4

CHAP TER
SUPPLY UNDER GST
LEARNING OBJECTIVES 4.1 INTRODUCTION

After studying this chapter, you shall Under earlier indirect tax laws, there were two
separate
be able to understand the following: activities, i.e. manufacture or sale of goods and the provision
Meaning of Goods and Services of services. In the GST regime, the entire value of these
two is taxed in an
Composite and Mixed Supply
integrated manner by laying down one
comprehensive taxable event i.e. "supply" - supply of goods
Important related terms or services or both. It
means, the term "supply" refers to a
broad term which merges all taxable activities of the earlier
Parameters of Supply
laws into a single activity. For Example: If Mr. A has sold
Supply without consideration goods to B, then it is supply of goods. In this case, if A has
Schedules I, II and IIunder CGST manufactured the goods and then has sold to B, even then
Act, 2017 it is supply of goods. Similarly, if Mr. Mohan took services
of engineer for construction of his house, then it is also
supply of services to Mr. Mohan. Under GST, the scenario
has been shifted from sales, service,
manufacturing, etc. to
one activity i.e.
supply. Therefore, it can be said that now
there are two modes of supply which may attract GST and
these are goods and services.

4.2 SUPPLY: THE TAXABLE EVENT IN GST

Taxable event in a law is an event, the occurrence or

hap-
pening of which triggers the imposition of tax. It means
the incidence of tax arises only after the occurrence of the
taxable event.
Before GST: Under the earlier indirect tax
laws, Central
excise was levied on "manulacture of
was levied on "Sale of
goods", VAT/CST
Goods", Service tax was charged on
Services provided or agreed to be
provided",
etc.
Under GST: Accordingto
Article 366(12A)of the Constitution
of India, Goods and Services Tax
of goods or services or both
(GST) is "Any tax on Supply
except taxes on Supply of the
Alcoholic liquor for human
GST, the taxable event is
consumption." Therefore, under
"Supply of Goods or provIsIon or
Services or both". As already stated. under GST the scenario
4.1
 SUPPLY UNDER GST
4.2
Para 4.3 of services, eteC
sales, provision
namely manutacture,
taxable event o r provision
shifted from multiple is Supply of goods
has been The GST is applicable if there
taxable activity i.e. Supply. detail in next Para. 4.3,
too n e sole have been discussed in
of Supply
both. These two lorms
ofServices or
OF SUPPLY
4.3 FORMs
concept of supply
services o r both. The
supply ol goods or
includes all torms of
Under GST, supply other than goods o r services
GST architecture because the supply ol anything
is the key stone
of the and services.
under GST namely, goods
does not attract GST.
There twolorms
are of supply

4.3.1 Goods
"Goods" every kind
of movable property other than
2(52) of CGST Act, 2017,
means
As per section and things attached to or
securities but includes actionable claim, growing crops, grass
money and o r under a contract ot supply.
before supply
of the land which are agreed to be severed
forming part
Goods

It includes It excludes
Actionable Claims Money & Securities

Growing Crops, Grass,etc.

Actionable claim: The section 2(1) of CGST Act provides that the definition of actionable claims shall
have the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882. As per
section 3 of the Transfer of Property Act, 1882, "actionable claim means a claim to any debt, other
than a debt secured by mortgage of inmovable property or by hypothecation or pledge of movable
property, or to any beneficial interest in movable property not in the possession, either actual or
constructive, of the claimant, which the civilcourts recognise as affording grounds for relief, whether
such debt or beneficial interest be existent, accruing, conditional or contingent"
It may be noted that there are certain activities listed in Schedule II which are treated neither as
Supply of goods nor as Supply of services (Refer Para. 4.1). Actionable claims (other than lottery
betting & gambling) have been included in this Schedule. Thus, only lottery, betting && gambling
shall be treated as Supply under GST. All the other actionable claims shall not be
Supplies.
Money: As per section 2(75) of CGST Act, "Money means the mdian legal tender or any foreign
currency,cheque, promissory nole, billof exchange, letter of credit, draft, pav order, traveller cheque,
money order, postalor elecironic remittance or any other instrument recognised by 1he Reserve Bank
of mdia when used as a consideration to settle an obligation or
of another denomination bul shall not include any exchange 1ith Indian legal tender
currency that is held for its numismatic valie.
Transaction in money:
The transaction in
money is outside the ambit of GST as it is not included in
the definition of
g0ods/services. When we deposit principal amount in the bank or it such amount
is withdrawn, then it is
simply a transaction in money. These transactions do 1not
constitute ser-
vice& thus are not
chargeable to GST. However, il a
separate consideration is charged for these
activities, then this consideration is subject to GST. For
20 notes of 100 then it is
transaction in money.
example: il R 2000 note is exchanged for
becomes But, il in consideration 1950 is
payable on 50. given, then GST
Securities: The "securities" shall have the same
term
tion 2 of the mcaning
Securities Contracts (Regulation) Act, 1956. as
assigned to it in clause (h) of sec-
the As per this Act, the
following in India: term securities include
4.3 FORMS OF SUPPLY Para 4.3

- shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of
a like nature in or of any incorporated conmpany or other body corporate

derivatives which includes

Government secur+ty - a security created and issucd by the Central Government or a State

Government
units or any other instrument issued by any collective investment scheme to the investors in
such schemes

units or any other such instrument issued to the investors under any mutual fund scheme
but does not include any unit linked insurance policy which is a hybrid instrument providing
for life risk cover and investments
security receipts issued under SARFAESI Act (Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002)
-

Securitized debt instruments (collateralized debt obligations etc.)

- such other instruments as may be declared by the Central Government to be securities; and

Rights or interest in securities

Please notethat Securities are neither goods nor Services.

4.3.2 Service
The term 'Service' has been defined under section 2(102) of CGST Act, 2017. As per this section,
"service neans 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"
It means the Service refers to anything other than goods, money and securities but includes activities
relating to use of money or conversion of money for which separate consideration is charged.

Service

It includes It excludes
Activities relating to use of money 1. Goods
or conversion of money for which 2. Money
separate consideration is charged.
3. Securities

Explanation to section 2(102)

Statutory Provision: "For removal of doubts, it is hereby clarified that the expression Senvices'in-
cudes facilitating or arranging transactions in securilies."
Explanation: AS per the definition of goods and services, the securities are excluded from the
dehinition of both 'goods' and 'services' in the CGST Act and they are neither goods nor services.
However, facilitating or arranging transactions in securities is liable to GST. In order to clarily the
same, the above explanation has been inserted to section 2(102).

Inserted by the CGST(Amendment) Act, 2018, dated 30-8-2018, w.ef. 1-2-2019 vide Notification No. 02/2019-Central Tax, dated
29-1-2019
 Para 4.4 SUPPLY UNDER GST
4.4
Example: In relation to transactions in securitics, it some service charges or service tees or docu-
mentation fees or broking charges o r such like fees or charges are
charged, then the same would
be a consideration for provision ot service and shall be chargeable to GST.
NOTE: Under GST. the supply should be of goods or services. Supply of anything other than goods
or services does not attract GST.

Supply to be classified either as Goods or as Services

As stated above, supply
should involhe goods and/or Services
Now,
1i cither as wholly goods or wholly services.
question
a aises, what will happen where a
supply involves both goods and services? The GST law
provides that such supplies would be classifiable cither as, wholly goods or wholly services. This
has been provided in Schedule lI of the Act, which has been classification
discussed later in this chapter.

4.4TYPES OF SUPPLIES
As already stated in previous Para, the term supply under GST includes
supply of services. This supply may be classified on various basis. supply of goods as well as

(a) On the basis of movement/flow

(a) Inward supply
(b) Outward supply
(b) On the basis of Continuity
(a) One time supply
(b) Continuous supply
(c) On the basis of taxability
(a) Taxable supply
(b) Non-taxable supply
()Exemptsupply
(d) Zero-rated supply
(d) On the basis of
Geographical location
(a) Intra-state supply
(b) Inter-state supply
(c) Supplies in territorial waters
(e) On the basis of Goods
supplied in
conjunction (Explained in Para
(a) Composite supply 4.5)
(b) Mixed supply
4.4.1 Types of Supplies on the basis of
Every transaction necessarily movement/flow
involves two
parties namely supplicr and
er a
supply of
inward supply goods/services
or outward
from the point of view
of cither of the recipicnt. When we consid-
supply. party, it may be classilicd as
(a) Inward supply: In relation to a
person, "inward supply" means
or both, whether by
purchase, acquisition or any other receipt ot gods or services
(b) Outward supply: In means with or without
relation to a taxable consideration.
services or both, whether person, "outward
bv sale, supply" means
transter, barter,
exchange, licence, rental,supply of goods or
lease or
disposal
4.5 TYPESOF SUPPLIES Para 4.4

or any other mode, made or agreed to be made by such person in the course or furtherance
of business.
Example: Ravish Computers Lid., a registercd dealer has sold desktop computer to ABC Lid. at a
price of 26,000plus GST.This single transaction of supply of computerconstitutes "inward Supply
for recipient (ie.for ABC Lid.)and°Outward Supply" for theSupplier (ie lor Ravish computers Ltd)

4.4.2 Types of Supplies on the basis of Continuityy

The recurrence of a Supply is the basis for this classilication:
(a) One-time Supply: lt simply relers to Supply of goods or Services which is provided or agreed
tobe provided on non-recurrent basis as a Stlandalone Supply. For Example: when Mahesh
purchases a machine from M/s ABC, then it is one-time Supply. This category is required just
to recognise the other type of Supply, which is continuous Supply.
Continuous Supply: The continuous supply may be regards goods well for services
(b) as as as

Continuous Supply of Goods: As per section 2(32) of CGST Act, 2017, "continuous supply of goods
means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent
basis, under a contract, whether or not by means of a wire, cable, pipeline or other condut, and
for which the supplier invoices the recipient on a regular or periodic basis.
Continuous Supply of Services: As per section 2(33) of CGST Act, 2017, "continuous supply of

services" means a supply of services which is provided, or agreed to be provided, continuously or

on recurrent basis, under a contract, for a period exeeeding three months with periodic payment

obligations.
Example: Kanika uses LPG stove and is a registered customer with Shivani Enterprises, a dealer
of LPG Cylinders. She acquires two cylinders every month on regular basis. It is the example of
one-time supply where every supply of cylinder is a separate transaction. On the other hand. Ms.
Tania has taken PNG connection at her kitchen from Indraprastha Gas Limited. The
monthly on the basis of meter reading. It is the case of continuous supply of goods.
billing
is done

4.4.3 Types of Supplies on the basis of taxability:

The scope of supply has been given in section 7 of CGST Act, 2017. Even if an activity is a supply, it is
not necessary that the same is subject to GST. On this basis, there can be following tvpes of supplies:

(a) Taxable Supply:As per section of CGST

2(108) Act, "Taxable Supply refers to a Suppiv of

Goods and/or Services which is leviable to tax under CGST Act".

(b) Non-Taxable Supply: As per section 2(78) of CGST Act, "Non-Taxable Supply means a Supply
of Goods or Services or both which is not leviable to tax under CGST Act or under the IGST
Act"

(c)Exempt Supply: As persection 2(47) of CGST

Act, "Exempt Supply meas ot

Goods or Services or both which attracts Nil rate of tax or which may be wholls exempt trom
a Suppls ans

tax under Section 11, or under section 6 of IGST Act, and includes non tanable Supplk
(d) Zero Rated Supply: It is Supply of any Goods and /or Services on which no tax is payable
but input tax credit pertaining to that Supply is admissible. As per Section 1ol) ol lGST Act.
2017, "zero rated supply" means any of the lollowing supplies of goods or services or both,

namely:-
(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special
Economic Zone unit.
Para 4.5 SUPPLY UNDER GSST 4.6

4.4.4 On the basis of Geographical location:

When we considerthe movement of Supply gcographically, it can be of thrce types namely Inter-
State Supply, Intra-State Supply and Supplies in the tcmitorial waters
(1) Inter-State Supply: As per Section 701) of IGST Act, Subject to the provisions of section 10,
where the location of the and the place of supply in
supply of goods, supplier are

(a) two different States;

(b) two different Union territories; or

() a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or c o m m e r c e .

of services, where
Similarly, as per section 7(3), Subject to the provisions of section 12, supply
the location of the supplier and the place of supply are in-
(a) two different States;
(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of services in the course of inter-State trade or commerce.

of section 10,
(2) Intra-State Supply: As per Section 8(1) of IGST Act, Subject to the provisions a r e in the
of
supply of goods where the location of the supplier and the place supply goods
of
same State or same Union territory shall be treated as intra-State supply:
Provided that the following supply of goods shall not be treated as intra-State supply, namely:
Economic Zone developer or a Special Economic
() supply of goods to or by a Special
Zone unit;
the frontiers of India:
(ii) goods imported into the territory of India till they cross customs

or

made to tourist referred to in section 15.

(iit) supplies a

in the territorial waters: As per Section 9 of IGST Act, Notwithstanding anything

(3) Supplies
contained in this Act,-
the territorial waters, the location of such sup-
(a) where the location of the supplier is in
plier; or
tor the
(b) where the place of supply is in the territorial waters, the place of supply, shall,
purposes of this Act, be deemed to be
in the coastal State or Union territory where the
nearest point of the appropriate baseline is located.

4.5 TYPES OF SUPPLIES IN CASE OF COMBINATION SUPPLIES

rates. For exannple: The

The GST is payable on individual g0ods or Services o r both at the notilicd
18% respectively. It nmcans the GST on
Tooth-paste and Tooth-brush a r e liable to GST ( 12 and a r e supplied
o r m o r e goods o r Services
these items will be calculated accordingly. Sometimes, two
arises about the rate of GST to be
in combination at a Consolidated price. In this case, question
a

to dillerent rates of tax. For example:-

levied as the goods/services in package may be subjected
and a w0oden table (GSTa 18%) are offered by supplier at
(a) A desktop computer (GST@28%)
a consolidated price of T 52,500.

of LCD with warranty and maintenance for I year again at a consolidated price.
(b) Supply
 SUPPLIES
Para 4.5
4.7 TYPES OF SUPPLIES IN CASE OF COMBINATION

taxability, the CGST Act,

For the purpose of
classifies these "Combination Supplies" into two types:
(1) Composite Supply
(2) Mixed Supply

4.5.1 Composite Supply:

means a supply made by a taxable
As per section 2(30) of CGST Act, 2017, "Con1posite Supply" services o r hoth, or any
iv10 or o r e taxable supplies of goods o r
to a recipient consist1ng of
person
combination thereof, wlich are naturally bundled and
supplied in conjunction with each other in
which is a principal supply.
the ordinary course of business, one of
of a composite supply
The following are the basic features
It should be the supply made by taxable person to a recipient.
(a)
both.
(b) It should consist of two or more supplies of Goods or/services o r
taxable
with each other
be naturally bundled and supplied in conjunction
(c) The combination should
in the ordinary course of business.
in time and
The Supplied in conjunction means that they should be occurring in the s a m e point
space.

(d) Out of two naturally supplies, one should be a principal supply.

bundled

Where goods are packed and transported

with insurance, the supply of goods, packing materials
is a principal supply.
transport and insurance is composite supply and supply of goods
a

forms the predominant elem nt of the composite supply

Principal Supply m e a n s supply which
o r supportive to that predominant part.
and other parts of the supply are only ancillary

Examples on Composite Supply:

Example 4.1
and a maintenance contract with LCD
the
Supply: Prakash buys LCD and also gets warranty
The supply of LCD is the principal supply and warranty
Comment: This supply is a composite supply.
maintenance services are ancillary.

Example 4.2
of breakfast
Samrat Hotel in Shimla, provides 4 days -3 nights package at 7 8,000 wherein the facility
Supply:
room accommodation.
and dinner is provided along with the
accommodation in the
Comment: It is composite supply since
the supply of breakfast and dinner with the
hotel are naturally bundled

Example 4.3
Xiaomi Communication Co. Ltd. has recently
launched a mobile phone with the brand name
Supply: The along with the handset.
accessories, earphone and charger
"Redmi Note 4". The company supplies the
This |
wvith the mobile phone handset are naturally bundled.
Comment: The supply of earphone and charger
The Supply of mobile phone is the principal supply.
supply qualifies as "composite Supply.

4.5.2 Mixed Supply:

As per Section 2(74), "Mixed supply
nieuns two or nmoresupplies of
individual goods or services, or
any combination ihereof,
nmade in conjunciion uith each other by tarable person for a singleisprCe
a

a composile supply. The essence of the definition

"
na
where such supply does not consiilule
individual goods or services or any combination iicCO
there should be supply of two or more
Para 4.3 PPN UNDER 4.8

in onjunction with cavh othet. n lact, in case ol mised supplies, the goods/scrvices which are
supliod to the vipient at one pice can e supplicd individually. hu other words, ihe individual
supymics arv independent ot carh other anl are not naturally bundled
ln nutshell. a supplh ot mone than onegoods and/or services as a bumdle will be reckoncd as mixcd
supp it the tollouing sondiuions are lullilled:
Such gois or s e r r e s anc supplicd lor a sinple jmice

( They a r not naturallh bundled together and

lt doxs not quality as coypsite supply.

Examples on Mixed Supply:

Example 4.4
Supply: A gitt pack conprisng of caned foods, swects, chocolates, cakes, dry fruits, acrated drinks and
truit juices supplicd tor a single price.
Comment: It is an evample of mixed
supply as all these goods can be sold independently.
Example 4.5
Supply: Rent deed executed for renting of the different floors of a building, one for residence and another
tor commercial purpose to the same
person.
Comment: It will be treated as mixed supply as the two floors could have been rented independently.
Example 4.6
Supply: A supply of package Comprising of shirt, trouser, tie and belt for a single price.
a

Comment: It is a mixed supply. The reason being each of these items can be
dependent on any other. supplied separately and is not

Note: The provisions relating to determination of tax

5.11 of Chapter 5. liability on mixed supplies have been discussed in Para

Works Contract and Restaurant Services

1. As per section
2(119) of CGST Act, 2017, "Works contract means a
contract for building, construction,
fabrication, completion, erection, installation,
renovation, alteration or commissioning of
fitting out, improvement, modilication,
repair, maintenance,
any immovable property wherein transfer of
goods (whether as goods or in some other form) is involved in the execution of propertv in
2. Works contract
such contract."
and restaurant services are the
classic example of
GST law identifies both as
supply of services [as per Schedule Il] composite supplies. However, the

Composite and Mixed Supply

(Comprising two or more
supplies of goods or services or any
combination thereof)

Naturally Bundled
Artificially Bundled
Comprising two or more supplies, one Comprising two or more individual
of which is a
Principal Supply supplies,made for a single
price,
which is not
Composite Supply

Composite Supply
Mixed Supply
 4.9
IMPORTANT TERMs Para 4.6
4.5.3 Treatment of Sales Promotion Scheme
"Buy one get one free offer" under GST
As a part of sales promotional scheme, sometimes
companies announce the offers like 'Buy one,
Get one Free'. For example, "buy cold cream and get small
shampoo free" or "Get one tooth brush
free along with the purchase of tooth paste"
In case of these offers, it appears at first glance, that one item is being "supplied free of cost" without
any consideration. But it is not the reality. In flact, this type of offer is not an individual supply of
free goods, but a case of two or more individual supplies where a single price is bcing charged for
the entire supply. It can at best be treated as supplying two goods for the price of one.
Thus, this transaction shall be treated as "supply" under section 7(1)a) of the CGST Act. Vide
cular 92/11/2019 GST dated 7-3-2019, the Government has clarified that the Taxability of such
Cir
supply will be dependent upon as to whether the supply is a composite supply or a mixed supply
and the rate of taX shall be determined as per the provisions of section 8 of the CGST Act.
[Refer
Para 5.12 of Chapter 5]

4.6 IMPORTANT TERMS

There are certain terms which are necessary to be understood in order to analyse the provisions
of section 7. These include the following:
1. Business
2. In the course of business or in the furtherance of Business
3. Consideration
4. Taxable Person

4.6.1 Business:
As per section 2(17) of CGST Act, 2017, the term business includes:
(a) Anytrade, commerce, manufacture, profession, vocation, adventure, wagerorany othersimilar
activity, whether or not it is for a pecunury benefit;
(b) Any activity or transaction in comnection with or incidental or ancillary to sub-clause (a;
(c) Any activity or tramsaction in the nature of sub-clause (a), whether or not there is volunm
frequency, continuity or regularity of such transaction;
d) Supply or acquisitiom of goods inchuding capital goods and services in connection wth com-
mencement or closure of business;
(e) Provision by a cub, association, sociely, or any such body (for a subseription or any other
consideration) of the facilities or benefits to its members
f) Admission, for a consideration, of pesons to any premises
(g) Services supplied by a person as the holder of an office which has been accepted by him in
the course or furtherance of his trade, profession or vocation;
(h) activitices of a race club including by way of totalisator or alicense to book maker or activities
of a licensed book maker in such club; and#
a) Any activity or transaction undertaken by the Central Govermment, a State Governient or

they are engaged as public authorities.

any local authority in which
It may be noted that, after the amendment made in clause (h) above, the scope of term 'business
has widened to include all the activities of race club and all the activities of a license book maker
in such club.
# Inserted by the Central GST (Amendment) Act, 2018, dated 30-8-2018, w.e.f. 1-2-2019 vide Notilication No. 02/2019-Central Tax,

dated 29-1-2019.
Para 4.6 SUPPLY UNDER GST 4.10

Importance of Business:
is commercial transactions. It any Supply made by individual in
Basically, GST a tax on means
his personal capacity docs not come under the ambitl of GST unless it lalls within the definition of
Business. For example: Mr. Vipin has purchased Scooty "Activa 4G" from a dealer "Honda Auto"
tor personal use. After a ycar, he sells it to a dealer M/s True Valuc. Now, when the Scooty was
soldby Honda Auto", it is a supply under GST. But, when Vipin sold the Scooty to M/s True Value,
then it is not a supply under CGST Act because this supply is not made by Vipin in the course of
or in furtherance of business.

4.6.2 In the course of Business or in the furtherance of business:

These terms are not defined under GST laws. On the basis of general interpretation, the two terms
may be explained in the tollowing manner.
In the course of Business:
In order to carry on the business, various activities are carried out by the entity on a routine basis
such as sale or purchase of goods, provision of services, production of goods, making and receiving
payments, etc. These activities may be regarded as the activities undertaken in the course of business.
In the Furtherance of Business:
The dictionary meaning of furtherancemeans an act of helping something to become more successful
or advanced. If we draw inference from this meaning, then the phrase "Furtherance of business
means any activity intended for the advancement of business.
Under GST, both the phrases are to be taken together to interpret its meaning in true sense.
Importance of term:
Only those supplies that are in the course or furtherance of business qualify as supply under GST.
It means selling of used personal car by individual to a dealer is not supply under GST as it is not
in the course or furtherance of Business. Therefore, any activity undertaken in the course or for
furtherance of business would only constitute a supply. There is one exception to this course or
furtherance of business rule i.e. import of services for a consideration. (Refer Para 4.6.3 for detail).

4.6.3 Consideration:
As per section 2(31) of CGST Act, 2017, "Consideration in relation 1o the supply of goods or services
or both includes-
(a) Any payment made or to be made, whether in money or otherwise, in respect of, in
response
1o, or for the inducement of, the supphy of goods or services or both, whether
by the vecipient
or by any other
person but shall not include any subsidy given by the Central Governnent or
a State Government.

(b) The monetary value of any act or forbearance, in respect of, in

response to, or for the induce-
ment of, ihe
supply of goods o r services or botli, whether by the recipient or by anv other person
but shall not include any subsidy
given by the Central Government or a State Governmen.
The proviso to section 2(31) states that, "u
or both shall not be considered
deposil given in respect of the supply of goods or services
as
puyment nade for such supplv unless the supplier applies such
deposit as consideration for the said supply."
The following the
are
important interpretations from the above delinition:-
(1) Monetary Consideration: The term consideration includes
section 2(75), "Money" includes not only cash nmonetary consideration. As per
(lndian Curreney as well as toreign currency) but
also cheques, promissory notes, bills ol
exchange, letter of credit, draft, pay order, traveller's
cheque, money order, postal or electronic remittance or any other instrument
RBI. recognized by
4.11 IMPORTANT TERMS Para 4.6

(2) Non-Monetary Consideration: Under GST, Consideration also includes non-monetary con-
sideration, which simply implics compensation in kind. The following shall be included as
non-monetary consideration.

(a) Supply of goods or service in | Example: Shyam, a barber, agrees lor hair-cut of a dentist &
returnfor provisionot service in return the dentist extracts his damnaged tooth.
(b) Refraining orforbearing todo Example: Mohan owns a renowncd shop for good quality
an act torprovision ot service chicken. Anil wants to enter into the same business in the
same locality. Mohan paid 7 2,00,000 to Anil refraining him
t o open shop in the same arca lor two years.
(c) Toleratingan act orasituation | Example: Dorbin owns three cars and is unable to park all
in return tor provision of a of them within his premises. He requested his neighbour to
service. allow him to park one of his cars in front of his main gate. In
return the neighbour charged 7 2,500 per month.
(3) Who will pay Consideration: The consideration is paid by recipient of the supply. But it need
not always flow from the recipient of the supply; it can also be made by a third person.
For Example: Sonu has joined coaching classes for MBBS preparation. The provider of sup-
ply is the Institute, the recipient is Sonu but payment is made by Sonu's father. It will also
constitute supply.
4) Determination of Value: The Value of Supply is determined in the manner specified in Sec
tion 15 of the CGST Act, 2017. In addition, Valuation principles are given in Chapter IV of the
CGST Rules, 2017. (Please refer Chapter 9 of the book for detail.)
(5) Government Subsidy: The consideration does not include any subsidy given by the Central
Government or a State Government. (Refer Para 9 for detail.)
(6) Deposit: The deposit may be of two types: refundable and non-refundable.
(a) Refundable Deposit: It is not subject to GST. It means such deposit in respect of the
Supply of Goods and/or Service is not considered as payment made for such supply.
The reason being it has to be refunded after the completion of provision of service or
the transaction.
(b) Non-refundable deposit: If the deposit is non-refundable, or the supplier applies such
deposit as consideration for the said supply, then GST is applicable.
(7) Donation: The donation or charity does not attract GST unless this donation imposes an obli-
gation on the recipient (i.e. the donee) to provide something in return. For example: A donation
of 1,00,000 is given by a doctor to the trust of a temple. This will not attract any GST. But,
if on account of such donation, 1he trust is bound to display or advertise the doctor's clinic,
then it is a consideration and GST will become applicable.

GST when name of donor is displayed

Individual donors provide financial help/other support in the form of donation or gift to institutions such
as rehgious institutions, charitable organisations, schools, hospitals, orphanages, old age homes ete. ln order
to express the gratitude, the recipient institutions place a nanme plate or similar such acknowledgement in
their premises.
Not a supply under GST: When the name ol the donor is displayed in recipient institution prenmises, in such
a
manner, which can be said to be an expression of gratit ude and public recognition of donor's act of philan-
thropy and is not aimed at giving publicity to the donor in such manner that it would be an advertising or
promotion of his business, then it can be said that there is no supply of service for a consideration (1n the
form of donation). For example: |
("Good wishes from Mr. Sanjay" printed underneath a digital blackboard donatcd by Mr. Sanjay topa
charitable old age home.
 Para 4.7 SUPPLY UNDERGST 4.12

(i) "Donated by Mr. Ram Lal in the memory of his father Shvam ILal" written on the Iloor of a room of a
from stuch donation.
temple complex which was constucted
Thus, there are three conditions:
(1) The gift or donation is made to a charitable organization
(2) The payment has the character of gilt or donation and
(3) The purpose is philanthropic (i.e. , it leads to no comnercial gain) and not advertisernent.
Where all the above three conditions are satislicd, GST is not leviable
GST is leviable if: When there is reference or mention of any business activily of the donor which otherwise
would have got advertised, GST is leviable.
The above discussion is based on the Circular No. 116/35/2019 GST daled I1-/0-2019

Importance of Consideration:
In order to fall within the ambit of GST, one of the essential conditions for the supply of goods and/
or services is that it is made for a consideration. There are exception to this rule given in Schedule I
of the CGST Act as deemed supply.

4.6.4 Taxable Person:

As per section 2(107), a taxable person is a person who is registered or liable to be registered under
section 22 or section 24. The following are the important inferences:
1. A registered person is a taxable person
2. The person who is liable to be registered is also a taxable person. It means an unregistered
person, who is liable to be registered, is a taxable person.
3. A person who has taken voluntary registration is also a taxable person although he is not
liable to be registered.
Importance of Term:
A supply to attract GST should be made by a taxable person. However, it may be made to a non-
taxable person. But a supply between two non-taxable persons does not constitute taxable
under GST.
supplies

4.7 PROVIsIONS IN RELATION WITH SUPPLY

The provisions relating to components and scope of supply are given in section 7 of CGST Act, 2017.
The following diagram shows an overview of the provisions.
Provisions in relation to supply

Scope of Supply (Section 7) Schedules of Supply

(Three Schedules)
Section 7(1): Inclusions in Supply Treated as Supplv, even it without consid-
eration
Section 7(2): Neither Supply of Goods nor Classilication of Supply into Goods/
services
Services
Section 7(3): Central Government may notify III Neither Supply of Goods nor Supply of
Services
 4.13 SCOPE OF SUPPIY Para 4.8

4.8 SCOPE OF SUPPLY [SECTION 7(1)1

Statutory Provisions#
As per section 7(1) supply includes:
(a) All forms of supply of goods orservices or both such as sale, transfer, barter, cxehange, licence, rental
lease ordisposal made or agreed to be made for a consideration by a person in the course or further
ance of business;
(b) Import of services for a consideration vhether or not in the course or furtherance of business; and

(c) The activities specified in Schedule I, nmade or agreed to be made withoul a consideration.
Section 7(1A): Certain activities ortransactions, when constituting a supply in accordance with the provisions
of sub-section (1), shallbetreated either as supply of goods or supply of services as referred to in Schedule IL

Analysis of Provisions of Section 7(1)

4.8.1 Modes of Supply

The supply of goods and services are under the purview of GST. The scope of Supply [as given in
section 7(1)]has been given in an inclusive manner. Thelist given in the sub-section is not exhaustive.
This is substantiated by the use of words "such as" and "supply includes" in the definition. The
following modes of supply have been mentioned in section 7(1)().

(a) Sale Itis simply sale of goods

(b) Transfer It is like inter-state stock transfer.
(c) Barter Transaction involving exchange of goods or services. In this case, same activity
constitutes supply as well as consideration. For Example: A grocery shop owner
exchanges grains for fruit from fruit seller.
(d) Exchange It is broader than barter, as it also covers a situation where goods are partly paid for
in goods and partly in money. For Example: Old mobile phone is exchange for a new
one & some additional cash has been paid.

(e) License, Lease, | The licenses, leases and rentals of goods with or without transter of right to use are
Rental, etc. covered under the supply of service in GST because there is no transfer of title in
such supplies. Such transactions are specihcally treated as supply of serviece as per
Schedule II of CGST Act.

Disposal Like disposal of waste

4.8.2 Parameters of supply

The section 7(1)(a) clearly specifies the following parameters which can be adopted to characterize
a transaction as
supply:
(a) It should be supply of goods or services only.

(b) The supply should be made for a consideration

(C) The supply should be made in the course or furtherance of business

(d) It should be made by a taxable person

(e) It should be a taxable supply.

#These provisions are as per CGST (Amendment) Act, 2018 and are applicable retrospectively w.e.f. 1st July, 2017.
Para 4.8 SUPPLY UNDER GST 4.14

Exception to the above Parameters

There are few exceptions to some of aloresaid parameters of taxable supply. These are as follows:

(a) 'Consideration' Parameter:

There are few cases specified in Schedule I of CGST Act, 2017, where the supply is considered
even if the same is without consideration. (Refer Para 4.9)

(b) Course or furtherance of business' Parameter:

In the case of import of service for a consideration, the same is treated as supply whether or
not it is in the course or furtherance of business.
(c) All' Parameters:
There are few exceptional cases where the transaction is not treated as supply despite of
existence of all the parameters. A list of activities is given in Schedule III (may be called as
negative list of services). These transactions/activities shall be neither treated as supply of
goods nor a supply of services. It means these are kept outside the scope of GST. (Refer Para
4.11)
4.8.3 Importation of Service for consideration [Section 7(1)(6)]
In order to bring a supply under the ambit of GST the "in course or furtherance of business
parameter is one of the necessary condition. The only exception to this condition is given in section
7(1 (b) of CGST Act. As per this section, the Import of services for a consideration, whether or not
in the course or furtherance of business, shall be treated as supply.
It means even the import of services for personal use with consideration would also be covered
under the definition of supply. For example: Mr. Mukesh Ambani, an industrialist, has received the
architect service for his private house "Antilia" from Chicago based architects firm "Perkins & will".
This import of service is supply under section 7(1)6) through it is not in course or furtherance of
business. It is important to note that the recipient of Service (ie. the importer of Service) is liable
to pay GST under Reverse Charge mechanism. (Refer Para 13.10.1 for further details.)

4.8.4 Supply without consideration [Section 7(1)(c)]

The section 7(1(¢) includes some activities as supply which are made or agreed to be made even if
the same is without consideration. These are specifically mentioned in Schedule I appended to the
CGST Act, 2017. It has been discussed separately under Para 4.9.

4.8.5 Activities to be treated as supply of goods or supply of services [Section 7(1A)]

The section 7(1A) has been inserted through CGST (Amendment) Act, 2018. It refers to Schedule
II for determining whether a particular transaction is a supply of goods or supply of services. The
activitiesspecified in Schedule II have always been marginal cases with respect to levy of multiple
indirect taxes. This Schedule tries to lays down all the controversies to rest by holding what would
be held as service and what would be
goods. Therefore, this helps in mitigating the ambiguities
which existed in the earlier laws. The supply by a restaurant is one of the classic examples wherem
food and services, both are supplied & these are
naturally bundled in ordinary course of business.
It means both goods and services are inter-linked, inter-mixed and
dependent on each The
other.
Schedule II [Entry 6(b)] to the CGST Act specifically provides that such composite supply shall be
treated as supply of service. It means, GST is leviable on entire value of invoice as
value of service.
The Schedule II has been discussed in detail in Para 4.12.
4.15 GOVERNMENT'S POWER OF CLASSIFICATION Para 4.10

4.8.6 Treatment of Sales Promotion Scheme "Free Samples and Gifts" under GST
There are several promotional schcmes which are oflered by taxable persons to increase sales
volume and to attract new customers for their product. One of such scheme is "Free samples and
gifts".It is a common practice among certain sections of trade and industry, such as, pharmaceutical
companies which often proVide drug samples to their stockists, dealers, medical practitioners, etc.
without charging any consideration
As regards the taxability of this scheme, the section 7(1 )(a) of the CGST Act cannot be applied as
the element of consideration is missing and therelore, thcse shall not be treated as "supply under
GST (except in case of activities nmentioned in Schedule 1I ol the CGST Act).
Vide Circular 92/11/2019 GST dated 7-3-2019, the Government has clarified that samples which
are supplied free of cost,without any consideration, do not qualily as "supply" under GST, except
where the activity falls within the ambit of Schedule I of the CGST Act.

4.9 NEITHER SUPPLY OF GOODS NOR SERVICES (SECTION 7(2)]

As per section 7(2), "Notwithstanding anything contained in section 7(1),

a) Activities or transactions specified in Schedule Ill; or
Such activities transactions undertaken by the Central Government, a
or
State rovernment
or any local authority in which they are engaged as public authorities, as may be notifed b
the Goverment on the recommendations of the Council, shall be treated neither as a supply
of goods nor a supply of services"
Overriding Effect:
The section 7(2) starts with "notwithstanding anything contained in sub-section (1).. It implies
that this section has an overriding effect on section 7(1). It means in case of any dispute, section
7(2) will prevail over section 7(1).
Analysis of Section 7(2)(a)
The section 7(2) a) refers to Schedule I that specifies the activities which shall be neither treated
as supply of goods nor a supply of services. It means these specified activities are not supplies and
are outside the scope of GST. The Schedule III has been explained in Para 4.13 in detail.
Analysis of Section 7(2)(b)
This section empowers the Government to notify on recommendations of GST Council, the activities
or transactions undertaken by Government wherein they are engaged as public authorities. It has
been explained in Para 4.14 in detail.

4.10 GOVERNMENT'S POWER OF CLASSIFICATION SECTION 73)

As per section 7(3), "Subject 1o the provisions of section 7(1), 7(1A) and 772), the Govermment mav, on
the recommendations of the Council, specify, by notification, the transactions that are to be trealedas-
(a) a supply of goods and not as a supply of services; or
"

(b) a supply of services and not as a supply of goods.

This sub-section gives a right to the Government to classily and make amendments to Schedule I1.
Therefore, under this section, the government is empowered to classily certain supply as supply
of goods and certain supply as supply of services. But this shall be on the recommendations of the
council.
 SUPPLY UNDER GST
4.16
Para 4.11

4.11 SCHEDULEI ISUPPLY WITHOUT CONSIDERATION]

of taxes. However, under
consideration plays paramount role lor levy
In every tax statute, the As per Schedule I, in the
has been done away in certain c a s e s .
GST, the concept of consideration treated as supply under
made even without consideration will be
following four cases, the supplies
section 7 of the CGST Act:
Assets
1. Permanent Transfer/Disposal of Business
2. Supply between related person or distinct persons

3. Supply of goods by a Principal to his Agent

4. Importation of serviceS

4.11.1 Permanent Transfer or Disposal of the Business Assets:

basis qualities as
Any kind of disposal or transfer of business assets made by an entity on permanent
supply, even though it is without consideration. However, it is important to note that this provision
would apply only if input tax credit has been availed on such assets.

Example 4.7
XYZ Limited had purchased computer for business purposes & ITC on the same has been availed. After
one year, these computers are permanently transferred toa charitable school without consideration. This
permanent transfer is subject to GST although it is made without consideration.

Example4.8
Priyansh is a cloth retailer located in Chandni Chowk, Delhi. At the time of purchase of cloth (Business asset)
he claims input tax credit. He has given clothes from his business stock to his friend free of cost. Since it
is transfer of business asset and ITC had been claimed,it will tantamount to supply and will attract GST.

4.11.2 Supply between Related Person or Distinct Persons:

The Supply of goods or services or both between related persons or between distinct persos as
specified in section 25 will qualify as supply provided it is made in the course or furtherance ot
business. It means such transactions will be treated as supplies, even if made without
consideration.
Let us discuss the concepts of related
person and distinct persons.
Related Persons
As per explanationsection 15, the persons shall be deemed to be "related
to
parties" if:
i) Such persons are officers or directors of one another's businesses;
(ii) Such persons legally recognised partners in business;
are

(iii) Such persons are

employer and employee;
(iv) Any person directly o r indirectly owns, controls or holds 25% or more of the outst:anding
voting stock or shares of both of them;
(v) One of them directly or indirectly controls the
other;
(vi) Both of them are directly or indirectly controlled by a
third person;
(vii) Together they directly or indirectly control a third
person; or they are members of the
family; same
4.17 SCHEDULEISUPPLY WITHOUT CONSIDERATION Para 4.11

Distinct person
As per section 25(4), a perso who has obtained or is equired to obtain more than one registration,
1whether in one State or Union ternitory or more than one State or lniom terriory shall, in respect
of each such registration, be treated as distiet persons for the purposes of this Act.
Establishments of Distinct persons
As per section 25(5), w/here a person who has obtained or is required to obain registratiom in a State
or Union territory in respectof an establishent, has an establislnent in another State or Union
territory, then such establishnents shall be treated as establishments of distinct persons for the
purposes of this Act.

Analysis of Provision:
The supply of goods or services or both between related persons or between distinct persons would
be taxable even though it is without consideration, provided it is made in the course of furtherance
of Business. The following points may be noted in this regard:
1. Supply between Employer and Employee
By virtue of the definition of related person given in explanation to section 15, the employer
and employee are related persons. However, the services provided by the employee to the
employer in the course of or in relation to his employment are not treated as supply of ser-
vices. [Schedule III of CGST discussed in Para 4.11]. It is clear that supply by the emplover
to the employee in terms of contractual agreement entered into between the employer and
the employee, will not be subject to GST.
2. About Gifts by Employer to Employee
The second entry in schedule provide that gifts not exceeding 7 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. The limit of 7 50,000 is per financial year.

Example4.9
An employee has joined the company an 14th Nov. 2017.On Ist January 2018 the company has given 40,000
cheque as gift to that employee. Since it does not exceed ? 50,000, such supply would not be taxable in 2010-
17. In the year 2017-18, the fresh limit of T 50,000 will be available with the employee.

3. Stock Transfers or Branch Transfers

As already stated, under section 25, a person who has obtained more than one registration
shall be treated as district person in respect of each such registration. There may be transac-
tion between different locations of same legal entity like stock transfers or branch transters.
In view of entry 2 of Schedule I, such transfers will quality as supply under GST.

Example 4.10
Ritu Wears" has a factory in Delhi & retail showroom in Mumbai. The lactory & retail showroom are
registered in Delhi & Maharashtra under GST law. The company has transferred 50 designers 'Sarees' and
100 executive Lehanga' from the factory to showruom. Although no consideration is charged, transfer of
goods from factory to showroom constitutes supply.

4.11.3 Supply of goods between Principal and Agent

The 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.
 SUPPLY UNDER GST 4.18
Para 4.12

Analysis
The following are the important inferences:

(a) This entry covers supply of goods only.

(b) The supply of goods between principal and agent without consideration is covered herc.

(c) The clearance of goods to a consignment agent/clearing agent and forwarding agent consti-
tutes supply.

Example 4.11
Mr. Ranjan has supplied the goods to his agent, in order to sell them on his behalf. This qualifies as a supply,
although the agent has not paid any consideration as yet.
Key ingredient for determining principal agent relationship for Schedule I

The Circular No. 57/31/2018 GST dated 04.09.2018 clarified that the keyingredient for deter-
mining whether a principal agent relationship falls within the scope of Para 3 of Schedule I of the
CGST Act, would be whetherthe invoice for the further supply of goods on behalf of the principal
is being issued by the agent or not. There are only two possible scenarios:
(a) Where the invoice for further supply is being issued by the agent in his name then, any pro-
vision of goods from the principal to the agent would fall within the fold of the said Para.
(b) However, where the invoice is issued by the agent to the customer in the name of the prin-
cipal, such agent shall not fall within the ambit of Schedule I of the CGST Act.

4.11.4 Importation of services (from related person located outside India)

The 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".

The CGST (Amendment) Act, 2018 has replaced the words "Taxable Person" by "Person". This
amendment is to ensure that import of services by entities which are not registered under GST
(say, they are only making exempted supplies) but are otherwise engaged in business activities
istaxed when received from a related person or firom any of their establishments outside India.

Example 4.12
When an Indian company receives consultancy services from its head office located outside India free of
cost (being its ownbranch), it willquality as supply as Head officeand Branch office are related person.
It is important to note that the import of Service is normally chargeable to GST under RCM.

4.12 SCHEDULE II [ACTIVITIES OR TRANSACTIONS'TOo BETREATED AS SUPPLY OF

GOODS OR SUPPLY OF SERVICES]

Section 7(1A) of the CGST Act refers to Schedule I for determining whether a particular transaction
is a supply of goods or supply of services. The Schedule Il appended to the CGST Act enlists the
matlers/transactions to be treated as Supply of either goods or services. The list of supplies is the
taxable supplies but they have been
prescribed separately under Schedule Il just to remove any
ambiguity on the taxability of such transactions and also to ensure unilormity ot taxation on such
supplies throughout the country. These are as follows:

#The CGST (Amendment) Act, 2018 has inserted the words "Or Transactions" in the
effect from lst July, 2017. heading of Schedule II with
retrospective
4.19 ACTIVITIES TO BE TREATIED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES Para 4.12

Transaction Nature of Supply

1. Transfer
Title in goods Supply of Goods
Right in goods/undivided share in goods withoul transfer of title in goods Supply of Services
Title in goods under an agreement which stipulates that property shall pass at a Supply of Goods
future date.
2. Land and Building
Lease, tenaney, easement, licence to occupy land Supply of Services
Lease or letting out of building including a commercial, industrial or residential | Supply of Services
complex for business or commerce, wholly or partly.
3. Treatment of Process
Applied to another person's goods Supply of Services
(For example: the job work performed by a job worker)
4. Transfer of Business Assets
Goods forming part of business assets are transferred or disposed of by/under | Supply ot Goods
directions of person carrying on the business so as no longer to form part of those
assets, whether or not for consideration
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
Supply of Services

carrying on the business, whether or not for consideration.

Goods forming part of assets of any business carried on by a
person, who ceases | Supply of Goods
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.
Exceptions:
Business is transterred as a going concern to
another person.
Business is carried on by a personal representative who is deemed to be a
taxable person.
5. Immovable Property, Intellectual Property Rights, etc.
Renting of immovable property
Supply of Services
Construction of complex building civil structure, etc. Supply ot Services
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, except where
the entire consideration has been received after issuance of
where required, by the competent
completion certilicate,
authority or after its lirst occupation, whichever
is earlier.

Temporary transter or permitting use or enjoyment of any intellectual propertyright| Supply ot Services
Development, design, programming, customization, adaptation, upgradation, | Supply of Services
enhancement, implementation of IT soltware
Agreeing to obligation to retrain Irom an act, or to tolerate an act or situation,
to do an act. or Supply of Services

Transfer of right to use any goods lor any purpose

Supply of Services
Composite Supplies
Works contract services
Supply of Services
 SUPPLY UNDER GST
4.20
Para 4.13

Nature of Supply
Transaction
of or as pat ol any service or
in any other m a n n e r whal socver, Supply of Services
Supply by way lor human COnsunmption or any drink.
of goods, being food o r any other arlicle
of persons
7. Unincorporated Association/Body
of Goods
Supply of goods bv an unincorporatcd
association or body of persons to a membeirSupply
thereof for cash, deterred pavment or other valuable consideration.

above table have bcen elaborated as under.

For better understanding, the important terms used in
Construction: The term 'construction' includes additions, alterations, replacements, or remodelling

of any existing civil structure.

the Government or any authority
Competent Authority: The expression 'competent authority'
means

authorised to issue completion certificate under any law for the

time being in force and in case of
of the following, namely:-
non-requirement of such certificate from such authority, from any
under the Architects Act,
() An architect registered with the Council of Architecture constituted
1972; or
engineer registered with the Institution of Engineers (India);
or
(i) A chartered
(iit) A licensed surveyor of the respective local body of the city or town or village or development
or planning authority.
Works contract services [Section 2(119) of CGST Act]
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.

4.13 SCHEDULE III [ACTIVITIES TO BE NEITHER TREATED AS SUPPLY OF GOODS

NOR AS SUPPLY OF SERVICES]

The Schedule III specifies the transactions or activities which shall be neither treated as supply of
goods nor a supply of services. These transactions or activities can be termed "Negative list" under
the GST regime. The following table depicts the Schedule II:

Neither supply of goods nor supply of services

1. Services by an employee to the enmploverinthe 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. () Functions performed by the Members of Parliament, Members of State Legislature. Members of
Panchayats. Members of Municipalities and Members of other local authorities
(b) Duties performed by any person who holds any post in pursuance ofthe provisions of the Con-
stitution In that capacity; or
(Duties perlormed by any person as a Chairperson ora Member ora Director in a body established
by the Central Government or a State Government or local authority and who is not deemed as
an
employee belore the commencement of this clause.
4. Services ol funeral, burial, crematorium or mortuary including transportation1 ol the deceased.

5. Sale of land and, subject to paragraph 5(b) of Schedule I1, sale of building.
6. Actionable claims, other than lotery, betting and gambling.
4.21 TRANSACTIONS NOTIFIED BY THE GOVERNMENT Para 4.14

Neither supply of goods nor supply of services

7. Supply of goods trom a place in the non-taxable territory to another place in the non-taxable territory
without such goods entering into the taxable territory.

8. (a) Supply of warehoused goods to any person before clearance for home consumption.
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to
the goods, after the goods have been dispatched from the port of origin located outside India but
before clearance tor home consumption.
Explanation.- Forthe purposes of this clause, the expression"warchouscd goods"shall have the meaning
as assigned to it in the Customs Act, 1962 (52 of 1962)

Justification for inclusion of (7) & (8) entries in Schedule III

[by CGST (Amendment) Act, 2018]
The CGST (Amendment) Act, 2018 has inserted two entrics (7) & (8) in Schedule III. The following is the
justification for inclusion of these entries:
7. It is sought to exclude from the tax net such transactions which involve movement of goods, causcd
by a registered person, from one non-taxable territory to another non-taxable territory.
8. It is sought to ensure that there is no double taxation of transactions where supply of goods occurs in
the course of high sea sales and sale of warehoused goods, before clearance for home consumption. It|
was observed that in case of supply of goods as high seas sales and sale of warehoused goods, betore
being cleared for home consumption, IGST was being levied twice, once under the Customs Tarift
Act, 1975 (read with the IGST Act) and then for a second time, on clearance for home consumption
under the IGST Act. Since double taxation needs to be avoided, Circulars were issued to state that
IGST would be payable only once at the time of clearance of goods for home consumption. However,
it is imperative that such situations are squarely mentioned as 'no supply' in Schedule II.

Example 4.13 [Based on 'Paragraph 7'of Schedule II, inserted by CGST (Amdt.) Act, 2018]
Mr. Prem purchased stationery items from Mr. Mathews of Germany and sold it to Mr. Platini in France
without bringing the goods in India. This transaction is neither supply of goods nor supply of services.

Example 4.14 [Based on 'Paragraph 8(a)' of Schedule IL, inserted by CGST (Amdt.) Act, 2018]
Mr. Ambani imported Brazil Nuts in India, but kept these goods in custom bonded warehouse without
clearing it for home consumption. In the meantime, he sold these goods to Mr. Mittal while they were in
warehouse. This transaction between Mr. Ambani and Mr. Mittal is neither supply of goods nor supply of
services
Example 4.15 [Based on 'Paragraph 8(b)' ofScheduleII, inserted by CGST (Amdt.)Act, 2018
VIVA Electronics, Delhi imported SLR/Mirrorless Cameras from Japan. While the goods were in high seas,
the hrm sold these cameras to "Navrang Electronics" in India by way of endorsement ot documents of title
of goods. This transaction between VIVA Electronics and Navrang Electronics is neither supply ot goods
nor suply of services.

4.14 ACTIVITIES/TRANSACTIONs NOTIFIED BY THE GOVERNMENT (NEGATIVE

LIST):
In order to attract the section 7(2 b) of CGST Act, the following conditions are applicable:

(1) An activity/transaction is undertaken by the Central Government, a State Government or

Union Territory or any local authority.
2) They are engaged as public authority.
(3) Such activity is notified for the purpose of section 7(2(b) by the Government on recommen-
dation of GST Council.
 Para 4.14 SUPPLY UNDER GST 4.22
It all the above three conditions are satisticd, the activity/transaction shall be treatcd neither as a
supply of goods nor as a supply ol services, The tollowing services have been notilicd in this regard:

Notification Dated Description

No. 14/2017-Central June28,2017 Services by way ofl any activity in relation toa function entrusted to a
Tax (rate) Panchayat underarticle 234Gof the Constitution or toa Municipality
under article 243W of the Constitution for this purposc.
No. 25/2019-Central Sep.30, 2019 Service by way of grant of alcoholic liquor licence, against consid-
Tax (rate) eration in the form of licence fe or application fee or by whatever
name it is called.

Clarification on above Notification No. 25/2019-Central Tax (rate)

This special dispensation applies only to supply of service by way of grant of liquor licenses by the
State Governments as an agreement between the Centre and States and has no applicability or
precedence value in relation to grant of other licenses and privileges for a fee in other situations,
where GST is payable. [Circular No. 121/40/2019 GST dated 11-10-2019
Tutorial Note:
It may be noted that services provided by the Government to business entities including by way of
grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment
of consideration in the form of fee, royalty etc. are taxable under GST and the tax is required to be
paid by the business entities on such services under reverse charge.
Clarification in respect of goods sent/taken out of India for exhibition or on consignment basis for
export promotion
As per section 7 of the CGST Act, for any activity or transaction to be considered a supply, it must
satisfy twin tests namely-
() it should be for a consideration by a person; and
(i) it should be in the course or furtherance of business.
The exceptions to the above are the activities enumerated in Schedule I of the CGST Act which
are treated as supply even if made without consideration. Further, section 2(21) of the 1GST Act
defines"supply", wherein it is clearly stated that it shall have the same meaning as assigned to it in
section 7 of the CGST Act.
Section 16 of the IGST Act deals with "Zero rated supply". The provisions contained in the said
section read as under:
"zero rated supply" any of the following supplies of
means
goods or services or both, namely:-
(a)export of goods or services or both; or
(b) supply of goods or services both to a Special Economic Zone
nomic Zone unit.
or
developer or a Special EcO
Therefore, it can be concluded that only such "supplies" which are either "export" or are "supply to
SEZ unit/developer" would
qualify as zero-rated supply.
It is, accordingly, clarilied that the
activity of sending/taking the goods out of lndia for exhibition
or on
consignment basis for export
promotion, except when such activity satisly the tests laid down
in Schedule I of the CGST Act, do not constitute
supply as the said activity does not fall within the
scope of section 7 of the CGST Act as there is no consideration at that point in time. Since such
activity is not a supply, the same cannot be considered as "Zero rated supply" as per the provisions
contained in section 16 of the 1GST Act.
4.23 MISCELLANEOUS ILLUSTRAIONS ON SUPPLY UNDER GST

MISCELLANEOUS ILLUSTRATIONS ON SUPPLY UNDER GST

Illustration 4.1:
Determine whether the following supplies anount to composite suypplies:
(a) A hotelprovides 3 days-2 night's package wherein the laciliuy of breakfust and dinner is previded along
11itlh the room accommodation.
b) A toothpaste company has offered the scheme of free tootlnbrush along with the loothpaste.
Answer:
As per section 2(30) of the CGST Act, under composite supply, Iwo or more taxable supplies of goods or
services or both, or any combination thereof, are naturally bundled and supplicd in conjunction with each
other, in the ordinary course of business, one of which is a principal supply. In the light of this provision, we
may conclude the following:
(a) Composite Supply: The supply of breakfast and dinner with the accommodation in the hotel are naturally
bundled. Therefore, this supply qualifies as 'composite supply'.
(b) Mixed Supply: The supply of toothbrush along with the toothpaste is not naturally bundled. Therefore
it does not qualify as 'composite supply'. In fact, it is a mixed supply.

Illustration 4.2:
hm the light of provisions of section 8 of CGST Act, 2017, state which of the following supplies are naturall
bundled?
(1) Rent deed execuied for renting of two different floors of a building by Mr. X in favour of Mr. Mukesh
The first floor has been rented for residential purpose whereas the ground floor is for business purposes.
Both the floors have separate entry and passage and cun be let out separately also.
(2) On the occusion of New Year, Jankidas & Soms, Conaught Place, Delhi sold watch, tie and belt in a single
pack at a consolidated price.
(3) A charger has been supplied by the vendor along with the mobile phone

(4) A gif1 pack conmprising of chocolates and sweets.

Answer:
(1) The two floors can be let out independently to different tenants. Therefore, this supply is not naturally
bundled. Hence, it is mixed supply.
(2) The each of the item in the packet can be supplied separately and is not dependent on each other. Hence
the supply is not naturally bundled and is mixed supply.
(3) When the charger is supplied with the purchase of new mobile phone, it is in conjunction with each
other as it is required by the user of mobile phone. So, this supply is considered to be naturally bundled.
Therefore, it is Composite Supply.
(4) The supply is not naturally bundled as the items in the gift pack can be supplicd separately. Therefore,
it is mixed supply.

Illustration 4.3:
State whether the following supplies would be treated as supply of goods or supply of services as per Schede
l of the CGST Act:
(i) Tiule in goods under an agreement which stipulates hat property shall pass at a fuure date
(ii) Transfer of right in goods without Iransfer of title in goods
(ii) Transfer of Title in goods inmediately
iv) Renting of immovable properly
(v) The job work performed by a job worker
 SUPPLY UNDER (GST 4.24

Answer
Goods or Services
Activity or Transaction
ot Goods
under agreement which stipulales
that property shall pass al a
| Supply
(1) Title in goods an

future date
without transter ol title in goods Supply of Services
(i) Transfer of right in goods Supply of Goods
(iinTransfer of Title in goods immediately Supply of Services
(1) Renting of inmmovable property
Supply ol Services
worker
(1) the job work performed by a job

Illustration 4.4:
II), the following supplies huve been covered. Also determine in
Staie in 1which Schedule (Schedule II or

11/hich calegory they all be classified:

(a) Stupply of Goods
(b) Suppl of Services

(c) Neither supply of goods nor supply of services:

(1) Goods forming part of business assets are transferred by the business so as no longer to form part
of those assets, without any consideration.
(2) Services by an employee to the employer in the course of or in relation to his employment.
(3) Services by any court or Tribunal established under any law for the time being in force
(4) Temporary transfer of intellectual property right
5) Services of funeral, burial, crennatorium or mortuary including transportation of the deceased

(6) Lease rentals collected.

(7) Sale of land
Answer:
The Schedule II appended to the CGST Act enlists the matters/transactions to be treated as Supply of either
goods or services whereas Schedule III specifies the transactions or activities which shall be neither treated
as supply of goods nor a supply of services.

Activity or Transaction Schedule Type of Supply

1 Goods forming part of business assets are transferred by the | Supply of Goods
business so as no longer to form part of those assets, without
any consideration
2. Services by an enmployee to the employer in the course of or IlI Neither Goods nor Services
in relation to his enmployment
Services by any court or Tribunal established under any law Neither Goods nor Services
for the time being in force.
4.
Temporarytransfer of intellectual property right II Supply of Services
. Services of funeral, burial, crematorium or mortuary IlI Neither Goods nor Services
including transportation of the deceased.
6. Lease rentals collected Supply ol Services
7 Sale ofland Neither Goods nor Services

Illustration 4.5:
Examine whether 1he folloing activities wonld amount 1o supplv under section 7 of CGST Aci?
1. Import of services without consideration for personal purposes
2. mport of services for a consideration in the course or furtherance of business
4.25 MISCELLANEOUS ILLUSTRATIONs ON SUPPLY UNDER GST

3. Import of services for consideration for personal purposes

4. miport ofservices bv taxable person from related person located ontside ndia without eonsideralo
a) For personal purposes.
(b) n the course or furiherance of business
Answer:

The provisions relating to import of services are covered in section 7(1)(b). An exceptional case of import of
services from related person is given in Schedule I.

Activity or Transaction Supply Remarks

1. Import ot services without consideration N0 As per section 7(1)(b), /nport of services for a
for personal purposes consideration wlhether or not in the course or
2. Import of services for a consideration in the Yes furtherance of business
course or furtherance of business 1. Not a supply as 'Consideration' is missing.
3. Import ot services tor consideration for | Yes 2. It qualifies for supply as it is for consideration.
personal purposes
4. Import of services by taxable person from 3. It also qualifies as supply as consideration is
related personlocated outside Indiawithout present. The purpose is not relevant, if it is
consideration: for consideration.
(a) For personal purposes. No 4. The importation of such services from related
(b) In the course or furtherance of busi- | Yes person are covered under Schedule I and
ness treated as supply provided it is in the course
or furtherance of business.
(a) It wil not qualify as supply since the
same has not been received in course
or furtherance of business.
(b) It will qualify as supply as received in
the course or furtherance of business.

Illustration 4.6:
Examine whether the following activities would anmount to supply under CGST Act, 2017:
(a) Shiv steels is a renowned furniure house. As a part of their business policy, the firm donated 5 office
tables to Charitable School At the time of purchase, the ITC has been taken.
b) Pawan Manufacturers have a factory in Delhi and a depot in Mumbai. Both these establishments are reg-
istered in respective States. Finished goods are sent from factory in Delhi to the Munnbai depot without
consideration so that the same can be sold.
(c) Dharamdas Charitable Trust is engaged in gelting the eye Ireatment of needy people done free of cost. It
donates clothes and 1oys to children living in slum area.
(d) Bharat is a registered person under GSTin Mumbai. His brother who is settled in London is awellknou7
lawyer. Raman has taken Legal advice from him free of cost with regard to his family dispute.
Solution:
(a) The given transaction is covered under Schedule I under the category, "Permanent transfer of business
assets. Since the input tax credit has been availed, the donation of this business stock will quality as
supply.
(b) There are two points relevant in this regard:
Firstly, the two establishments are distinct persons as per section 25 of CGST Act, 2017.
Secondly, Schedule I stipulates that supply of goods or services or both between related persons
or between distinct persons is supply even without consideration provided it is made in the course