Supply Under GST – Advanced Tax Laws and Practice Important Questions
Question 1.
Discuss in brief the ‘taxable event’ and the scope of the term ‘supply’ under GST law?
Answer:
The ‘taxable event’ under GST shall be the supply of goods or services or both in terms of Section 7 of the CGST Act, 2017. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.
The term ‘supply’ is wide in its import and covers all forms of supply of goods or services or both that includes 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. It also includes import of service for consideration whether or not in the course or furtherance of business. It also includes transactions specified in Schedule I made without consideration.
Question 2.
What are the necessary elements that constitute supply under, CGST/SGST Act?
Answer:
In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e:
- The activity involves supply of goods or services or both;
- The supply is for a consideration unless the transaction is covered by Schedule I to the CGST Act.
- The supply is made in the course or furtherance of business except in case of import of services;
- The supply is a taxable supply; and
- The supply is made by a taxable person.
Question 3.
What is Deemed Supply? Explain with examples?
Answer:
Deemed Supply means event or transaction where no or inadequate consideration is received for the supply of goods or services.
Schedule I to CGST Act, 2017: Activities to be treated as supply even if made without consideration
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
For Example:
(i) Mr. A who sells Air Conditioner (AC). He transfers 1 AC from stock in trade to his home for personal use would constitute as Supply.
(ii) Scrap of machinery destroyed by fire handed over to insurance company for settlement of claim. Since, ITC has been availed So, when the machinery destroyed by fire is handed over to insurance company in return for insurance compensation, it is a supply of goods.
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:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods – (a) by a principal to his agent where the agent under-takes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. As per section 2(88) “Principal” means a person on whose behalf an agent carries on the business of supply or receipt of goods or services or both.
As per section 2(5) of CGST Act, 2017 “Agent” means a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent by whatever name called who carries on supply or receipt of goods or services or both on behalf of another.
4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
For example: X Ltd. USA is the holding company of Y Ltd., India. Y Ltd. imports business consultancy services from A Ltd. in the course or furtherance of business then the aforesaid importation of service shall fall within the ambit of term “Supply” and Y Ltd. shall be liable to pay IGST.
Question 4.
State whether the following are supply of goods/services, as per GST law, with brief reasons:
- Mr. X availed the architectural services of his son living in France (free of cost) for designing his residential building and factory layout.
- Scrap of machinery destroyed by fire handed over to insurance company for settlement of claim.
- Lease of land for two-wheeler parking stand.
- Permitting use of registered patent for annual fee.
- Transfer of tenancy right by executing and registering a document.
Answer:
1. In terms of Section 7 of the CGST Act, 2017, import of service for a consideration whether or not in the course of or furtherance of business is a supply. Here, the services received by Mr. X is without consideration, thus not a supply. It is not subject to GST.
2. As per Para 1 of Schedule I of the CGST Act, Permanent transfer or disposal of business assets where input tax credit has been availed on such assets is considered as supply. When the machinery destroyed by fire is handed over to insurance company in return for insurance compensation, it is a supply of goods.
3. As per Clause 2(a) of Schedule II of the CGST Act, any lease, tenancy, easement, licence to occupy land is a supply of services. Thus, lease of land for two-wheeler parking is a supply of service.
4. As per Clause 5(c) of Schedule II of the CGST Act provides that temporary transfer or permitting the use or enjoyment of any intellectual property right is supply of service. Hence, permitting use of registered patent/trademark shall amount to supply of service.
5. The activity of transfer of tenancy rights is squarely covered under the scope of supply of service in terms of section 7. However, renting of residential dwelling unit for use as a residence is exempt.
Question 5.
Examine the following independent transactions/activities in accordance with the provisions contained under in the CGST Act, 2017 and state in brief whether the same constitute “Supply” under the said Act:
- Arya Pvt. Ltd. entered into a hire purchase agreement for ₹20 lakhs with Anu Machines Pvt. Ltd. for supply of a heavy-duty machine unit.
- Asha got a LED TV of 52 inches from Sony Electronics Stores in exchange, for her old 52 inches TV.
- M/s Bharat Electronics disposed scrap part of its electric unit to a scrap dealer in the normal course of business.
- Mr. Babu Lai borrows an amount of ₹1,50,000 from one of his relatives Mr. Shyam Lai and agrees to repay the entire amount of ₹1,50,000 after a year.
- M/s Raj Enterprises applied for a loan from State Bank of India against which loan processing fees and interest are charged by the bank.
Answer:
1. Hire purchase involves transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration, as per Schedule II read with section 7 of CGST Act, 2017 and thus be classified as supply of goods.
2. The supply of LED TV in exchange of old TV falls under the scope of supply under section 7 of the CGST Act, 2017 for Sony Electronics store. But the supply of old TV by Asha shall be included under scope of supply only if in the course or furtherance of her business.
3. The disposal of scrap part of electric unit to the scrap dealer is in the normal course or furtherance of business of M/s Bharat Electronics and thus shall be considered as supply.
4. The activity of borrowing from a relative is without any charge of interest and hence it will be considered as merely a transaction in money and shall not be treated as supply.
5. The activity of borrowing loan amount for which a consideration in form of processing fee has been charged by State Bank of India shall be considered as supply of service. Further, with respect to activity of borrowing loan amount for consideration in form of interest shall also be supply of service but it is fully exempt vide Notification No. 12/2017-CT read with section 11 of CGST Act.
Question 6.
ACD Sweets Ltd., registered in Kerala dealing in supply of sweets from its shop in city “X”. It has shops (units) in City “Y” and City “Z” in Kerala and City “W” in Tamil Nadu. It transfers some of its stock from its shop in City “X” to its other units in Kerala (intra-state) and Tamil Nadu (inter-state). Whether such self-supplies are taxable under Goods and Services Tax?
Answer:
The definition of supply given under section 7 of CGST Act, 2017 is an inclusive one. It does not specify that supply is to be made by one person to another. So, self-supplies are to be treated as supply in terms of section 7 of CGST Act.
Establishment of same person in different states to be treated as establishment of distinct person [Section 25(5) of CGST Act, 2017] Further, section 25(5) of CGST Act, 2017 provides that 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 or in the same state or Union territory provided such establishment is separately registered in GST, then such establishments shall be treated as establishments of distinct persons.
Clause (2) of Schedule I of CGST Act, 2017 inter alia provides that supply of goods & services between distinct persons as specified in section 25 made in the course or furtherance of business is to be treated as supply even if made without consideration.
The legal position is thus crystalized that Inter-state self-supplies such as stock transfers, branch transfers or consignment sales shall be taxable under IGST even though such transactions may not involve payment of consideration and Intra-state self-supplies shall also be taxable provided the recipient is separately registered.
In view of the above discussed legal position, Inter-State transfer of stock made by ACD Sweets Ltd. i.e. to its shop located in City “W” in Tamil Nadu are taxable under GST.
Assuming that the shops of ACD Sweets Ltd. Located in City “Y” and City “Z” in Kerala are not separately registered, self-supplies made to such shops are not taxable under GST.
Question 7.
Distinguish between composite supply and mixed supply. Explain in the context of CGST Act, the liability on composite and mixed supplies?
Answer:
In terms of Section 2(30) of the CGST Act, 2017, composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination there of, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
The illustration of composite supply appended to Section 2(30) is as follows: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
In terms of Section 2(74) of the CGST Act, 2017 mixed supply means two or more individual supplies of goods or services or any combination there of, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
The illustration of mixed supply appended to Section 2(74) of the CGST Act, 2017 is as follows: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
The tax liability on a composite or a mixed supply shall be determined in the following manner:
(i) 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. Hence, in case of composite supply, tax rate as applicable to principal supply would apply to entire supply; and
(ii) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Hence, in case of mixed supply, highest tax rate as applicable to any single supply would apply to all supplies forming part of mixed supply.
Question 8.
State which of the following is composite supply or mixed supply under the GST law:
- Sale of car with warranty coverage.
- Gift pack with chocolates and books.
- Sale of Refrigerator with power stabilizer.
- Hotel accommodation with complimentary breakfast.
- Doctor providing consultancy and dispensing medicines.
Answer:
Composite Supply or Mixed Supply:
1. Composite Supply:
Sale of car with warranty coverage is a compo¬site supply as both supplies are naturally bundled and sale of car is a principal supply.
2. Mixed Supply:
Gift pack with chocolates and books are not bundled due to natural necessities and hence they are mixed supply.
3. Mixed Supply:
Refrigerator and power stabilizer are not inseparable and are not bundled due to natural necessities. They are mixed supply.
4. Composite Supply:
Hotel accommodation with complimentary breakfast is a composite supply as the principal supply is supply of accommodation service.
5. Composite Supply:
Doctor providing consultancy and dispensing medicine is a composite supply as the principal supply is supply of medical service.
Question 9.
Harry has rented his building consisting of ground floor, first and second floors. The building is located in a residential complex. The ground floor is rented out for the purpose of residence to B. The first and second floors have been rented out for providing commercial coaching to the same person B. Harry charges a lump-sum amount of ₹1 lakh as rent from B. Renting of immovable property for residential purposes is exempted and for commercial purposes attracts 18%.
Is Harry liable to pay GST and if yes, what would be the value on which tax has to be paid, say for the month of April, 2018?
Would your answer be different, if the rent for residential purposes is ₹25, 000 and the rent for commercial purposes is ₹75, 000 per month? Harry has effects other taxable supplies also.
Answer:
Even though the building is part of residential complex, it has partly been used for commercial purpose. As the rents for residential purpose and commercial purpose have not been segregated and no break-up is available, the supply is a mixed supply as per section 2(74) of the CGST Act, 2017.
In the case of mixed supply, the supply that attracts the highest rate of tax that is commercial renting would be applicable on the entire amount of ₹1 lakh. Therefore, Harry would be liable to pay ₹18, 000 towards GST (₹1,00,000 × 1896).
If rent for the residential purpose is separately charged and the rent for commercial purpose is also charged separately, even if such charges are collected from a single person, the rent for immovable property rented out for residential purpose is exempt and would not attract the levy of GST.
It will suffice if GST is paid on the rent for the portion used for commercial purpose which amounts to 113, 500 (₹75, 000 × 18%).
Question 10.
Sugandha Enterprises, dealers of Watches, Leather goods and other items is supplying a Kit containing a piece of Watch, a Wallet and a Pen bundled as a Combo Pack for ₹12,500. The rales of GST on pen is 12%, on wallet is 18% and on watch is 28%. The selling price of individual items is Watch ₹11, 000, Wallet ₹1,000 and Pen ₹1,500.
Determine the nature of supply of the combo pack and the rate of GST to be charged.
Answer:
Each of the goods in the package has individual identity and can be supplied separately, but is deliberately supplied conjointly for a single consolidated price. Hence, the supply of all the three items in the combo pack would constitute mixed supply as per section 2(74) of CGST Act, 2017.
As per section 8(b) of CGST Act, 2017, the tax rates applicable in case of mixed supply would be the rate of tax attributable to that one supply (goods, or services) which attracts the highest rate of tax from amongst the supplies forming part of the mixed supply. Therefore, entire package will be chargeable to GST @28%.
Question 11.
Explain: The liability on composite and mixed supplies?
Answer:
As per section 8 of CGST Act, 2017, 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. Hence, in case of composite supply, tax rate as applicable to principal supply would apply to entire supply; and;
(b) A mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Hence, in case of mixed supply, highest tax rate as applicable to any single supply would apply to all supplies forming part of mixed supply.
Question 12.
In the following cases based on information given and the query, give your comments on the taxability under GST and the rate of GST applicable, if any:
(i) Space Bazar offers a free bucket with detergent purchased. It is composite supply or mixed supply? Assume rate of GST for detergent @ 28% and bucket @ 18%.
(ii) Mr. A booked a Rajdhani train ticket, which includes meal. It is composite supply or mixed supply?
(iii) Mr. Ravi being a dealer in laptops, sold a laptop bag along with the laptop to a customer, for ₹ 55,000. CGST and SGSTfor laptop @ 18% and for laptop bag @ 28%. What would be the rate of tax leviable? Also find the GST liability.
(iv) Renting of vacant land to a stud farm for ₹ 1,50,000. Is it a supply of service? Will GST be leviable?
(v) A contract awarded by Kolkata Municipal Corporation (KMC) for repair of a particular road to M/s B Ltd., with terms and conditions that the entire work should be completed within 30 days. However, there is a delay of 10 days to complete the work. KMC charged liquidated damaged of ₹1,20,000 and the same recovered from M/s B Ltd. Applicable rate of CGST 9% and SGST 9%. Previous year turnover of M/s B Ltd. ₹2 crores.
Find the following:
(a) Who is liable to pay GST on what amount?
(b) Total tax liability if any.
(vi) M/s X Ltd. paid penalty under section 49 of the CGST Act, 2017, ₹2,00,000 to the Department in the month of October, 2018. Is it taxable under the GST law?
(vii) M/s M & Co. a sole proprietor, is in the business of selling furniture. Its owner took a set of furniture of furnish his house permanently. Will the transaction be a supply in terms of GST Act?
Note: ITC on such furniture not availed.
Answer:
(i) This is a mixed supply. These items can be sold separately. Product which has the higher rate, will apply on the whole mixed bundle i.e. 2896.
(ii) It is a bundle of supplies. It is composite supply where the products cannot be sold separately. The transportation of passenger is, therefore, the principal supply. Rate of tax applicable to the principal supply will be charged to the whole composite bundle. Therefore, rate of GST applicable to transportation of passengers by rail will be charged by IRCTC on the booking of Rajdhani ticket.
(iii) If the laptop bag is supplied along with the laptop in the ordinary course of business, the principal supply is that of the laptop and the bag is an ancillary. Therefore, it is a composite supply and the rate of tax would be that as applicable to the laptop. Hence, applicable rate of GST is 1896 on ₹55,000. CGST is ₹4,950 and SGST is ₹4,950.
(iv) It is supply of service. GST is liable to be paid.
(v) In the ordinary course it is a supply of service. However, non-performance of contract by the supplier of service in case of supplies to Government, local authority is covered under exemption. The fine or penalty chargeable by Government or local authority imposed for violation of statute, bye-laws, rules or regulations or contract are not leviable to GST. Hence no liability to GST and no tax liability.
(vi) Such payment is not a supply of service. The fine or penalty chargeable by Government or local authority imposed for violation of statute, bye-laws, rules or regulations are not leviable to GST. The penalty of ₹ 2,00,000 is not taxable under GST law.
(vii) No, the transfer of the furniture by the owner without consideration is not a supply of goods, because credit is not allowed in case of personal consumption of business assets under section 17(5)(g) of CGST Act, and ITC on such furniture is not availed.
Question 13.
Explain the concept of supply made in the course or furtherance of business as a taxable event under GST law.
Answer:
Supply made in the course or furtherance of business:
(a) In the course of business: Every person carries out certain activities regularly for running trade or commerce.
(b) Furtherance of business: Every business person thinks how to develop his business or carrying out new activities. Such activities called as furtherance of business.
GST is essentially a tax only on commercial transactions. Hence, only those supplies that are in the course or furtherance of business qualify as supply under GST. Hence, any supplies made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business as defined in the Act.
Sale of goods or service even as avocation is a supply under GST. Therefore, even if a famous politician paints painting for charity and sells the paintings even as a onetime occurrence, the sale would constitute supply.
Supply Under Gst Notes
- Sections involved: 7 and 8 of CGST Act (including Schedules I, II, and IH to CGST Act).
- What is supply is discussed in section 7(1) of the CGST Act?
Clause (a): All forms of supply for CONSIDERATION and IN COURSE OR FURTHERANCE OF BUSINESS.
Clause (b): IMPORT OF SERVICE for consideration whether or not in course or furtherance of business.
Clause (c): Activities specified in SCHEDULE I, made or agreed to be made without consideration. 2
- Section 7(1A): Certain activities to be treated as supply of goods and § certain activities as supply of services as referred in SCHEDULE II. f
- Section 7(2): The activities or transactions specified in SCHEDULE in are neither supply of goods nor supply of services.
Apart from this, such activities or transactions undertaken by Central Government, State Government or Local Authorities in which they are engaged as public authorities, as may be notified by Government are also neither supply of goods nor supply of services. - Section 8 deals with taxability of COMPOSITE SUPPLY* and MIXED SUPPLY**
a. Composite Supply shall be treated as supply of such PRINCIPAL
b. Mixed Supply shall be treated as supply of that particular supply which attracts HIGHEST RATE OF TAX.
- COMPOSITE SUPPLY [Section 2(30) of CGST Act]: It means supply consisting of two or more taxable supplies which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. (Here, Principal supply means supply of goods or services which constitutes the predominant element of a composite supply, and to which any other supply forming part of that composite supply is ancillary section 2(90) of CGST Act.)
- **MIXED SUPPLY [Section 2(74) of CGST Act]: It means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.