Scope of “Supply” under GST in India

Law for Scope of Supply is provided in Section 7 of CGST Act. Scope of Supply means those supplies which shall be considered as Supplies for levy of GST. As per general rule, every transaction in the normal course of business is considered as Supply. Along with this, a small list is being provided where some transactions are excluded from the ‘Supply’.

In this article, we will discuss what includes in expression ‘Supply’ and what activities are kept out from the purview of this ‘Supply’.

Supplies mentioned in following four clauses will be considered as Supply for GST:

1. All forms of supply of Goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business

Form of supplies includes:

• Sale
• Transfers
• Barter
• Exchange
• License
• Rental
• Lease
• Disposal
• Or any other not mentioned above

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2. Import of Services for a consideration whether or not in the course or furtherance of business.

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3. Activities specified in Schedule – I to CGST Act, 2017, made or agreed to be made without a consideration (discussed below)

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4. Activities to be treated as supply of goods/services/both as referred in Schedule-II of CGST Act (discussed below)

This clause omitted w.e.f. 01.02.2019 citing the reasons that Schedule-II is assisting only in classification among supply of goods or supply of services.

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There are some supplies which are kept out of GST legislation (Refer Section 7(2) of CGST Act). These supplies will neither be considered as Supply of Goods nor Supply of services. Let’s discussed these supplies:

1. Activities excluded from GST-Schedule-III of CGST Act 2017
   

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2. Activities/transactions undertaken by FOLLOWINGS WHERE they are engaged as Public Authorities:-
   • Central Government
   • A State Government
   • Any local authority

However, law has empowered the government to provide a specific list of such activities/transactions.

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Activities specified in Schedule – I

Primarily, as per Section 7(1)(a), supply will be considered as Supply for GST only when there is some consideration for such supply. However, in Section 7(1)(c), there is a provision to consider some supplies as GST Supplies even if made without consideration. Those activities are specified below:-

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. (e.g. an air-conditioner purchased in the business entity transferred to residence place of owner).
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Meaning of Related Persons:  As per Explanation provided in Section 15 of CGST Act, persons shall be deemed to be “related persons” if–

> such persons are officers or directors of one another’s businesses;

> such persons are legally recognized partners in business;

> such persons are employer and employee;

> any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;

> one of them directly or indirectly controls the other;

> both of them are directly or indirectly controlled by a third person;

> together they directly or indirectly control a third person; or

> they are members of the same family;

All supplies made to such related persons will be considered as supply except gifts upto Rs 50,000/- of value in a financial year by an employer to an employee. Such gift shall not be treated as supply of goods or services or both.

As per Section 25, Distinct person means:

(a) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

(b) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

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3. Supply of goods:-

• by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
• by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

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4. Import 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. {“taxable” word omitted w.e.f. 01.02.2019 through CGST Amendment Act, 2018.}

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Activities specified in Schedule – II

Schedule- II to CGST Act, 2017 provides a list of activities and transactions to determine whether it is a supply of Goods or a supply of Services.

Earlier, activities listed under Schedule-II were covered under “Scope of Supply” as prescribed under section 7 of CGST Act 2017. However, pursuance to CGST Amendment Act, 2018, such list is excluded from “Scope of Supply” and hence only used for classification of nature of supply.

Refer following article for detailed Schedule-II:

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There are certain activities or transactions which are not liable for GST in India. These transactions are kept out of purview of GST. Schedule-III  to CGST Act 2017 or State/UT GST Acts 2017 contains such Activities or transactions which shall be treated neither as a supply of goods nor a supply of services.

Refer our another article for list of such activities/transactions : –

 List of Activities excluded from GST in India-Schedule-III of CGST Act 2017