Schedule III
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.
Explanation – The term "Court" includes District Court, High Court and Supreme Court.
3.
a. Functions performed by the Members of Parliament, Members of State Legislature,
Members of Panchayats, Members of Municipalities and Members of other local
authorities.
CA NISHANT KUMAR 23
b. Duties performed by any person who holds any post in pursuance of the provisions of
the Constitution in that capacity.
c. 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 paragraph 5(b) of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
Paras 7 and 8 are not in CA Intermediate Syllabus.
Analysis of Para 1 of Schedule III

Case Is GST leviable?
1. Services provided by Employee to No
Employer in the course of, or in relation to
employment
2. Amount paid by employer to employee for No
pre-mature termination of the
employment contract
3. Amount paid by employer to employee for Yes, as it is considered to be a payment for
not joining a competing business forbearance to act, and not as a payment for
services provided in the course of
employment
4. Casual Workers
a. Wages paid by Construction No
contractors to casual workers
b. Wages paid by Security Services No
Agencies to casual workers
c. Amount paid by the clients to Yes
contractors or to security service
agencies
5. Directors
a. Whole Time Directors or Executive
Directors
i. Payment made only for No, as they are generally considered as
directorship employees of the company
ii. Payment made for services Portion of their remuneration treated as
both in the course of and salaries would not be subject to GST, while
not in the course of GST would be leviable on the balance
employment remuneration.
b. Independent directors, nominee Yes, as they are not considered as employees
directors, or non-executive of the company. However, GST is chargeable
directors on reverse charge basis, i.e., the company is
liable to pay the GST, not the directors.

• As per Para 2 of Schedule II, any fees taken in any Court or tribunal established under any law
for the time being in force is outside the scope of supply.
• Therefore, no GST is applicable on such fees, as provision of these services by court or tribunal
is neither treated as a supply of goods, nor a supply of services.
CA NISHANT KUMAR 24
Para 3 of Schedule III to the CGST Act lists certain activities that are not considered as supply of goods
or services for the purpose of GST. These include:
• Functions performed by elected officials such as Members of Parliament, State Legislatures,

Panchayats, Municipalities, and other local authorities.
• Duties performed by people who hold certain constitutional posts such as the President, Vice
President, Prime Minister, Chief Justice, Speaker of the Lok Sabha, Chief Election
Commissioner, Comptroller and Auditor General, Chairman of Union Public Service
Commission, Attorney General, etc.
• Duties performed by individuals who serve as Chairpersons, Members, or Directors in bodies
established by the Central Government, State Government, or local authorities, and who are
not considered employees before the commencement of this clause. These individuals will not
be subject to GST on their services.

Para 4 of Schedule III specifies that services of funeral, burial, crematorium, or mortuary including
transportation of the deceased shall not be regarded as supply of services, hence will be outside the
purview of GST.

• Let's review Para 5(b) of Schedule II before discussing Para 5 of Schedule III.
• According to Para 5(b) of Schedule II, if a complex, building, civil structure, or a part thereof,
including a complex or building intended for sale to a buyer, wholly or partly, is constructed
but the entire consideration has not been received after the issuance of the completion
certificate, where required by the competent authority, or after the first occupation,
whichever is earlier, then it is treated as a supply of services.
• However, the sale of land and buildings (subject to Para 5(b) of Schedule II) is neither a supply
of goods nor a supply of services, as per Para 5 of Schedule III.
• Thus, it is not liable to GST.
• If the premises are sold during the construction of the building, it is considered a supply of
service by the builder to the buyer, and it is liable to GST.
• However, if it is sold after obtaining the Occupation Certificate, it is considered a transaction
in the sale of immovable property, which is not subject to tax.

• As per Para 6 of Schedule III, transactions in actionable claims, other than lottery, betting, and
gambling are considered neither as supply of services nor as supply of goods.
• Actionable claim means a claim to any debt, for example, right to recover insurance money,
claim for arrears of rent, claims for future rents (if these can be assigned), unsecured loans,
unsecured debentures, bills of exchange, promissory notes, bank guarantee, Fixed Deposit
Receipt, right to the benefit of a contract, etc.
Taxability of Tenancy Rights Under GST

• The Pagadi system is a way of renting property in some parts of India. In this system, the tenant
pays a premium called "pagadi" to the landlord in exchange for the right to live in the property.
CA NISHANT KUMAR 25
Although the landlord is the owner of the property, the tenant has the right to occupy it. The
tenant also pays rent to the landlord for as long as they live there.
• The tenant can also sell the right to live in the property to someone else. If they do, they have
to share a portion of the money they receive with the landlord, according to the agreement
they made.
• If the landlord wants the property back, they can pay the tenant the current pagadi premium
to vacate the property. The rules governing these properties in Maharashtra are laid out in the
Maharashtra Rent Control Act, 1999.
• It has been clarified that transferring tenancy rights (the right to live in the property) for money
is considered a service, and is subject to GST. This is because renting or leasing property is
considered a service under Indian law. Even though other fees like registration and stamp duty
may be charged, they do not exempt the transaction from GST.
• In general, transferring tenancy rights is taxable, but renting a property as a residence is
exempt from GST. If someone grants tenancy rights in a residential dwelling for use as a
residence against payment of periodic rent or a tenancy premium, this is also exempt.
However, if someone surrenders their tenancy rights against consideration, they will be liable
to pay GST.
Analysis of Section 7(2)(b)

• Section 7(2)(b) says that certain activities or transactions done by the Central Government,
State Government, or local authorities will not be treated as either the supply of goods or
services. Local authorities include Panchayats, Municipalities, and other bodies responsible for
local funds. The Government has also said that services related to functions of Panchayats or
Municipalities won't be considered supply of goods or services.
• The Government has also said that services related to granting an alcoholic liquor license by
State Governments won't be considered supply of goods or services. However, this exception
only applies to granting of liquor licenses and not other types of licenses where GST is payable.
The businesses that receive these licenses will still have to pay taxes on them under reverse
charge.
Analysis of Section 7(3)

• As per Section 7(3), 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.
• Section 7(3) is subject to section 7(1), 7(1A) and 7(2) of CGST Act.
• Thus, notification issued under section 7(3) of CGST Act cannot override any provision of
section 7(1), 7(1A), or section 7(2) of CGST Act.
Non-Supplies Clarified by way of Clarification

• Inter-State movement of various modes of conveyance:
o Inter-State movement of various modes of conveyance between distinct persons
including Trains, Buses, Trucks, Tankers, Trailers, Vessels, Containers, Aircrafts,
▪ carrying goods or passengers or both; or
▪ for repairs and maintenance,
shall be treated ‘neither as a supply of goods nor supply of service’ and therefore not
be leviable to IGST.
CA NISHANT KUMAR 26
o However, applicable CGST/SGST/IGST, as the case may be, shall be leviable on repairs
and maintenance done for such conveyance.
• Inter-State movement of rigs, tools and spares, and all goods on wheels (like cranes) – Same
as above.
Question 56
An electronics dealer sells a laptop for ₹50,000 to earn a profit. Does it qualify as a supply?
Solution
As per Section 7(1)(a) of the CGST Act, 2017 supply includes all forms of supply 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 or furtherance of business. Hence in the above case
it will be treated as supply and liable for GST.
Question 57
Mr X (an unregistered person) plans to pursue his higher education in US. He receives career
consultancy services from a US based consultant for ₹5,00,000. Does this qualify as a supply?
Solution
As per Section 7(1)(b) of the CGST Act 2017, supply includes import of services for a consideration
whether or not in the course or furtherance of business. Hence, in the above case it will be treated as
supply.
Question 58
XYZ & Co., a manufacturer of goods donated old computers to charitable schools on account of
renovation of office. The company has taken input tax credit on the computers so donated. Does it
qualify as a supply?
Solution
As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, permanent transfer or disposal of
business assets where input tax credit has been availed shall be treated as supply even if made without
consideration. Hence, donation of old computers to charitable school shall qualify as supply since input
tax credit has been availed by XYZ & Co.
Question 59
Happy Ltd. provides management consultancy services without charge to Joy Ltd. in which Happy Ltd.
has controlling rights. The said consultancy has been provided for benefit of entire group. Does it
Solution
As per Section 7(1)(c) read with schedule I of CGST Act, 2017, supply of goods or services between
related persons is treated as supply even if it is without consideration. As per explanation to section
CA NISHANT KUMAR 27
15 of CGST Act 2017, persons shall be deemed to be “related persons” if one of them directly or
indirectly controls the other. Since Happy Ltd. has controlling rights of Joy Ltd., they will be treated as
related persons and the said transaction will qualify as a supply.
Question 60
XYZ Ltd. gives gift worth ₹5,00,000 to an employee. Does it qualify as a supply? Would your answer be
different if gifts of ₹45,000 had been given to the employee?
Solution
As per Section 7(1)(c) read with schedule I of the CGST Act, 2017, supply of goods or services between
related persons is treated as supply even if it is without consideration when made in course or
furtherance of business. As per explanation to section 15 of CGST Act, 2017, persons shall be deemed
to be “related persons” if such persons are employer and employee. Thus, gift to an employee worth
₹5,00,000 will qualify as a supply and such supply would be leviable to GST.
If gift of ₹45,000 is given instead of ₹5,00,000, the same will not qualify as supply since it has been
specifically provided that gifts not exceeding ₹50,000 in value in a financial year by an employer to
employee shall not be treated as supply of goods or services or both.
Question 61
ABC Motors Ltd. engages Sunshine Cars Ltd. as an agent to sell cars on its behalf. For this purpose, ABC
Motors Ltd. has supplied 200 cars to the showroom of Sunshine Cars Ltd. located in Rajasthan. Does it
Solution
As per Section 7(1)(c) read with schedule I of CGST Act, 2017, supply of goods by a principal to his agent
where the agent undertakes to supply such goods on behalf of the principal shall be treated as supply
even if made without consideration. In view of the same, supply of cars by ABC Motors Ltd. to Sunshine
Cars Ltd. will qualify as supply.
Question 62
ABC Associates received management consultancy services from its head office located in Malaysia.
The head office has rendered such service free of cost to its branch office. Does it qualify as supply?
Solution
As per Section 7(1)(c) read with Schedule I of the CGST Act, 2017, 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, will be treated as supply, even if made without consideration. Thus, management
consultancy services received by ABC Associates will qualify as supply even though the head office has
not charged anything from it, and will be liable to GST.
Question 63
CA NISHANT KUMAR 28
Archean Constructions Ltd. (a registered taxable person) receives architectural design supplied by a
foreign architect to design a residential house to be built in Hyderabad for a consideration of
₹50,00,000. Does it qualify as supply?
Solution
As per Section 7(1)(b) of the CGST Act, 2017, importation of services for a consideration whether or
not in the course or furtherance of business is covered under supply. In the above case, it will be
treated as supply and will be liable to GST.
Question 64
Mr. B, a famous actor recorded a song sung by him for a music company and sold the audio CD. The
consideration for such sale was to be donated to a charitable trust ‘Being Human’. Will the sale of CD
to music company by the actor qualify as supply?
Solution
Any activity undertaken in the course or furtherance of business would constitute a supply. Since
business includes “vocation”, sale of goods or service even as a vocation is a supply under GST. Hence,
the sale of CD to music company by the actor will qualify as supply.
Question 65
XYZ Ltd. was amalgamated with ABC Ltd. On account of the amalgamation, Mr. X, a shareholder,
received 10,000 shares of ABC Ltd. in exchange of 5,000 shares of XYZ Ltd. Does it qualify as supply?
Solution
Transaction in securities is neither supply of goods nor services. Securities are excluded from the
definition of both goods as well as services. Hence such transaction will not qualify as supply.
Question 66
Sahara Ltd., an NBFC transfers bad loans (unsecured) to Vasooli Capital Advisors Ltd. Does it qualify as
supply?
Solution
Actionable claims are covered in definition of goods. However, Schedule III excludes actionable claims
other than lottery, gambling and betting from the scope of supply. Transfer of unsecured loans,
therefore, would not amount to supply.
Question 67
XYZ Ltd., having head office in Mumbai (Maharashtra) supplied goods worth ₹10,00,000 to its branch
office in Jaipur (Rajasthan). Does it qualify as supply?
Solution
CA NISHANT KUMAR 29
As per section 7(1)(c) read with Schedule I of CGST Act, 2017, supply of goods or services or both
between distinct persons as specified in Section 25, when made in the course or furtherance of
business, will be treated as supply, even if made without consideration. As per section 25(5) of CGST
Act, 2017, where a person, who has obtained, or is required to obtain registration in a State or Union
Territory in respect of an establishment, has an establishment in another State or Union Territory, then
such establishments shall be treated as establishments of distinct persons for the purposes of this act.
Hence, branch transfer of goods worth ₹10,00,000 from Maharashtra to Rajasthan will qualify as
supply.
Question 68
Hitkari Charitable Trust, a trust engaged in providing medical relief free of cost, donates books and
stationery to children living in slum area. Does it qualify as supply?
Solution
Section 7 of the CGST act provides that supply must be made for a consideration, except the activities
specified in Schedule I and in the course or furtherance of business. Since both these elements are
missing, donation of books and stationery to children living in slum area would not amount to supply
under Section 7 of the CGST Act.
Question 69
Karishma Manufacturers have a factory in Jaipur and a depot in Delhi. Both these establishments are
registered in respective states. Finished goods are sent from the factory to the depot without
consideration so that the same can be sold. Does it qualify as supply?
Solution
Schedule I of CGST Act provides that supply of goods or services or both between related persons or
between distinct persons as specified in section 25 is supply even without consideration, provided it is
made in the course or furtherance of business.
According to section 25(5) of the CGST Act, 2017, where a person who has obtained or is required to
obtain registration in a state in respect of an establishment, has an establishment in another state,
then such establishments shall be treated as establishments of distinct persons for the purposes of this
Act.
In view of the same, factory and depot of Karishma Manufacturers are establishments of two distinct
persons. Therefore, supply of goods from factory to depot without consideration but in the course of,
or, in furtherance of business is supply under section 7 of the CGST Act.
Question 70
Manan is an electronic commerce operator in Delhi. His son, who is settled in London, is a well-known
lawyer. Manan has taken legal consultancy for from him free of cost with regard to his family dispute.
Does this qualify as supply? Would your answer be different if, in the above case, Manan had taken
advice in respect of his business unit in Delhi?
CA NISHANT KUMAR 30
Solution
Schedule I of CGST Act provides that import of services by a person from a related person located
outside India without consideration is treated as supply if it is provided in the course or furtherance of
business. In the given case, Manan has received legal consultancy from his son free of cost in personal
matter and not in the course or furtherance of business. Hence, services provided by Manan’s son to
him would not be treated as supply under Section 7 of CGST Act.
In the above case, if Manan had taken advice with regard to business unit, services provided by
Manan’s son to him would be treated as supply under Section 7 of the CGST Act, as the same are
provided in the course or furtherance of business, though received from a related person.
Question 71 – RTP May, 2018
Sahab Sales, an air-conditioner dealer in Janakpuri, Delhi needs four air conditioners for his newly
constructed house in Safdarjung Enclave. Therefore, he transfers 4 air conditioners (on which ITC has
already been availed by it) from its stock, for the said purpose. Examine whether they said activity
amounts to supply under section 7 of CGST Act, 2017.
Further, a Janakpuri resident Akash, approached Sahab Sales. He sold an air conditioner to Sahab Sales
for ₹5,000. Akash had bought the said air conditioner 6 months before for his residence. Does sale of
the air conditioner by Akash to Sahab sales amount to supply under section 7 of the CGST Act, 2017?
Solution
Section 7 of the CGST Act, 2017 stipulates that in order to qualify as apply
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.
Further, schedule I of the CGST Act, 2017 illustrates the activities to be treated as supply even if made
without consideration. One such activity is permanent transfer or disposal of business assets where
input tax credit has been availed on such assets, i.e., said activity is to be treated supply even if it is
made without consideration.
In view of said provisions, permanent transfer of air conditioners by Sahab Sales from its stock for
personal use at its residence, though without consideration, would amount to supply.
However, sale of air conditioner by Akash to Sahab Sales will not qualify as supply under section 7 of
the CGST Act, 2017, as although it is made for a consideration, but it is not in the course or furtherance
of business.
Question 72 – November, 2020 – 5 Marks
With reference to provisions of the CGST Act, 2017, discuss in brief when “importation of services” is
to be considered as supply and when it is not to be considered as supply.
Solution
Importation of services for a consideration whether or not in the course or furtherance of business is
to be considered as supply.
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Importation of services by a person without consideration is deemed as supply provided the following
two conditions are satisfied:
1. such import is from related person or from his establishments located outside India, and
2. such import is in the course or furtherance of business.
In case any or both of the above 2 conditions is/are not satisfied, the import of services without
consideration shall not be deemed as supply.
Question 73 – May 2022 – 2 Marks Each
Examine whether the following activities would amount to "supply" under GST law?
1. Glory Ltd. is engaged in manufacturing and selling of cosmetic products. Seva Trust, a
charitable organisation, approached Glory Ltd. to provide financial assistance for its charitable
activities. Glory Ltd. donated a sum of ₹2 lakh to Seva Trust with a condition that Seva Trust
will place a hoarding at the entrance of the trust premises displaying picture of products sold
by Glory Ltd.
2. Mr. Swamy of Chennai is working as a manager with ABC Bank. He consulted M/s. Jacobs and
Company of London and took its advice for buying a residential house in Mumbai and paid
them consultancy fee of 200 UK Pound for this import of service.
Solution
1. An activity qualifies as supply under GST only if it is for a consideration and is in

course/furtherance of business. Donations received by the charitable organizations are
treated as consideration only when there’s an obligation on part of the recipient of the
donation to do anything. Since in the given case, the display of products sold by the donor –
Glory Ltd. - in charitable organization’s premises aims at advertising/promotion of its business,
it is supply for consideration in course/furtherance of business and thus, qualifies as supply
under GST law.
2. Supply includes importation of services, for a consideration whether or not in the
course/furtherance of business. Thus, in the given case, the import of services by Mr. Swamy
amounts to supply although it is not in course/furtherance of business.
Latest Circulars
1. GST on Honorarium to Guest Anchors: It is clarified that supply of all goods & services are
taxable unless exempt or declared as ‘neither a supply of goods nor a supply of service’.
Services provided by the guest anchors in lieu of honorarium attract GST liability. However,
guest anchors whose aggregate turnover in a financial year does not exceed ₹20 lakhs (₹10
lakhs in case of special category states) shall not be liable to take registration and pay GST.
(Circular No. 177/09/2022 dated 03-08-2022)
2. GST on Sale of Land after levelling, laying down of drainage lines, etc.:
a. Representation has been received requesting for clarification regarding applicability
of GST on sale of land after levelling, laying down of drainage lines etc.
b. As per Sl. no. (5) of Schedule III of the Central Goods and Services Tax Act, 2017, ‘sale
of land’ is neither a supply of goods nor a supply of services, therefore, sale of land
does not attract GST.
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c. Land may be sold either as it is or after some development such as levelling, laying
down of drainage lines, water lines, electricity lines, etc.
d. It is clarified that sale of such developed land is also sale of land and is covered by Sr.
No. 5 of Schedule III of the Central Goods and Services Tax Act, 2017 and accordingly
does not attract GST.
e. However, it may be noted that any service provided for development of land, like
levelling, laying of drainage lines (as may be received by developers) shall attract GST
at applicable rate for such services.
(Circular No. 177/09/2022 dated 03-08-2022)
Definition of Goods
As per Section 2(52) of the CGST Act, 2017, “Goods” means every kind of movable property other than
money and securities but includes actionable claim, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before supply or under a contract of supply.
Analysis of Definition of Goods

• Movable Property:
o The definition of goods itself provides that only movable property shall be considered
as goods.
o Thus, immovable properties that are attached to earth, cannot be considered as
goods.
• Money is specifically excluded from the definition of goods.
• Securities:
o Securities are specifically excluded from the definition of goods.
o The implication of exclusion of securities from the definition of goods is that activities
that are in the nature of transfer of title by way of sale, redemption, purchase or
acquisition of securities on principal-to-principal basis are outside the ambit of supply.
o Please note that “securities” does not include units of unit linked insurance policies.
• Actionable Claim:
o Actionable Claim has been specifically included in the definition of goods.
o However, as per Schedule III of the CGST Act, 2017, actionable claims are neither
treated as supply of goods, nor as supply of services.
o Therefore, if an unsecured debt is transferred to a third person for a consideration, it
will not be subject to GST.
o It is to be noted that three actionable claims, i.e., lottery, betting, and gambling, do
come under the purview of GST.
• Growing Crops:
o The definition of goods specifically includes growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before supply or under
a contract of supply.
o Severability is important element while deciding on the nature of the property, and
this element can be established by ascertaining the nature of the property, intention
of the parties, and the terms of the contract between them.
o Standing trees are not goods and not taxable.
o However, standing timber falls under the ambit of “goods” because timber trees are
severed from the land for the purpose of sale and hence, they become a commercial
commodity.
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Definition of Services
“Services” means anything other than goods, money and securities but includes activities relating to
the use of money or its conversion by cash or by any other mode, from one form, currency or
denomination to another form, currency, or denomination for which a separate consideration is
charged.
Explanation: For the removal of doubts, it is hereby clarified that the expression “services” includes
facilitating or arranging transactions in securities.
Analysis of Definition of Services

• Meaning of service in common parlance:
o Service is a type of economic activity that is intangible, is not stored, and does not
result in ownership.
o A service is consumed at the point of sale.
o The benefit of service may last longer.
• Activities which are regarded only as transaction in money are not covered in this definition.
o If I give you a ₹2,000 note, and you transfer ₹2,000 to my google pay, it is said to be
an activity regarded only as transaction in money because only the form of money has
changed.
o If I give you ₹1,00,000 and you give me dollars in exchange without charging any
commission, it is an activity regarded only as transaction in money because only the
currency has changed.
o If I give you a ₹2,000 note, and you give me 4 notes of ₹500 each, this is said to be an
activity regarded only as transaction in money because only the denomination has
changed.
o However, if for any of the above services, a separate fee was charged, it would not be
regarded only as a transaction in money, and would therefore, be subject to GST.
o When you deposit your money in your bank account, you are giving the bank the
permission to use your money, for which the bank pays you a fee, which is called
interest. This is a supply of service.
o However, if you give your money to someone without charging anything, such as,
when a father gives money to his children, then such activity is regarded only as a
transaction in money, and GST is not leviable.
• Securities:
o Transaction in securities is not a service.
o However, brokers provide services to facilitate the purchase and sale of securities, and
for this, they charge a fee, called brokerage.
o Therefore, this is a supply of service leviable under GST.
Different Types of Supplies Under the GST Law

• Taxable Supply
• Non-Taxable Supply
• NIL Rated Supply
• Exempt Supply
• Zero Rated Supply
• Inward Supply
• Outward Supply
CA NISHANT KUMAR 34
• Composite and Mixed Supply
Taxable Supply
• Taxable supply means a supply of goods or services or both which is leviable to tax.
• The transaction must involve either goods, or services, or both of them.
• Such goods or services should not be specified under Schedule III (neither a supply of goods,
nor a supply of services)
• The transaction should fall within the meaning of ‘supply’ in terms of Section 7 of the CGST
Act.
• The supply should be leviable to GST.
Non-Taxable Supply
• Non-taxable supply means a supply of goods or services or both which is not leviable to tax
under this Act, or under the IGST Act.
• A transaction must be a ‘supply’ as defined under the GST law, to qualify as a non-taxable
supply.
• Supplies that are excluded from the scope of taxation under GST are covered by this definition,
i.e., alcoholic liquor for human consumption.
• Stock transfers to unit within the State for which no separate registration is obtained, which
does not qualify as a ‘supply’ cannot be said to be a non-taxable supply.
• Transactions specified in Schedule III, which are neither treated as a supply of goods, nor a
supply of services cannot be said to be non-taxable supplies.
• Supplies that enjoy the benefit of wholly exempted from taxes, nil rated supplies and zero-
rated supplies are also not covered under the ambit of non-taxable supplies. This is because
such supplies are in fact liable to tax, only the tax is exempted by virtue of an exemption
notification, or the tax rate is NIL.
NIL Rated Supply

• Goods or services on which GST rate of 0% is applicable, are called NIL rated goods or services.
• Such goods or services, on which GST rate of 0% is applicable, are listed in schedule 1 under
GST rate schedule.
• Example of Nil rated supplies are salt, jaggery, cereals etc.
Exempt Supply
• Exempt supply means supply of any goods or services or both which attracts NIL rate of tax, or
which may be wholly exempt from tax under Section 11, or under Section 6 of the IGST Act,
and includes non-taxable supply.
• Exempt supplies comprise of the following three types of supplies:
o Supplies taxable at a NIL rate of tax
o Supplies that are wholly exempted from CGST or IGST, by way of a notification
o Non-taxable supplies (such as alcoholic liquor for human consumption)
• The following aspects need to be noted:
o Zero-rated supplies such as exports would not be treated as supplies taxable at NIL
rate of tax, and hence, are not considered as exempt supplies.
o Input tax credit attributable to exempt supplies will not be available for utilisation/set-
off.
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Zero-Rated Supply
• “Zero rated supply” means any of the following supplies of goods or services or both, namely:
o export of goods or services or both; or
o supply of goods or services or both to a Special Economic Zone developer or a Special
Economic Zone unit
• Need for Zero-Rated Supply:
o We just saw that input tax credit attributable to exempt supplies is not available for
utilisation/set-off.
o This means that exempt supplies are not truly exempt, as the raw materials or input
services which were used to supply the exempt supplies have been subjected to GST,
and we’re not even getting its ITC credit.
o Though the output suffers no tax, the inputs and input services have suffered tax and
since availment of tax credit on input side is not permitted, it becomes a cost for the
supplier.
o By zero rating, it is meant that the entire value chain of the supply is exempt from tax.
o This means that in case of zero rating, not only is the output exempt from payment of
tax, but there is also no bar on taking/availing credit of taxes paid on the input side for
making/providing the output supply.
o Such an approach makes the goods or services zero rated in true sense.
Inward Supply
• “Inward Supply” in relation to a person, shall mean receipt of goods or service or both whether
by purchase, acquisition, or any other means with or without consideration.
• Note that the definition of “Inward Supply” doesn’t use the word “supply”, but uses the word
“receipt”, and therefore, has a larger scope.
• Also note that the definition doesn’t mention “taxable person”, but uses the word “person”,
and therefore, all kinds of persons are covered, whether registered, or unregistered taxable
person, or person not liable to tax.
Outward Supply
• “Outward Supply” in relation to a taxable person means supply of goods or services or both,
whether by sale, transfer, barter, exchange, licence, rental, lease, or disposal, or any other
mode, made or agreed to be made by such person in the course or furtherance of business.
• Please not that here, the definition has used the word “supply”, therefore, for a transaction or
activity to qualify as an outward supply, it must first be a ‘supply’ in terms of the GST Law,
unlike inward supplies, which could merely be receipts, not amounting to supply.
• Also note that the definition has specifically used the word “taxable person”; therefore, only
a taxable person can provide outward supplies.
• It should also be noted that the phrase ‘outward supply’ can be applied to a supply only when
it is made in the course or furtherance of business. For example, if a business asset is put to
personal use, even though it is deemed to be a supply (as per Para 1 of Schedule I), it cannot
be said to be an outward supply as it is not made in the course or furtherance of business.
Composite Supply and Mixed Supply

• GST is payable on individual goods or services or both at the notified rates.
CA NISHANT KUMAR 36
• The application of rates poses no problem if the supply is of individual goods or individual
services, which is clearly identifiable and such goods or services are subject to a particular rate
of tax.
• However, in certain cases, supplies are not such simple and clearly identifiable supplies.
• Some of the supplies are a combination of goods, or combination of services, or combination
of goods and services both, and each individual component of such supplies may attract a
different rate of tax.
• In such a case, the rate of tax to be levied on such supplies may be a challenge.
• It is for this reason, that the GST Law identifies composite supplies and mixed supplies and
provides certainty in respect of tax treatment under GST for such supplies.
• In order to determine whether the supplies are ‘composite supplies’ or ‘mixed supplies’, one
needs to determine whether the supplies are naturally bundled or not naturally bundled in
ordinary course of business.
• The concept of ‘naturally bundled’ supplies is emanating from the definition of ‘composite
supply’.
Composite Supply
• Composite supply means a supply made by a taxable person to a recipient and:
o comprises two or more taxable supplies of goods or services or both, or any
combination thereof;
o are naturally bundled and supplied in conjunction with each other, in the ordinary
course of business
o 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’.
• Principal supply means the supply of goods or services which constitutes the predominant
element of a composite supply and to which any other supply forming part of that composite
supply is ancillary.
How to Determine Whether Services are Naturally Bundled in the

Ordinary Course of Business?
• The perception of the consumer or the service recipient: If large number of service recipients
of such bundle of services reasonably expect such services to be provided as a package, then
such a package could be treated as naturally bundled in the ordinary course of business.
For example, a mobile phone is always sold with a battery. Therefore, two goods are bundled
naturally.
• Majority of service providers in a particular area of business provide similar bundle of services.
For example, majority of flights provide catering services onboard. Therefore, two services are
bundled naturally.
• Nature of Various Services Bundled:
o The nature of the various services in a bundle of services also helps in determining
whether the services are bundled in the ordinary course of business.
o If the nature of services is such that one of the services is the main service and the
other services combined with such service are in the nature of incidental or ancillary
CA NISHANT KUMAR 37
services which help in better enjoyment of a main service, it is said to be a composite
supply.
For example, service of stay in a hotel is often combined with provision of breakfast and dinner
provided free of cost during the stay. Such service is an ancillary service to the provision of
hotel accommodation and the resultant package would be treated as services naturally
bundled in the ordinary course of business.
• Other illustrative indicators indicative (but not determinative) of bundling of services in the
ordinary course of business are:
o The elements are normally advertised as a package.
o The different elements are not available separately.
o The different elements are integral to one overall supply. If one or more is removed,
the nature of the supply would be affected.
Please note that no straight jacket formula can be laid down to determine whether a service is naturally
bundled in the ordinary course of business. Each case has to be individually examined in the backdrop
of several factors some of which are outlined above.
Question 74
Poshaak Manufacturers entered into a contract with Cheeku Ltd. for supply of readymade shirts
packed in designer boxes at Cheeku Ltd.’s outlet. Further, Poshaak Manufacturers would also get them
insured during transit. Is this a composite supply? If yes, what is the principal supply?
Solution
In this case, supply of goods, packing materials, transport & insurance is a composite supply wherein
supply of goods is principal supply.
Question 75
When a consumer buys a television set and he also gets warranty and a maintenance contract with the
TV, is this supply is a composite supply? If yes, what is the principal supply?
Solution
When a consumer buys a television set and he also gets warranty and a maintenance contract with the
TV, this supply is a composite supply. In this case, supply of TV is the principal supply, and warranty
and maintenance services are ancillary.
Question 76
A travel ticket from Mumbai to Delhi includes service of food being served on board, free insurance,
and the use of airport lounge. Is this a composite supply? If yes, what is the principal supply?
Solution
In this case, the transportation of passenger, constitutes the pre-dominant element of the composite
supply, and is treated as the principal supply and all other supplies are ancillary.
CA NISHANT KUMAR 38
How to Determine Tax Liability of Composite Supplies?
• A composite supply comprising of two or more supplies, one of which is a principal supply,
shall be treated as a supply of such principal supply.
• Accordingly, the entire value of composite supply [i.e., main supply + ancillary supply(ies)] shall
be classified under the category of main supply and shall be taxed at the GST rate applicable
to the main supply.
Question 77
Rati Computers supplies laptop (worth ₹52,000) alongwith laptop bag (worth ₹3,000) to a customer
for ₹55,000. The rate of tax applicable on laptop is 18%, and on laptop bag is 28%. Find the value of
GST.
Solution
Since this supply is naturally bundled, supply of laptop is the principal supply and supply of laptop bag
is ancillary to it. Therefore, the rate applicable to the supply of principal supply, i.e., 18% shall be
applicable to the entire value of ₹55,000, and tax liability will be 18% × ₹55,000 = ₹9,900.
CBIC Clarifications on Certain Composite Supplies

• Supply of printed books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons,
boxes etc., printed with design, logo, name, address or other contents supplied by the
recipient of such printed goods:
o When the publisher provides the content to the printing press, and the printing press
prints it using its own material, including paper, etc., and supplies it to the publisher,
supply of printing is the principal supply, and the supply of material is ancillary to it.
Therefore, it is treated as a supply of services.
o When the author (owner of the intangible rights) provides the content to the printing
press, and the printing press prints it using its own material, including paper, etc., and
supplies it to the author, supply of printing is the principal supply, and the supply of
material is ancillary to it. Therefore, it is treated as a supply of services.
o When a customer/recipient goes to a printer and asks him to print some content on
the envelopes, letter cards, etc., supply of the envelopes, letter cards, etc. is the
principal supply and the printing is ancillary to it. Therefore, it is treated as supply of
goods. For example, you decide to gift a loved one a customised coffee mug with their
name and photo printed on it. The supplier will supply you with the mug. This is supply
of goods, and the customised printing is considered ancillary to it.
• Re-treading of tyres
o The tread is the part of the tyre that makes contact with the surface of the road.
o If the old tyres belong to the recipient, and the supplier re-treads them, pre-dominant
element is process of re-treading which is a supply of service. Rubber used for re-
treading is an ancillary supply. Therefore, the entire supply will be treated as a supply
of service.
o If the old tyres belong to the supplier, supply of re-treaded tyres is a supply of goods.
Mixed Supply
• Mixed supply means
CA NISHANT KUMAR 39
o two or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person
o for a single price where such supply does not constitute a composite supply
• The individual supplies are independent of each other and are not naturally bundled.
How to Determine if a Particular Supply is a Mixed Supply?

• A supply can be a mixed supply only if it is not a composite supply.
• Therefore, it can be said that if the transaction consists of supplies which are not naturally
bundled in the ordinary course of business, it would be a mixed supply.
• A mixed supply comprising of two or more supplies shall be treated as supply of that particular
supply that attracts highest rate of tax.
Question 78
A package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit
juices is supplied for a single price. Is this a composite supply or a mixed supply?
Solution
A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink
and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied
separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied
separately.
Question 79
A shopkeeper sells storage water bottles along with refrigerator. Is this a composite supply or a mixed
supply?
Solution
Bottles and the refrigerator can easily be priced and sold independently and are not naturally bundled.
So, such supplies are mixed supplies.
Question 80
A house is given on rent through a single rent deed - one floor of which is to be used as residence and
the other for housing a printing press, at a lump sum rent amount. Is this a composite supply or a mixed
supply?
Solution
Such renting for two different purposes is not naturally bundled in the ordinary course of business.
Said supplies are mixed supply.
Question 81
CA NISHANT KUMAR 40
Sringaar Enterprises supplies 10,000 kits (at ₹50 each) amounting to ₹5,00,000 to Raghav General
Store. Each kit consists of 1 shampoo, 1 face wash and 1 kajal pencil. Assuming that the rate of tax
applicable on shampoo is 18%, on face wash is 28% and on kajal pencil is 12%, calculate the amount of
GST.
Solution
It is a mixed supply and is treated as supply of that particular supply which attracts highest tax rate. In
the given case, highest tax rate [viz. face wash] @ 28% will be charged on the entire value of ₹5,00,000.
Therefore, GST = 28% × ₹5,00,000 = ₹1,40,000.
Question 82
From the following information, determine the nature of supply and tax liability.
XYZ Ltd., a manufacturer of cosmetic products supplied a package consisting of hair oil (GST Rate –
18%), sun screen cream (GST Rate – 28%), shampoo (GST Rate – 28%) and hair comb (GST Rate – 12%).
The price per package is ₹500 (exclusive of taxes). 10,000 packages were supplied by the company to
its dealers. Determine the nature of supply and its tax liability.
Solution
This supply would be regarded as mixed supply, since in this case each of the goods in the package
have individual identity and can be supplied separately but are deliberately supplied together for a
single consolidated price. The tax rates applicable in case of mixed supply would be the rate of tax
attributable to that one supply (goods, or services) which attracts the highest rate of tax from among
the supplies forming part of the mixed supply.
Therefore, the package will be chargeable to 28% GST.
Particulars
Value of taxable supply per package ₹500
No. of Packages 10,000
Total Taxable Value of supply (10,000 × ₹500) ₹50,00,000
Applicable GST rate 28%
Total Tax Liability (28% × ₹50,00,000) ₹14,00,000
More Than One Supply Made Together and Taxed at the Individual
Rates
• There can be a case where an activity/transaction involves more than one supply of goods or
services or both, but neither they are composite supplies nor can be categorised as mixed
supplies, that is, all supplies carry independent significance.
• In such a case, if separate consideration is indicated against each supply, each such supply shall
be charged at the respective rate applicable to that particular supply.
• For example, in case of servicing of cars involving supply of both goods (spare parts) and
services (labour) where the value of goods and services are shown separately, the goods and
services would be liable to tax at the rates as applicable to such goods and services separately
CA NISHANT KUMAR 41
Question 83 – July, 2021 – 4 Marks
Explain the composite supply and mixed supply. If a trader launches a package sales for marriage
containing double bed, refrigerator, washing machine, wooden wardrobe at a single rate. He is issuing
invoice showing value of each goods separately. Whether this is case of mixed supply or composite
supply. Explain.
Solution
• Composite supply comprises of 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.
• 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.
• Items such as double bed, refrigerator, washing machine and wooden wardrobe are not
naturally bundled, and also, the invoice for the supply shows separate values for each item
i.e., the package is not supplied for a single price.
• Therefore, supply of such items as a package will neither constitute a composite supply nor a
mixed supply.
• Thus, the various items of the package will be treated as being supplied individually.
Note: The question specifies that the various items are supplied at a ‘single rate’. The “single rate”
expression is construed as single rate of tax in the above answer. Further, the “single rate” may also
be construed as single price as given in the below mentioned answer. Items such as double bed,
refrigerator, washing machine and wooden wardrobe are not naturally bundled. Therefore, supply of
such items as a package will not constitute composite supply. Further, a single price has been charged
for the package. Consequently, supply of such items as a package will be treated as mixed supply.
Amendments for May, 2023
Clarification Regarding GST Applicability on Liquidated Damages,

Compensation and Penalty Arising Out of Breach of Contract or Other
Provisions of Law
Circular No. 178/10/2022 GST dated 03.08.2022 clarifies issues with respect to GST applicability on
liquidated damages, compensation and penalty arising out of breach of contract or other provisions of
law.
Clarification: “Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or
to do an act” has been specifically declared to be a supply of service in para 5(e) of Schedule II to the
CGST Act, 2017 if the same constitutes a “supply” within the meaning of the CGST Act.
CA NISHANT KUMAR 42
Expression “Agreeing to the obligation to refrain from an act or to
tolerate an act or a situation, or to do an act” has three limbs
Agreeing to the
Agreeing to the Agreeing to the
obligation to
obligation to obligation to do an
tolerate an act or a
refrain from an act act
situation
1. Agreeing to the obligation to refrain from an act:

a. Example of activities that would be covered by this part of the expression would
include non-compete agreements, where one party agrees not to compete with the
other party in a product, service or geographical area against a consideration paid by
the other party.
b. Another example of such activities would be a builder refraining from constructing
more than a certain number of floors, even though permitted to do so by the municipal
authorities, against a compensation paid by the neighbouring housing project, which
wants to protect its sunlight, or an industrial unit refraining from manufacturing
activity during certain hours against an agreed compensation paid by a neighbouring
school, which wants to avoid noise during those hours.
2. Agreeing to the obligation to tolerate an act or a situation: This would include activities such a
shopkeeper allowing a hawker to operate from the common pavement in front of his shop
against a monthly payment by the hawker, or an RWA tolerating the use of loud speakers for
early morning prayers by a school located in the colony subject to the school paying an agreed
sum to the RWA as compensation.
3. Agreeing to the obligation to do an act: This would include the case where an industrial unit
agrees to install equipment for zero emission/discharge at the behest of the RWA of a
neighbouring residential complex against a consideration paid by such RWA, even though the
emission/discharge from the industrial unit was within permissible limits and there was no
legal obligation upon the individual unit to do so.
Above three activities must comply with the following conditions:
1. There must be an expressed or implied agreement or contract must exist:

a. Above three activities must be under an “agreement” or a “contract” (whether express
or implied) to fall within the ambit of para 5(e) of Schedule II.
b. In other words, one of the parties to such agreement/contract (the first party) must
be under a contractual obligation to either (a) refrain or (b) tolerate or (c) do.
c. Such contractual arrangement must be an independent arrangement in its own right.
d. Such arrangement/agreement can take the form of an independent stand-alone
contract or may form part of another contract.
e. Thus, a person (the first person) can be said to be making a supply by way of refraining
from doing something or tolerating some act or situation to another person (the
CA NISHANT KUMAR 43
second person) if the first person was under an obligation to do so and then performed
accordingly.
f. Such a contract cannot be imagined or presumed to exist just because there is a flow
of money from one party to another.
g. There must be an expressed or implied promise by the recipient of money to agree to
do or abstain from doing something in return for the money paid to him.
2. Consideration must flow in return to this contract/agreement
a. Some “consideration” must flow in return from the other party to this
contract/agreement (the second party) to the first party for such (a) refraining or (b)
tolerating or (c) doing.
Taxability of some of the transactions has been discussed in detail as under:
1. Liquidated Damages:
a. It is common for the parties entering into a contract, to specify in the contract itself,
the compensation that would be payable in the event of the breach of the contract.
b. Black’s Law Dictionary defines ‘Liquidated Damages’ as cash compensation agreed to
by a signed, written contract for breach of contract, payable to the aggrieved party.
c. The taxability or otherwise of liquidated damages is clarified as under:
i. It is argued that performance is the essence of a contract.
ii. Liquidated damages cannot be said to be a consideration received for
tolerating the breach or non-performance of contract.
iii. They are rather payments for not tolerating the breach of contract.
iv. Payment of liquidated damages is stipulated in a contract to ensure
performance and to deter non-performance, unsatisfactory performance or
delayed performance.
v. Liquidated damages are a measure of loss and damage that the parties agree
would arise due to breach of contract.
vi. They do not act as a remedy for the breach of contract.
vii. They do not restitute the aggrieved person.
viii. A contract is entered into for execution and not for its breach.
ix. The liquidated damages or penalty are not the desired outcome of the
contract.
x. By accepting the liquidated damages, the party aggrieved by breach of
contract cannot be said to have permitted or tolerated the deviation or non-
fulfilment of the promise by the other party.
xi. Where the amount paid as ‘liquidated damages’ is an amount paid only to
compensate for injury, loss or damage suffered by the aggrieved party due to
breach of the contract and there is no agreement, express or implied, by the
aggrieved party receiving the liquidated damages, to refrain from or tolerate
an act or to do anything for the party paying the liquidated damages, in such
cases liquidated damages are merely a flow of money from the party who
causes breach of the contract to the party who suffers loss or damage due to
such breach.
xii. Such payments do not constitute consideration for a supply and are not
taxable.
xiii. Examples of such cases are:
1. damages resulting from damage to property, negligence, piracy,
unauthorized use of trade name, copyright,
CA NISHANT KUMAR 44
2. penalty stipulated in a contract for delayed construction of houses,
3. forfeiture of earnest money by a seller in case of breach of ‘an
agreement to sell’ an immovable property by the buyer or by
Government or local authority in the event of a successful bidder
failing to act after winning the bid, for allotment of natural resources.
xiv. The key in such cases is to consider whether the impugned payments
constitute consideration for another independent contract envisaging
tolerating an act or situation or refraining from doing any act or situation or
simply doing an act.
xv. If the answer is yes, then it constitutes a ‘supply’ irrespective of by what name
it is called, otherwise it is not a “supply”.
xvi. If the payment is merely an event in the course of the performance of the
agreement and it does not represent the ‘object’, as such, of the contract then
it cannot be considered ‘consideration’.
xvii. On the contrary, consider the following examples:
1. A contract may provide that payment by the recipient of goods or
services shall be made before a certain date and failure to make
payment by the due date shall attract late fee or penalty.
2. A contract for transport of passengers may stipulate that the ticket
amount shall be partly or wholly forfeited if the passenger does not
show up.
3. A contract for package tour may stipulate forfeiture of security
deposit in the event of cancellation of tour by the customer.
4. A contract for lease of movable or immovable property may stipulate
that the lessee shall not terminate the lease before a certain period
and if he does so he will have to pay certain amount as early
termination fee or penalty.
5. Some banks similarly charge prepayment penalty if the borrower
wishes to repay the loan before the maturity of the loan period.
xviii. In the above examples, amounts paid for acceptance of late payment, early
termination of lease or for pre-payment of loan or the amounts forfeited on
cancellation of service by the customer as contemplated by the contract as
part of commercial terms agreed to by the parties, constitute consideration
for the supply of a facility, namely, of acceptance of late payment, early
termination of a lease agreement, of prepayment of loan and of making
arrangements for the intended supply by the tour operator respectively.
xix. Therefore, such payments, even though they may be referred to as fine or
penalty, are actually payments that amount to consideration for supply, and
are subject to GST, in cases where such supply is taxable.
xx. Since these supplies are ancillary to the principal supply for which the contract
is signed, they shall be eligible to be assessed as the principal supply.
xxi. Naturally, such payments will not be taxable if the principal supply is exempt.
2. Cheque dishonour fine/penalty:
a. The supplier wants payment to be received on time and does not want cheque to be
dishonoured.
b. There is never an implied or express offer or willingness on part of the supplier that he
would tolerate deposit of an invalid, fake or unworthy instrument of payment against
consideration in the form of cheque dishonour fine or penalty.
CA NISHANT KUMAR 45
c. The fine or penalty that the supplier or a banker imposes, for dishonour of a cheque,
is a penalty imposed not for tolerating the act or situation but a fine, or penalty
imposed for not tolerating, penalizing and thereby deterring and discouraging such an
act or situation.
d. Therefore, cheque dishonor fine or penalty is not a consideration for any service and
not taxable.
3. Penalty imposed for violation of laws
a. Penalty imposed for violation of laws such as traffic violations, or for violation of
pollution norms or other laws are also not consideration for any supply received and
are not taxable.
b. Same is the case with fines, penalties imposed by the mining Department of a Central
or State Government or a local authority on discovering mining of excess mineral
beyond the permissible limit or of mining activities in violation of the mining permit.
c. Laws are not framed for tolerating their violation.
d. They stipulate penalty not for tolerating violation but for not tolerating, penalizing and
deterring such violations.
e. There is no agreement between the Government and the violator specifying that
violation would be allowed or permitted against payment of fine or penalty.
f. There cannot be such an agreement as violation of law is never a lawful object or
consideration.
g. In short, fines and penalty chargeable by Government or a local authority imposed for
violation of a statute, bye-laws, rules or regulations are not leviable to tax.
4. Forfeiture of salary or payment of bond amount in the event of the employee leaving the
employment before the minimum agreed period:
a. The provisions for forfeiture of salary or recovery of bond amount in the event of the
employee leaving the employment before the minimum agreed period are
incorporated in the employment contract to discourage non-serious candidates from
taking up employment.
b. The said amounts are recovered by the employer not as a consideration for tolerating
the act of such premature quitting of employment but as penalties for dissuading the
non-serious employees from taking up employment and to discourage and deter such
a situation.
c. Further, the employee does not get anything in return from the employer against
payment of such amounts.
d. Therefore, such amounts recovered by the employer are not taxable as consideration
for the service of agreeing to tolerate an act or a situation.
5. Late payment surcharge or fee
a. The facility of accepting late payments with interest or late payment fee, fine or
penalty is a facility granted by supplier naturally bundled with the main supply.
b. It is not uncommon or unnatural for customers to sometimes miss the last date of
payment of electricity, water, telecommunication services etc.
c. Almost all service providers across the world provide the facility of accepting late
payments with late fine or penalty.
d. Even if this service is described as a service of tolerating the act of late payment, it is
an ancillary supply naturally bundled and supplied in conjunction with the principal
supply, and therefore should be assessed as the principal supply.
CA NISHANT KUMAR 46
e. Since it is ancillary to and naturally bundled with the principal supply such as of
electricity, water, telecommunication, cooking gas, insurance etc. it should be
assessed at the same rate as the principal supply.
f. However, the same cannot be said of cheque dishonor fine or penalty as discussed
earlier.
6. Fixed charges for power
a. The price charged for electricity by the power generating companies from the State
Electricity Boards (SEBs)/DISCOMS or by SEBs/DISCOMs from individual customers has
two components, namely, a minimum fixed charge (or capacity charge) and variable
per unit charge.
b. The fact that the minimum fixed charges remain the same whether electricity is
consumed or not or it is scheduled/consumed below the contracted or available
capacity or a minimum threshold, does not mean that minimum fixed charge or part
of it is a charge for tolerating the act of not scheduling or consuming the minimum the
contracted or available capacity or a minimum threshold.
c. Both the components of the price, the minimum fixed charges/capacity charges and
the variable/energy charges are charged for sale of electricity and are thus not taxable
as electricity is exempt from GST.
7. Cancellation charges
a. It is a common business practice for suppliers of services such as hotel
accommodation, tour and travel, transportation etc.
b. to provide the facility of cancellation of the intended supplies within a certain time
period on payment of cancellation fee.
c. Cancellation fee can be considered as the charges for the costs involved in making
arrangements for the intended supply and the costs involved in cancellation of the
supply, such as in cancellation of reserved tickets by the Indian Railways.
d. Services such as transportation travel and tour constitute a bundle of services.
e. The transportation service, for instance, starts with booking of the ticket for travel and
lasts at least till exit of the passenger from the destination terminal.
f. All services such as making available an online portal or convenient booking counters
with basic facilities at the transportation terminal or in the city, to reserve the seats
and issue tickets for reserved seats much in advance of the travel, giving preferred
seats with or without extra cost, lounge and waiting room facilities at airports, railway
stations and bus terminals, provision of basic necessities such as soap and other
toiletries in the wash rooms, clean drinking water in the waiting area etc.
g. form part and parcel of the transportation service; they constitute the various
elements of passenger transportation service, a composite supply.
h. The facilitation service of allowing cancellation against payment of cancellation
charges is also a natural part of this bundle.
i. It is invariably supplied by all suppliers of passenger transportation service as naturally
bundled and in conjunction with the principal supply of transportation in the ordinary
course of business.
j. Therefore, facilitation supply of allowing cancellation of an intended supply against
payment of cancellation fee or retention or forfeiture of a part or whole of the
consideration or security deposit in such casesshould be assessed as the principal
supply.
CA NISHANT KUMAR 47
k. For example, cancellation charges of railway tickets for a class would attract GST at
the same rate as applicable to the class of travel (i.e., 5% GST on first class or air-
conditioned coach ticket and nil for other classes such as second sleeper class).
l. Same is the case for air travel.
m. Accordingly, the amount forfeited in the case of non-refundable ticket for air travel or
security deposit or earnest money forfeited in case of the customer failing to avail the
travel, tour operator or hotel accommodation service or such other intended supplies
should be assessed at the same rate as applicable to the service contract, say air
transport or tour operator service, or other such services.
n. However, as discussed earlier, forfeiture of earnest money by a seller in case of breach
of ‘an agreement to sell’ an immovable property by the buyer or such forfeiture by
Government or local authority in the event of a successful bidder failing to act after
winning the bid for allotment of natural resources, is a mere flow of money, as the
buyer or the successful bidder does not get anything in return for such forfeiture of
earnest money.
o. Forfeiture of earnest money is stipulated in such cases not as a consideration for
tolerating the breach of contract but as a compensation for the losses suffered and as
a penalty for discouraging the non-serious buyers or bidders.
p. Such payments being merely flow of money are not a consideration for any supply and
are not taxable.
CA NISHANT KUMAR 48

Chapter 2 - Supply Under GST - Notes

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Chapter 2 – Supply Under GST

Taxable Event in GST

Section 7: Scope of Supply

Understanding Sale, Transfer, Barter, Exchange, License, Rental, Lease,

Understanding “Made or Agreed to be Made”

Yes, as these activities are in the course or furtherance of business.

Analysis of Section 7(1)(aa)

Analysis of Section 7(1)(b)

Analysis of Section 7(1)(c)

Activities Mentioned in Schedule I

Analysis of Para 1 of Schedule I

Analysis of Para 2 of Schedule I

Understanding Related Persons

Understanding Distinct Persons Under Section 25

Understanding Distinct Persons Under Section 25 (Contd.)

Rishabh Enterprises, a registered supplier, owns an airconditioned restaurant in Virar, Maharashtra. It

Understanding Distinct Persons Under Section 25 (Contd.)

Analysis of Para 3 of Schedule I

Analysis of Para 3 of Schedule I (Contd.)

Analysis of Section 7(1A)

Schedule II – Paras 2 & 3

Is renting of a commercial complex a supply of goods or supply of services?

Is renting of precincts of a religious place a supply of goods or supply of services?

Is renting of property to an educational institution a supply of goods or supply of services?

Analysis of Section 7(2)

Analysis of Section 7(2)(a) – Schedule III

Paras 7 and 8 are not in CA Intermediate Syllabus.

Analysis of Para 1 of Schedule III

Analysis of Para 2 of Schedule III

• Functions performed by elected officials such as Members of Parliament, State Legislatures,

Analysis of Para 4 of Schedule III

Analysis of Para 5 of Schedule III

Analysis of Para 6 of Schedule III

Taxability of Tenancy Rights Under GST

Analysis of Section 7(2)(b)

Analysis of Section 7(3)

Non-Supplies Clarified by way of Clarification

Question 71 – RTP May, 2018

1. Supply should be of goods or services

Question 72 – November, 2020 – 5 Marks

Question 73 – May 2022 – 2 Marks Each

1. An activity qualifies as supply under GST only if it is for a consideration and is in

Analysis of Definition of Goods

Analysis of Definition of Services

Different Types of Supplies Under the GST Law

NIL Rated Supply

Composite Supply and Mixed Supply

How to Determine Whether Services are Naturally Bundled in the

CBIC Clarifications on Certain Composite Supplies

How to Determine if a Particular Supply is a Mixed Supply?

Therefore, the package will be chargeable to 28% GST.

Amendments for May, 2023

Clarification Regarding GST Applicability on Liquidated Damages,

1. Agreeing to the obligation to refrain from an act:

Above three activities must comply with the following conditions:

1. There must be an expressed or implied agreement or contract must exist:

Taxability of some of the transactions has been discussed in detail as under:

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