Meaning & Scope of ‘Supply’ under GST
By: – Venkataprasad Pasupuleti
Goods and Services Tax – GST
Dated:- 14-9-2016
Meaning & Scope of 'Supply' under GST
* CA Venkata Prasad
GST is said to be levied on 'supply' in legal words taxable event is 'supply' thereby dispensing with the existing different taxable events for different levies of duties/taxes like 'Manufacture' for levy of excise duty, 'sale' for levy of VAT/sales tax etc., Therefore understanding of the expression 'supply' is highly important.
The Section 3 of draft GST law exclusively deals with the meaning & scope of 'supply'. In this article, an attempt has been made to decode the said section and understand its coverage. The said section is defined in various parts covering different scenarios and also comprising of two schedules.
The most criticized & problematic part is definition is only inclusive and does not have means part i.e. what is actually means. This is one of deviation from the accepted
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rt of definition wherein certain transactions even without consideration are deemed as supply.
* The concept of one person to another (two persons) is no more relevant now. The main effect is that transactions between two units of same company may liable to tax.
* The same should be in the course or furtherance of business.
* Business is widely defined u/s. 2(17) (here again only inclusive manner).
* 'In the course of business' implies a period of time during which business is in progress and also the connected relation with it.
* 'Furtherance of business' can be commonly understood as helping, forwarding, promoting, advancement, or progress etc., of business'
Quoted:
(b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and
Unquoted:
* Services imported are liable for IGST.
* Section 2(52) of draft law specifies the conditions to construe 'import of service'.
* One of condition laid down in th
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BAD holding that deeming fiction is only to identify the place of service consumption and not to levy tax on mere payments/reimbursements made to foreign branch. Same was view further elaborated in case of Tech Mahindra Ltd. v CCE 2016 (9) TMI 191 – CESTAT MUMBAI ).
* Consideration is not mandatory to attract GST i.e. free services received from outside India liable. The main effect can be seen in case of free transactions between foreign parent and Indian subsidiary company or vice versa.
* In the course or furtherance of business also not mandatory thereby personal services were also liable however it was provided in the law that there would be threshold limit exempting the services imported for personal use.
Quoted:
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.”
Unquoted:
* In terms of clause (a) of Section 3(1) when there is no consideration then there is no supply. However this is general provision.
* The above clause i.e. (
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Now the question arises what is the benefit of falling u/c (a) or (c).
* The benefit can be seen is that if the transaction is falling under clause (a) then it should in the course or furtherance of business. If this condition fails then same is not 'supply' since transaction does not fall under clause (c) for the reason that there is consideration and simultaneously does not fall under clause (a) for the reason that it is not in the course or furtherance of business.
* Application of business assets to private/non-business use is deemed as supply in schedule I similar services for private/non business use. The tracing out these transactions has many practical challenges and may lead to litigation.
* There was widespread belief that stock transfers are liable for GST in terms of clause (5) of schedule I, which says supply by a taxable person to another taxable/non-taxable person and the expression 'taxable person' can be understood from section 9 r/w schedule III deals with reg
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rovisions which are different for goods and services like place of supply, time of supply etc.,
* Subject to the schedule II, Sub-section (3) gives further powers to Government (Central/State) to notify as supply of goods or supply of services etc.,
Quoted:
“(2A) Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.”
Unquoted:
* This subsection deems transaction between principal and agent as supply. This deeming fiction only for the transactions between principal and his agent and not in case of transactions with the third person.
* And the taxability of transactions between agent (acting on behalf of his principal) and third person will continue to be supply by third person to the principal and not to the agent. All legal consequences/rights/liabilities under GST like availing input tax cre
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munity from tax liability as entire supply is being already taxed in the hands of 'aggregator'. However there is no provision in the entire draft model law providing such immunity to the actual service provider. This may lead to double taxation.
* Hence express provision to exclude actual service provider from the GST compliance is recommended and similarly 'turnover' made under the model of 'aggregator' shall be excluded from 'turnover' limits specified for registration, other areas.
* Further what is deems is supply of 'branded service' which was defined u/s. 43B to mean that electronic commerce operator (E-commerce operator). There seems to be lack of synchronization here since tax compliance for aggregator and E-commerce operator is quite different.
* Be that as it may, E-Commerce Operator is defined u/s. 43B in such a manner that it would even cover an aggregator. Issue that may be of concern for an aggregator would be if they are also governed by the
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