What is the concept of supply in GST?

Introduction

Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged.

Excise duty is charged when any specified good is manufactured, GST is charged when any good or service is supplied.

Definition of Supply

The concept of supply is of great significance to the GST architecture. It can be called the ‘bones to the body of GST’.

Section 7 of the CGST defines ‘supply’.

At first, I have provided the whole Section 7 which consists of four sub-sections:

• 7(1)
• 7(1A)
• 7(2)
• 7(3).

Thereafter will be the explanation of each sub-section in simple language.

Section 7

Section 7(1) of the CGST Act, 2017 defines ‘supply’. As per section 7(1) of the CGST Act, 2017, the supply includes:

• All forms of supply of goods and services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course or furtherance of business
• Importation of service, for a consideration whether or not in the course or furtherance of business and
• The activities specified in Schedule I, made or agreed to be made with or without consideration.

Section 7(1A) states, ‘where certain activities or transaction constitute as supply in accordance of with the provisions of sub-section (1), they shall be treated either as a supply of good or supply of services as referred to Schedule II.

Section 7(2) states, ‘notwithstanding with anything contained in sub-section (1).

• Activities and transactions stated specified in Schedule III or
• Such activities and transactions undertaken by the Central government, state government or local authority in which they are engaged as public authorities, as may be notified by the government on the recommendation of the Council

shall not be treated neither as a supply of goods nor a supply of services.

Section 7(3) states ‘subject to sub-section (1), (1A) and (2), the government may, on the recommendation of the council specify, by the notification, the transaction that is treated as :

• a supply of goods and not as a supply of services
• a supply of services and not as a supply of goods.

Explanation of Section 7 in simple terms.

Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.

• Supply should be only of goods and services. Supply of anything other than goods or services like money, securities do not attract GST.
• Supply should be made for a consideration
• Supply should be made in the course or furtherance of business

Any activity or transaction will be treated as a supply if the above parameters are fulfilled as per sub-section (1) clause (a).

Section 7(1)(b) is actually an exception to the 3^rd parameter of supply. Import of service for a consideration will be considered a supply even if it is not made in furtherance of business,

Section 7(1)(c) states that item in the schedule I will be treated as supply whether there is consideration or not. This is an exception to the 2^nd parameter.

Section 7(1A) states any activity which is a supply as per sub-section (1), shall be classified either as a supply of goods or as a supply of service as per schedule II. There are many activities and transactions which have the characteristics of both goods and services.

For example, dining in a restaurant.  Schedule II helps to eliminate this confusion and helps to classify such activities or transactions as either supply of goods or supply of services. As per Schedule II, dining or take-away from a restaurant is a supply of service.

Section 7(2) states the activities which are neither supply of goods nor neither of services even if they fulfilled the condition of the sub-section (1).

Section 7(3) says that the central government have the power to notify transactions that are to be treated as supply of goods nor as a supply of service or supply of services not as a supply of services