Taxable Supply

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Taxable Supply

Section 2(108) of CGST Act defines “taxable supply” to mean a supply of goods or services or both which is leviable to tax under this Act.  Accordingly, all supply of goods and services except the following shall be taxable supply:

  • Supply of Alchohol for human consumption since the
  • Non taxable Supplies which shall include supplies whose place of supply is in non taxable territories

It is pertinent to mention that Exempt supplies / Nil rated supplies shall be taxable supply since they are leviable to tax but have been exempted or their rate is zero.  We shall now discuss the term “Supply”.

Supply

In generic sense, for goods, a taxable supply of goods may mean the transfer of possession of goods by one person to another.  For services, mere provision of service by one person as received by another person shall constitute supply. It is pertinent to mention that establishment in taxable territories and non taxable territory has been deemed to be separate persons under the current provision of Service Tax laws. And accordingly, provision of services between units of same concern in taxable and non taxable territories is considered as a taxable event.  In GST the law may be extended to supply between branches of same entity in different states. The current scheme of taxing supply of service in consuming country may be extended to taxing of supply of goods or service or both in consuming state. The determination of place of supply shall be done by way of set of Rules, which shall ultimately determine the state eligible to claim GST.

It is also pertinent to mention that not all transactions are Supply.  Certain receipts which are received without a supply cannot be brought in the ambit of GST.  To constitute supply, we must understand the basic prerequisites of “Supply” which are as follows:

  • For every supply there is a supplier
  • For every supply there is a recipient and an acquisition
  • To ‘make a supply’ a person must do something
  • A person cannot make a supply to itself
  • A supply cannot be made by more than one entity
  • Creation of expectations alone does not establish a supply
  • Supply of goods happens on exchange of physical possession while exchange of services happens on mere performance by the supplier

Section 7 of the CGST Act defines Supply as under:

  1. For the purposes of this Act, the expression “supply” includes––
    1. all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
    2. import of services for a consideration whether or not in the course or furtherance of business;
    3. the activities specified in Schedule I, made or agreed to be made without a consideration; and
    4. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
  2. Notwithstanding anything contained in sub-section (1),––
    1. activities or transactions specified in Schedule III; or
    2. such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.r
  3. Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—
    1. a supply of goods and not as a supply of services; or
    2. a supply of services and not as a supply of goods

The term encompass four main types of supplies viz.,

Thus, the four limbs of the definition of Supply can be summarized as under:

Type of Supply

Supply for a consideration in the course or furtherance of business
Import of services for a consideration
Activities specified in Schedule I
Activities to be treated as supply of goods or supply of services as referred to in Schedule II

We shall now discuss the four limbs of the definition of Supply in the following paragraphs.

 

Supply for a consideration in the course or furtherance of business

The first kind of supply is defined as –

  • 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,

We shall now discuss its important constituents in the following parapgrahs:
All forms of supply of goods and/or services

The definition draws its meaning from itself, i.e. all forms of supply.  However, it has provided certain examples of supply viz., sale, transfer, barter, exchange, license, rental, lease or disposal.  We cannot say that the meaning of the term Supply is restricted to such transactions only, however, such type of transactions shall without fail constitute Supply.  We now examine some of the above terms as under.

  1. Sale
    Blackstone (2 Com. 446) defines it as a transmission of property from one man to another in consideration of some price, and the sales of goods act defines a contract of sale as ‘contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called as price’
    In the case of Hotel Parisutham (P) Ltd. vs. State Of Tamil Nadu, the Hon’bleMadras High Court observed that in the said Sale of Goods Act, the three essential ingredients of “sale” are:

    • There must be an agreement to transfer property in goods, as goods
    • The said agreement to transfer must be for a price
    • Pursuant to such an agreement, there must be an actual transfer of property from one to another.
  2. Transfer
    In Corpus Juris Secundum “transfer” is defined :”The common use of the word ‘transfer’ is to denote the passing of title in property, or an interest therein, from one person to another, and in this sense the term means that the owner of property delivers is to another person with the intent of passing the rights which he had it to the latter.”(Corpus Juris Secundum, Vol. 87, page 892.)
  3. Barter
    The term has been defined to mean to exchange one commodity for another, or truck wares for wares. Means the trade by excluding one commodity or service for another, to trade or exchange by or as if by bartering[Source: webster’s dictionary of law, Indian Edn, (2005), p.45].Only when the consideration for transfer consists of other goods, it may be an exchange or barter. [Dhampur sugar Mills Ltd v. Commissioner of Trade Tax, (2006) 5 SCC 624]
  4. Exchange
    As per Legal Dictionary, Exchange means a transaction wherein parties trade goods, or commodities, for other goods, in contrast with a sale or trading of goods for money. As per Law.com, Exchnage means – “In conveyancing. A mutual grant of equal Interests, (in lauds or tenements,) the one in consideration of theother.”
  5. License
    A licence is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. Thus, License is a limited right to use immovable property without departing from its possession by the owner or rightful possessor of the property
  6. Rental
    As per Law.com, Rental is defined as under:


    A certain profit issuing yearly out of lands and tenements corporeal; a species of incorporeal hereditament. 2 Bl. Comm. 41. A compensation or return yielded periodically, to a certain amount, out of the profits of some corporeal hereditaments, by the tenant thereof. 2 Steph. Comm. 23. A certain yearly profit in money, provisions, chattels, or labor, issuing out of lands and tenements, in retribution for tlie use. 3 Kent, Comm. 4G0. The compensation, either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof. Jack. & G. Landl. & Ten.

  7. Lease
    Lease has been defined in section 2(16), Stamp Act, 1899 (India) to mean a lease of immovable property and includes also

    1. A patta
    2. A kabuliyat or other undertaking in writing, not being counterpart of a lease, to cultivate, occupy or pay or delivery rent for, immovable property;
    3. Any instrument by which tolls of any description are let;
    4. Any writing on an application for a lease intended to signify that the application is grante.
  8. Disposal
    Disposal means the action or process of getting rid of something. Generally, the term is used in respect of detachment from an unwanted item.

There must be a consideration

Consideration has been defined in Section 2 of the CGST Law as under:

(31)       “consideration” in relation to 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 to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b)        the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

The above definition of consideration has the following features:

  • Consideration includes any payment – whether in money or otherwise
  • Consideration can be in respect of, in response to, or for the inducement of a supply
  • Consideration can flow from any person, not necessarily from recipient
  • Consideration shall exclude subsidy given by State or Central Government
  • Consideration shall also include money equivalent of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both
  • Consideration excludes deposit given in respect of the supply unless applied.

Should be by a person

Person has been defined in Section 2 of the CGST Law as under:

“(84)      “person” includes—

(a)   an individual;

(b)   a Hindu Undivided Family;

(c)   a company;

(d)   a firm;

(e)   a Limited Liability Partnership;

(f)    an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g)   any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(h)   any body corporate incorporated by or under the laws of a country outside India;

(i)    a co-operative society registered under any law relating to co-operative societies;

(j)    a local authority;

(k)   Central Government or a State Government;

(l)    society as defined under the Societies Registration Act, 1860;

(m) trust; and

(n)   every artificial juridical person, not falling within any of the above;”

 

The above definition includes within its ambit anyone who is capable of entering into contractual arrnagements.  The various types of inclusions are:

  1. Individual – It refers to a natural human being whether male or female, minor or major.
  2. Hindu Undivided Family – It is a relationship created due to operation of Hindu Law. The manager of HUF is called “Karta” and its members are called ‘Coparceners’.
  3. Company – It is an artificial person registered under Indian Companies Act 1956 or Companies Act, 2013.
  4. Firm – It is an entity which comes into existence as a result of partnership agreement between persons (not necessarily individuals) to carryout a common purpose and share its results.
  5. Limited Liability partnership (LLP) – This body is constituted under the LLP Act, 2008
  6. Association of Persons or Body of Individuals– When certain persons come together to achieve a common objective or carry on a joint enterprise which is not a partnership, then such body is called an association of persons. There must be common purpose, and common action to achieve common purpose i.e. to earn income. UnLike AOP, BOI is restricted to individuals as its members.
  7. Local Authority – Municipality, Panchayat, Cantonment Board, Port Trust etc. are called local authorities.
  8. Any corporation established by or under any Act – This encompass all bodies which have been constituted under various acts like ICAI, ICSI, government companies etc.
  9. Central and State government – Both governments are covered within this part
  10. Any body corporate incorporated by or under the laws of a country outside India – Other entities which are constituted outside India are covered under this part of thed definition.
  11. Artificial Juridical Person – A public corporation established under special Act of legislature and a body having juristic personality of its own are known to be Artificial Juridical Persons. Universities are an important example of this category.

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