Concept of Supply in GST & Issues
By: – Ranjan Mehta
Goods and Services Tax – GST
Dated:- 21-9-2016
The biggest change due to GST regime is the point when GST will be applicable i.e. Supply.
First thing to understand before going forward to understand is that GST is a Destination based or consumption based regime of tax against the current Origin based regime. In present VAT regime the goods are first taxed in the state of manufacture and after that at every point from where the sale is initiated. However in GST the goods will be taxed in the state in which the sale transaction concludes.
What is “Supply”???
This definition is given under section 3 of Model GST law, which starts as “Supply includes”. There is no specific definition attached to the word supply, which is the very base of the whole regime. This definition has been made an inclusive one with a deliberate intention from the Lawmakers that they can include anything under this with or without deeming fictio
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the supply of goods and/or services, whether by the said person or by any other person:
Provided that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply;
The above definition signifies that any consideration be it cash or kind; be it by recipient or any other person shall constitute valid consideration. It will create a few issues which we will discuss in the final section.
Word “forbearance” is also included here. However the same is part of current Service tax law under declared service but there was no specific provision for the same in various State VAT Laws.
Business
(17) “business” includes –
(a) any trade, commerce, manufacture, profession, vocation or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any transaction in connection with or incidental or ancillary to (a) above;
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nuity and even single transactions would also be constituted business.
Now there is Clause (b) to section 3(1) which applies in case of import of service transactions. Its application is as follows:-
* It applies to import of services
* With or without consideration
* Whether or not for Business
That means import of service transactions will be treated as supplies even if they are for personal use and without consideration.
Clause (c) of section 3(1) deals with cases which will be deemed supply even without consideration. These cases are enumerated in schedule I.
Sec 3(2) specifies Schedule II which deals with cases in which a deeming fiction has been applied by law. Some cases are deemed supply of goods while others are deemed supply of services.
Above clauses will be explained separately in next article.
Principal Agent case: Sec 3(2A) specifies that any transaction of goods and/or services between agent and principal shall be deemed to be supply. This means that earlier
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: Agreement to make supply shall also be considered supply. Thus the intent of lawmakers at present is to make all advances to be brought into the ambit of supply.
Import of personal services : All imports of services are included in supply including personal imports. The monetary consideration is also not required. An example:- If we register at freelancer.com and it provides 1st 5 bids everymonth free of cost then such free bids are import of services without consideration. This free of cost importation of service is deemed supply under clause (b) to sec 3(1).
Principal to agent transfer : Transaction of transfer of goods and/or services between agent and principal is supply now. When the Principal sends the goods to the agent the same shall be supply and Principal shall pay GST on such goods/services raising a GST invoice. This is going to change the whole business structure in big industries where Big corporates appoint distributors on agency basis and book their sale only when
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services to any person” . This covers anybody including oneself. Thus by this definition they are trying to cover the transactions within the entity i.e. transfers to self (Stock transfers). This is going to change the way the businesses are being done currently. Stock transfers are to be included in supply for the purpose of GST under this net.
Forbearance is part of definition : Now value of any forbearance by any person is consideration and that will be deemed to be supply accordingly.
There are more issues and discussions in the Concept of Supply related to supply without consideration and deemed supply transactions (Schedule I and Schedule II), which we will discuss in the next article.
Reply By Ganeshan Kalyani as =
Nice article.
Non profit organisation, trust etc are going to be taxed . The valuation in case of stock transfer taxability is going to be controversial. Awaiting for your second article.
Dated: 26-9-2016
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