Supply

1. Statutory definition
Supply is pivotal concept under entire GST framework, all laws, rules,
regulations and administration of the GST Laws revolve around this concept.
Worldwide the taxation event under GST or VAT is Supply. It has been defined
under Section 3 of Model GST Act, Schedule specify the transactions which
are considered as Supply even if there is no consideration involve in such
transactions.

Section-3 of Model GST Act

(1) Supply includes

(a) all forms of supply of goods and/or services 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,

(b) importation of services, for a consideration whether or not in the course or

furtherance of business, and

(c) a supply specified in Schedule I, made or agreed to be made without a

consideration.

(2) Schedule II, in respect of matters mentioned therein, shall apply for
determining

what is, or is to be treated as a supply of goods or a supply of services.

(3) Notwithstanding anything contained in sub-section (1),

(a) activities or transactions specified in schedule III; or

(b) activities or transactions undertaken by the Central Government, a State

Government or any local authority in which they are engaged as public
authorities as specified in Schedule IV, shall be treated neither as a supply of
goods nor a supply of services.

(4) Subject to sub-section (2) and sub-section (3), the Central or a State
Government may, upon recommendation of the Council, specify, by
notification, the transactions that are to be treated as

(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; or

(c) neither a supply of goods nor a supply of services.

(5) The tax liability on a composite or a mixed supply shall be determined in

the following manner

(a) a composite supply comprising two or more supplies, one of which is a

principal supply, shall be treated as a supply of such principal supply;

(b) a mixed supply comprising two or more supplies shall be treated as supply
of that particular supply which attracts the highest rate of tax.

1.1 Wide Meaning of Supply:

The term Supply has given very wide meaning under the GST Laws, in
general, the definition of supply for GST purposes covers all forms of supply
where goods and services are supplied in return for a consideration. Any
supply of goods and services without consideration is not a supply unless it is
deemed to be a supply under Schedule - II. Schedule also listed
circumstances when a transaction shall deemed to be a Supply.

1.2 Deeming provisions

The definition of Supply, incorporated certain activities or transactions as
Supply in every circumstance while excludes certain activities or transaction to
consider as a Supply.

1.3 Activities which are neither supply of goods nor supply of Services
Section 3(3) of Model GST Act provides that the activities or transactions
specified in Schedule-III and Schedule IV will not be considered as Supply of
goods or services. The activities or transactions undertaken by the Central
Government or a State Government or any local authorities engaged as public
authorities are specified in Schedule- IV, these transaction or activities will not
be considered as supply of goods.

1.4 Activities either supply of goods or supply of services

Section 3(2) provides, activities specified in Schedule II shall be considered as

Supply of goods or services as mentioned therein.

1.5 Consideration

As per definition of supply, the transactions specified in Schedule-I shall be

considered as supply even when these are done without consideration. The
definition further provides power to Central/State Government on
recommendation of Council to specify by notification to consider any
transaction as supply of goods or services or neither of them.

1.6 Composite or Mixed supply

As per Section 3(5) of Model GST Act, the tax liability on a composite or a
mixed supply shall be determined in the following manner:

a. A Composite supply comprising two or more supplies, one of which is a

principal supply, shall be treated as supply of such principal supply;

b. A mixed supply comprising two or more supplies shall be treated as

supply of that particular supply which attracts the highest rate of tax.

This provision is important for the purpose of classification for charging of GST
on a Composite Supply or a Mixed Supply.

2. Scope of Supply
2.1 Inclusive definition:
The definition of Supply is inclusive definition, the inclusive definition enlarge
the scope of definition of supply. The inclusiveness of the definition of supply
virtually increases the ambit of entire GST. The inclusive definition of
manufacture provided under Section 2(f) of Central Excise Act, 1944 has been
source of numbers of litigation between regulators and assessee and from
time to time settled by Supreme Court, still these litigations has not been
stopping and ground-breaking ideas of regulators keep working to grill
assessee under this inclusiveness. Therefore it was expected from the law
makers that the definition of Supply to be coined as definitive.

2.2 General Transactions

The definition of Supply swipes almost all possible expressions which can be
referred as supply. The following forms of supply of goods and/or services
which are made or agreed to be made for a consideration by a person in the
course or furtherance of business,

Sale;

Transfer;

Barter;

Exchange;

License;

Rental;

Lease or

Disposal

Importation of services, [for a consideration whether or not] in the course or

furtherance of business.

2.3 Furtherance of Business:

The furtherance of business can be understood by extract of FAQ published
by CBEC.

Question No. 9:

What do you mean by supply made in the course or furtherance of

business?

Ans. No definition or test as to whether the activity is in the course or

furtherance of business has been specified under the Model GST Law.
However, the following business test is normally applied to arrive at a
conclusion whether a supply has been made in the course or furtherance of
business:

1. Is the activity, a serious undertaking earnestly pursued?

2. Is the activity is pursued with reasonable or recognisable continuity?

3. Is the activity conducted in a regular manner based on sound and

recognised business principles?

4. Is the activity predominantly concerned with the making of taxable supply

for consideration/ profit motive? The test may ensure that occasional supplies,
even if made for consideration, will not be subjected to GST

2.4 Importation of Services

Section 3(1) provides that importation of service for consideration whether for
business or not, will also be considered as supply.

i. It is applicable only for services and not for goods;

ii. All the condition listed 2(11) of IGST Act relating to import of service
shall be complied with;

iii. Services shall be provided with consideration;

iv. Services may be in the course of furtherance of business or not in

the course of furtherance of business.
2.5 Supply for consideration

Generally, any goods or services supplied without consideration is regarded

as not a supply and is not subject to GST. However, under certain
circumstances a supply of goods or services:

(a) without consideration may be deemed as a supply; or

(b) Import for consideration or not deemed as a supply; or

(c) with consideration may be deemed as not a supply.

What is Consideration and what includes consideration

3. Supply without consideration

Generally, any goods or services supplied without consideration is not

regarded as a Supply and is not subject to GST. However, a supply specified
in Schedule I, made or agreed to be made without a consideration.

3.1 Permanent transfer/disposal of business assets.

Permanent transfer/disposal of business assets where input tax credit

has been availed on such assets.

Any business asset and which have been used for business purpose, its
transfer will be treated as supply, even if there was no consideration
have been receipt during its transfer.

The term business assets not defined under the model law, it is
not clear whether it is capital assets or any other assets.

Input tax credit must have been availed on such capital assets on its
acquisition under GST regime, where such assets was acquired prior to
the appointed date and input tax paid under such assets were duly
migrated to GST regime.

Permanent transfer stands for writing-off such assets from book.

Disposal of business assets may attract donation of business assets

which may not remain useful to the business.
In Original Act: permanent transfer/disposal of all the business assets were
subject to GST. Because of this on every business asset GST was supposed
to be payable at the time of transfer/disposal.

According to Schedule I to Revised GST Act, only those business assets

on which input tax credit is availed shall be treated as supply, i.e., taxable even
if consideration is not received. Therefore, GST is payable on transfer/disposal
of only those business assets in respect of which input tax credit is availed
earlier.

3.2 Supply of Goods between related person:-

Supply of goods and / or services by a taxable person to another taxable

or non-taxable person in the course or furtherance of business. Provided
that the supply of goods by a registered taxable person to a job-worker in
terms of Section 55 shall not be treated as supply of goods.

Supply of goods or services between related persons, or between distinct

persons as specified in section 10 of the Act, when made in the course of
furtherance of business shall be taxable even if made without consideration.
Thus by virtue of this new insertion, transactions like stock transfer, branch
transfer, and related party transactions are brought into the ambit of Supply.

Stock transfer or branch transfer is taxable only in following two cases

a. Intra state stock transfer, when an entity has more than one registration in
one State and;

b. Inter State Stock transfer

Supply of goods by principal to his agent where the agent undertakes to

supply such goods on behalf of the principal, or

3.3 Supply of goods by an agent to his principal where the agent

undertakes to receive such goods on behalf of the principal

This clause has following two impacts:

Free of cost transaction between Principal & Agent shall be subject to

GST and;
 Taxability shall be restricted to goods only

3.4 Importation of services by a taxable person from a related person or

from any of his other establishments outside India, in the course or
furtherance of business.

The effect of the above new insertion makes two key changes, i.e.,

Importation of service without consideration for personal use, shall be

not treated as supply thus it shall not be taxable and;

Importation of service for business use without consideration from

unrelated person shall not be treated as supply hence shall not be
taxable.