Meaning and Scope of Supply and Time and Valuation of Supply

Participant’s note:

Taxable event:

Taxable supply means a supply of goods or services or both which is leviable to

tax under this Act. The taxable event in GST is supply of goods or services or both.
Various taxable events like manufacture, sale, rendering of service, purchase,
entry into a territory of state etc. The Central and State governments will have
simultaneous powers to levy the GST on Intra-State supply and the Central
Government to levy of GST on Inter-State supply.

The meaning and scope of supply under GST can be understood in terms of
following six parameters

1. Supply of goods or services

2. Supply should be made for a consideration

3. Supply should be made in the course or furtherance of business

4. Supply should be made by a taxable person

5. Supply should be a taxable supply

6. Supply should be made within the taxable territory

Exceptions:

In certain circumstances, there can be a supply for GST purposes even when one
or more of the requirements are not met

 For example, a supply may not be in the course or furtherance of business

or made without consideration. Such a transaction could be deemed (by
law) to be a supply for GST purposes
 Import of services for a consideration, whether or not in the course or
furtherance of business is treated as supply
 Permanent transfer or disposal of business assets where input tax credit
has been availed on such assets, even if made without a consideration

Supply

 Includes 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 in the course or furtherance of business

 Importation of service, whether or not for a consideration and whether or

not in the course or furtherance of business
  Transaction between a principal and agent

 Supply of any branded service by an aggregator under a brand name

Deemed Supply: It includes

– The activities specified in Schedule I, made or agreed to be made

without a consideration; and

– The activities to be treated as supply of goods or supply of services as

referred to in Schedule II

Definition of Goods and services under GST:

‘Goods’ means

– every kind of movable property other than money and securities but
includes actionable claim, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before
supply or under a contract of supply

Services means

– anything other than goods, money and securities but includes

activities relating to the use of money or its conversion by cash or by
any other mode from one form, currency or denomination to
another form, currency or denomination for which a separate
consideration is charged.
– Securities are excluded from the definition of goods as well as that of
services.
– Money is also excluded from the definition of goods as well as
services, however, activities relating to the use of money or its
conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which
a separate consideration is charged are included in services.
Supply of Goods:

 means the transfer of right to dispose off tangible property as its

owner (Includes the transfer of both the title to the goods and
possession of, or control over, the goods)

 Title in goods may be transferred immediately or at a future date

 Instances of immediate transfer are:

– A contract of sale, an outright sale, or a credit sale (payment by

instalments etc)
– Part exchange, or barter
– Transfer free of charge, such as gift
– Instances of future transfer of title are:
– Contract of sale
– Hire purchase contract
– An agreement for the sale of goods under which the seller retains
ownership until the goods are fully paid for, or sometimes until
everything owed by the customer has been paid
– An agreement for the hire of goods, where the hirer has the
option to purchase
– Sale or return
– Conditional sale (title is transferred when some condition is met)
– Ownership remains with the supplier until the goods are
‘adopted‘ by the customer. ‘Adoption‘ means that the customer
pays for them or otherwise indicates his wish to keep them

Supply of Goods-other cases:

 Transfer of business assets without consideration

 Business assets for private use- (If temporary transfer; it is supply of
services)
 Business gifts and samples supplied free
 Competition Prizes
 Supply made on behalf of another, towards satisfaction of debt
  Supply of goods in a club
 Disposal of goods on closure of business or de-registration
 Self-supply or captive use
 Supplies on commission basis
 Supply on approval basis
 Return & replacement
 Inter-state supply to an entity with same PAN

Supply of services under GST:

 Anything which is not a supply of goods but is done for a consideration

(including, if so done, the granting, assignment or surrender of any right) is a
supply of services
 The following transactions will be considered as supply of services:
– the assignment of intangible property
– the obligation to refrain from an act, or to tolerate an act or
situation, or to do an act
– the performance of services in pursuance of an order made by or in
the name of a public authority
– the right to enter any premises
 The following are supply of services, even though they may involve supply
of goods
– lease/hire of goods
– transfer/ sale of an undivided share of title in goods
– the temporary application of business assets for non-business use

 Supply of land or building involving transfer of title will be outside the

scope of GST

 However, the grant, assignment or surrender of a major interest in land or

building will be treated as a supply of services

This includes:

– rights in rem giving the holder thereof a right of use over immovable
property
 – shares or interests equivalent to shares giving the holder thereof de
jure or de facto rights of ownership or possession over immovable property or
part thereof

– Renting of immovable property including vacant land

Activities which are neither supply of goods nor supply of services: (Schedule III)

 Services by an employee to the employer in the course of or in relation to

his employment.

 Services of funeral, burial, crematorium or mortuary including

transportation of the deceased.

 Sale of land and sale of building where the entire consideration has been
received after completion certificate is issued or after its first occupation.

Job work (Treated as supply of services):

“job work” means undertaking any treatment or process by a person on goods

belonging to another registered taxable person and the expression “job worker”
shall be construed accordingly (When goods are sent by principal manufacturer to
job-worker, this will not constitute supply).

Consideration: Means

 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
and/or services, whether by the said person or by any other person

 the monetary value of any act or forbearance, whether or not voluntary, in

respect of, in response to, or for the inducement of, the supply of goods
and/or services, whether by the said person or by any other person

(However, a deposit, whether refundable or not, given in respect of the supply of

goods and/or services shall not be considered as payment made for the supply
unless the supplier applies the deposit as consideration for the supply)

 All payments may not be consideration

  ‘Consideration’ is different from profit

There should be

 a direct link between the supply and the ‘consideration’

 a ‘reciprocal performance’ to the supply

 a transaction between the parties

It should be capable of being expressed in monetary terms

Supply without Consideration (Schedule-I):

Certain transactions made for no consideration are deemed to be supplies for GST
purposes.

Examples: The permanent transfer/disposal of business assets, the temporary

application of business assets to a private or non- business use, when services are
put to a private or non-business use, self-supply of goods or services, assets are
retained after de-registration, Inter-State supplies made by the same PAN entity.

In the Course or furtherance of Business:

 Unless a transaction is in the course or furtherance of business, it will not

be liable to GST.

 Activities deemed to be ‘in the course or furtherance of business: (e.g.

Admission for a consideration, of persons to a premises, Services supplied
by a person when he holds an office in the course or furtherance of a trade,
profession or a vocation, Disposal of a business as a going concern).

Supply in India: India means-

 the territory of the Union as referred to in clauses (2) and (3) of Article 1 of
the Constitution
  its territorial waters, continental shelf, exclusive economic zone or any
other maritime zone as defined in the Maritime Zones Act, 1976

 the seabed and the subsoil underlying the territorial waters

 the air space above its territory and territorial waters and

 the installations, structures and vessels located in the continental shelf of

India and the exclusive economic zone of India, for the purposes of
prospecting or extraction or production of mineral oil and natural gas and
supply thereof.

When it is not a Supply:

 If the transaction is within the same legal entity (same PAN), and within the
same state. However, where an option of multiple registrations within the
same legal entity is exercised within a state, then supplies among such
registrants will be liable to GST
 Where there is a specific exclusion in GST legislation (for instance, supplies
made under employer-employee relationship).

Types of supply:

 Taxable supplies, Exempt supplies

 Zero-rated supplies

 Single supply, Mixed supply, Composite supply

 Continuous supply, Deemed supply

 Inter-state supply, Intra-state supply

 Inward supply, Outward supply

Taxable Supply: - Supplies that are subject to GST is known as taxable supplies.
Exempt supply means supply of any goods and / or services which are not taxable
and include such supplies of goods and / or services which are specified in the
relevant Schedule of the Act or which may be exempt.

Zero-rated supply means, a supply of any goods and / or services on which not
tax is payable but credit of the input tax related to that supply is admissible
(Export shall be treated as Zero-rates supply).

Composite supply means a supply consisting of – (a) two or more goods; (b) two
or more services; or (c) a combination of goods and services provided in the
course of furtherance of business whether or not the same can be segregated.

To illustrate, when a car is given for servicing, as part of the service, engine oil
may be replaced. The supply of the oil cannot be considered as distinct or
independent in the context of the overall service required by the customer.

Mixed supply means two or more 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.

Continuous Supply of Goods & Services means a supply of services which is

provided, or agreed to be provided : continuously or on recurrent basis, under a
contract, for a period exceeding three months , with periodic payment
obligations, and includes supply of such service as the Central or a State
Government may notify.

Inward Supply means in relation to a person receipt of goods and / or services

whether by purchase, acquisition or any other means and whether or not for any
consideration.

Outward supply means in relation to a person supply of goods and / or services,

whether by sale, transfer, barter, exchange, licence, rental, lease or disposal
made or agreed to be made by such person in the course or furtherance of
business except in case of such supplies where the tax is payable on reverse
charge basis.
Intra-State Supply of Goods and services means, subject to GST Act, supply of
goods where the location of the supplier and the place of supply are in the same
state.

Inter-State Supply of Goods and services means, subject to GST Act, supply of
goods where the location of the supplier and the place of supply are in different
states.

Imports:

 Imports not treated as supplies made in India, as the place of supply is

outside India.
 GST charged through a specific provision on import of goods and services.

Exports:

 Exports means supplier in India recipient out of India and place of supply is
out-side India, and payment received in foreign exchange.
 Exports (Including SEZ unit) are treated as zero-rated supplies.

Supply by Public Authorities:

 Supplies of goods & services by public authorities, wherever they compete

with supplies of those goods and services made by the private sector may
be taxed to GST

 In particular, the following supplies made by public authorities could be

taxed under GST : (e.g.Telecommunications services, Transport of goods,
Port and airport services, Passenger transport, Supply of new goods
manufactured for sale, Organization of trade fairs and exhibitions
Warehousing, Activities of commercial publicity bodies, Activities of travel
agents, Running of staff shops, cooperatives and industrial,Canteens, and
similar institutions, Activities carried out by radio and television bodies,
Support Services to business and commerce).
Place of supply:

There are two broad parameters of place of supply are

 Location of supplier and

 Place of supply

(If both occur in one state, it is intrastate supply, else inter-state)

Supply of Goods other than import or export:

 Where the supply does not involve movement of goods, whether by the
supplier or the recipient, the place of supply shall be the location of such
goods at the time of the delivery to the recipient.

 Where the goods are delivered by the supplier to a recipient or any other
person on the direction of a third person it shall be deemed that the said
third person has received the goods and the place of supply of such goods
shall be the principal place of business of such third person.

Place of supply of goods import/export:

 imported into India shall be the location of the importer;

 exported from India shall be the location outside India

Place of supply of services:

 made to a registered person shall be the location of such person;

 made to any person other than a registered person shall be,–– (i) the
location of the recipient where the address on record exists; and (ii) the
location of the supplier of services in other cases.

 The place of supply of services in relation to an immovable property shall

be location of such immovable property. If the location of the immovable
property is outside India, the place of supply shall be the location of the
recipient.
Time of supply-Goods:

 Liability to GST arises only when a supply has been made.

 The time of supply fixes the point when the liability has to be discharged.

 It also indicates when a supply is deemed to have been made

Time of supply of goods could be the earliest of the following:

 the date on which the goods are removed by the supplier for supply to the
recipient, where the goods are required to be removed; or
 the date on which the goods are made available to the recipient, where the
goods are not required to be removed; or
 the date on which the supplier issues the invoice.
 the date on which the recipient shows the receipt of the goods in his books
of account

Where the goods are made available but not removed:

 the goods are not physically capable of being removed; or

 supplied in assembled or installed form; or
 are supplied by the supplier to his agent or his principal
 the time of supply shall be the date on which the goods are made available

In case of supplies in respect of which tax is paid on reverse charge basis, the time
of supply shall be the earliest of the following dates:

 the date of the receipt of goods, or

 the date on which the payment is made, or
 the date of receipt of invoice, or
 the date of debit in the books of accounts

Continuous Supply of Goods:

 Where successive statements of accounts or successive payments are

involved, the time of supply shall be the date of expiry of the period to
 which such successive statements of accounts or successive payments
relate
 If there are no successive statements of account, the date of issue of the
invoice (or any other document) or the date of receipt of payment,
whichever is earlier, shall be the time of supply.

Supply on Approval Basis / Sales Return:

 If the goods (being sent or taken on approval or sale or return or similar

terms) are removed before it is known whether a supply will take place, the
time of supply shall be at the time when it becomes known that the supply
has taken place or six months from the date of removal, whichever is
earlier.

Time of supply – Services:

Time of supply of services shall be the earliest of the following

 the date of issue of invoice/receipt of payment, whichever is earlier, where

the invoice is issued within the prescribed period; or
 the date of completion of the provision of service/receipt of payment,
whichever is earlier, where the invoice is not issued within the prescribed
period; or
 the date on which the recipient shows the receipt of services in his books of
account, where the above two situations do not apply.

Continuous supply of services:

 where the due date of payment is ascertainable from the contract, the date
on which the payment is liable to be made by the recipient of service,
whether or not any invoice has been issued or any payment has been
received by the supplier of service.
  Where the due date of payment is not ascertainable from the contract,
each such time when the supplier of service receives the payment, or issues
an invoice, whichever is earlier
 where the payment is linked to the completion of an event, the time of
completion of that event

Reverse Charge:

Where the tax is payable on reverse charge basis, the time of supply shall be the
earliest of the following dates, namely -

 the date of receipt of services, or

 the date on which the payment is made, or
 the date of receipt of invoice, or
 the date of debit in the books of accounts

Change in rates:

 where change in rate of tax in respect of services, the time of supply shall
be as under:
 Where taxable service has been provided before the changes:
 Where the invoice is issued and payment also received after the
change in effective rate of tax, the time of supply shall be the date of
receipt of payment or the date of issue of invoice whichever is earlier

 Where the invoice is issued prior to change in effective rate of tax,

but the payment is received after the change in effective rate of tax,
the time of supply shall be the date of issue of invoice

 Where the payment is received before the change in effective rate of

tax, but the invoice for the same has been issued after the change in
effective rate of tax, the time of supply shall be the date of receipt of
payment.

 Where taxable service has been provided after the changes:

  Where the payment is received after the change in effective rate of
tax but the invoice has been issued, prior to the change in effective
rate of tax, the time of supply shall be the date of receipt of
payment.

 Where the invoice has been issued and payment is received before
the change in effective rate of tax, the time of supply shall be the
date of receipt of payment or date of issue of invoice whichever is
earlier.

 Where the invoice has been issued after the change in effective rate
of tax, but the payment is received before the change in effective
rate of tax, the time of supply shall be the date of issue of invoice.

Valuation of Supply:

 Transaction value: Value of a supply of goods and/or services shall be the

transaction value, which is the price actually paid or payable for the said
supply of goods and/or services where the supplier and recipient of the
supply are not related and the price is the sole consideration for the supply

 Transaction value shall, inter-alia, include:

 any taxes, duties, fees and charges levied under any statute
other than CGST/SGST/IGST Act

 incidental expenses such as commission, packing etc. charged

by the supplier to the recipient of supply

 royalties and license fees related to the supply of goods and/or

services

 subsidies provided in any form or manner including subsidies

provided by the Government

 Discounts like trade discount, quantity discount etc. are part of the normal
trade and commerce.
  Pre-supply discounts i.e. discounts recorded in the invoice have been
allowed to be excluded while determining the taxable value.
 Discounts provided after the supply can also be excluded while determining
the taxable value, provided two conditions are met, namely: (a)discount is
established in terms of a pre supply agreement between the supplier & the
recipient and such discount is linked to relevant invoices (b) input tax credit
attributable to the discounts is reversed by the recipient.

 Where the value cannot be determined on the basis of transaction value,

the same shall be determined in accordance with the Valuation Rules

 Determination of value by comparison

 Computation method. Cost of production plus an amount
towards profit and general expenses
 Residual method using reasonable means consistent with the
principles and general provisions of valuation rules

Pure Agent:

 Certain expenditure or costs incurred by the service provider as pure agent

of recipient of service, to be excluded from the value of taxable service
subject to following conditions;

 the service provider acts as a pure agent of the recipient of

service when he makes the payment to third party for the
goods or services procured

 the recipient of service receives and uses the goods or services

so procured by the service provider in his capacity as pure
agent of the recipient of service

 the recipient of service is liable to make payment to the third

party

 the recipient of service authorizes the service provider to make

payment on his behalf
  the recipient of service knows that the goods and services for
which payment has been made by the service provider shall be
provided by the third party

 the payment made by the service provider on behalf of the

recipient of service provider has been separately indicated in
the invoice issued by the service provider to the recipient of
service

 the service provider recovers from the recipient of service only

such amount as has been paid by him to the third party

 the goods or services procured by the service provider from

the third party as a pure agent of the recipient of the service or
in addition to the services he provides on his own account.

Valuation - Money Changer:

 Value of taxable services pertaining to purchase or sale of foreign currency,

including money changing shall be determined as under:

 a currency when exchanged from, or to Indian Rupees, the

value shall be equal to the difference in the buying rates or the
selling rates, as the case may be, and the RBI references for
that currency at that time, multiplied by the total units of
currency*

 where the RBI reference rate for a currency is not available,

the value shall be 1% of the gross amount of Indian Rupees
provided or received, by the person changing the money

 where neither of the currencies exchanged is Indian Rupee,

the value shall be equal to 1% of the lesser of the two amounts
the person changing the money would have received by
converting any of the two currencies into Indian Rupee on that
date at the reference rate provided by RBI
Supply – Whether of Goods / Services (Schedule-II):

 Transfer

 Transfer of the title in goods is a supply of goods

 Transfer of goods or of right in goods or of undivided share in goods

without the transfer of title is a supply of services

 Transfer of title in goods under an agreement that property in goods

will pass at a future date on payment of full consideration, is a supply
of goods

 Land and Building

 Lease, tenancy, easement, license to occupy land is a supply of

services

 Lease or letting out of the building including a commercial, industrial

or residential complex for business or commerce, either wholly or
partly, is a supply of services

 Treatment or process
 Treatment or process applied to another person’s goods is a supply
of services
 Transfer of business assets
 Goods forming part of the assets of a business transferred/disposed
of by the person carrying on the business no longer forming part of
those assets, whether or not for a consideration, is a supply of goods
 Goods held or used for the purposes of the business put to any
private use, or put to use other than for business purposes, whether
or not for a consideration, the usage or making available of such
goods is a supply of services
 Goods, forming part of the business assets of a taxable person, sold
by any other person who has the power to do so to recover any debt
owed by the taxable person, the goods shall be deemed to be
 supplied by the taxable person in the course or furtherance of his
business
 Where any person ceases to be a taxable person, any goods forming
part of the assets of any business carried on by him shall be deemed
to be supplied by him in the course or furtherance of his business
immediately before he ceases to be a taxable person, unless—
 the business is transferred as a going concern to another person; or
 the business is carried on by a personal representative who is
deemed to be a taxable person
 Following shall be treated as supply of service
 Renting of immovable property

 Construction of a complex, building, civil structure or a part thereof,

including a complex or building intended for sale to a buyer, wholly
or partly, except where the entire consideration has been received
after issuance of completion certificate, where required, by the
competent authority or before its first occupation, whichever is
earlier

 Temporary transfer or permitting the use or enjoyment of any

intellectual property right

 Development, design, programming, customization, adaptation,

upgradation, enhancement, implementation of information
technology software

 Agreeing to the obligation to refrain from an act, or to tolerate an act

or a situation, or to do an act

 Works contract including transfer of property in goods (whether as

goods or in some other form) involved in the execution of a works
contract

 Transfer of the right to use any goods for any purpose (whether or
not for a specified period) for cash, deferred payment or other
valuable consideration; and
  Supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human
consumption or any drink (other than alcoholic liquor for human
consumption), where such supply or service is for cash, deferred
payment or other valuable consideration

 Following shall be treated as supply of goods

 Supply of goods by any unincorporated association or body of

persons to a member thereof for cash, deferred payment or other
valuable consideration