Goods and Service Tax (GST) has been implemented in our country from 1 st July
2017 by the Central and State Governments paving way for the biggest Indirect Tax
reform in the nation till date. It is brought in with the idea of “One Nation, One Tax” to
enable uniformity in tax rates and prices across India for same products/ services through
common tax structure. The same has also resulted in subsuming of most of the earlier
Indirect taxes levied on goods and services by Central Government, such as Excise Duty,
Service Tax, Special Additional Duty (SAD), Countervailing Duty (CVD), Surcharges,
Cess etc. and by State Governments such as Value Added Tax (VAT), Entertainment
Tax, Luxury Tax, Tax on Lottery, Entry Tax, Octroi etc. However, government has
retained basic customs duty applicable on import of goods and Sales Tax on Liquor and
Petrol. A common tax law for all transactions will ensure free flow of input tax credit
reducing cost of goods and services and eliminating cascading effect of multiple taxes.
In the Indian scenario, since we have a federal system of government, India has
adopted the “Dual System of GST” i.e. separate GST is being levied by Central and State
Governments. As a result India has become the 3 rd country in the world to adopt “Dual
System of GST” apart from Canada and Brazil. Due to this GST is also referred as a
”destination based consumption tax” meaning that; with regard to state portion of GST,
the state where the product or service is consumed will get the tax income instead of the
state, where it is manufactured or service provider is situated.
If we take a brief look at the global scenario in relation to GST, more than 160
countries have already adopted GST/ VAT system and it’s variants, making it the most
popular indirect taxation mode. The earliest adopter of GST was Canada in 1905 and
latest adopter before India was Malaysia. In the previous GST adopting countries, the
prevalent tax rate ranged from 5% to 25% based on their socio-economic scenario.
When GST was implemented in India on 1 st July 2017, the highest rate of GST notified
was 28% making India a country with the highest GST rate. The same is mostly
applicable on Luxury products and Services.
The roadmap of GST implementation in India is a 10 year old story. The proposal
first came before government in early 2006-07 with implementation target date of April
2010. As part of recommendation from committee, for the same, Central Sales Tax (CST)
rate was brought down from 4% to 2% over the years. Subsequent political situations in
the country prevented implementation on the targeted date. Later on the much needed
constitution amendment bill was introduced in 2014 and passed in 2016. Draft laws,
formats etc were published in 2016 for public opinion and the same were approved after
modifications in March 2017 paving the way for implementation of GST on 1 st July 2017.
As part of implementation of GST, Central government has passed Central Goods
and Service Tax Act and Rules 2017 for transactions within a state and Integrated Goods
and Service Tax Act and Rules 2017 for Interstate Transactions. Individual states have
passed State Goods and Service Tax Act and Rules 2017 for transactions within their
state. Union Territories have similarly passed their respective Union Territory Goods and
Service Tax Act and Rules 2017 for Transactions within their Union Territory.
Concept of Supply in GST
With the implementation of GST, as specified above, many existing kinds of duties
and taxes on various transactions have been subsumed to pave way for GST.
Accordingly all types of transactions subject to levy of these types of duties and taxes
would now need to be covered by GST law and that too without loopholes to protect
revenue of government. To achieve the same an all-inclusive definition of taxable event
is necessary to describe which all transactions are liable for GST and which are not.
The committee that drafted the GST law achieved the same by introducing a new
concept called “Supply” in GST. The need to understand the word “supply” under GST is
due to the fact that if your transaction is fulfilling the definition of Supply under GST, the
transaction is liable for GST subject to turnover limits and specific exemptions available.
If not fulfilling the same , the transaction is not liable to levy of GST.
In accounting and taxation areas various new terms gain importance when used in
a new act and others loose importance when an existing act is subsumed or replaced or
repealed. With the advent of GST, the word “Supply” will gain prominence and other
existing words like sales, purchase, manufacture, raw material, finished goods etc will
slowly loose it’s importance. The term “Manufacture” gained importance through Excise
Act as excise duty is applicable if your transaction meets the definition of manufacture
under Excise Act. The term Sales gained importance through Sales Tax Acts of
government as Sales Tax/ VAT is applicable if your transaction meets the definition of
sales under respective acts. The list goes on.
While considering the implementation of GST, the only relevant term is whether
your transaction is a “supply” or not and other terms lose prominence. Accordingly we
can look into the definition of supply included in the CGST Act which has been drafted
carefully to make it all inclusive.
Sec 7. (1) For the purposes of this Act, the expression “supply” includes––
(a) 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;
(b) import of services for a consideration whether or not in the course or furtherance of
(c) the activities specified in Schedule I, made or agreed to be made without a
(d) the activities to be treated as supply of goods or supply of services as referred to in
General Definition of Supply
When we analyse the definition of supply in Sec 7(1)(a) deeply, each word in the
definition implies various kinds of transactions to the scope of supply and make them
liable for levy of GST. Let’s break the definition above and analyse the impact
All forms of Supply of Goods or services – Use of this term generally brings all
kinds of transaction in relation to goods or services to the purview of GST making
it an inclusive definition. Examples of general forms of supply coming under the
purview has been shown after the same for giving clarity.
Sale – all transactions in the nature of sale accordingly will come within the
purview of GST. Specific exclusion is given for Sale of Land and Sale of building
whose construction is completed and certificate is obtained.
Transfer – When any goods or ownership/ usage rights are transferred from one
place to another or from one person to another, the transaction accordingly will
come within the purview of GST. The major impact of the same is that branch
transfer of goods will become liable for GST and an invoice to be raised for such
transfer and relevant tax to be paid. The receiving branch can claim input of such
GST. In case of Branch Transfer within a state, a delivery chalan will be enough if
the both branches have same registration as there is no tax impact for the same. If
the transferring and receiving branch has different due to different state of
operation or due to having separate registration as business verticals, invoice will
Barter – It refers to giving any goods or service and taking back or accepting any
goods or service in return without cash consideration. Such transactions also now
come to the purview of GST levy. The value of the supply on which tax is to be
calculated will be fixed based on the Sec 15 under CGST and Value of Supply
rules under CGST.
Exchange – Exchange refers to giving goods and receiving a different piece of the
goods with or without monetary consideration. Such transactions also now come
to the purview of GST levy. The value of the supply on which tax is to be
calculated will be fixed based on the Sec 15 under CGST and Value of Supply
rules under CGST.
License – If you have any Intellectual Property Rights like copyright, patents,
Trademark etc and another person wants to use the same, a license is given to
such person by the holder of such Intellectual Property Rights for a consideration.
Giving such a license will also be liable to GST. Issuing of any other licenses of a
business nature will also come under it’s purview.
Rental – Giving any items including Land and Building, Machinery etc for a rent is
also a service and liable for GST. The scope for filing suits against rental service
as prevailing in existing service tax, may not hold legally under GST and person
will be liable to pay GST.
Lease – Similarly any immovable property given on lease will attract GST.
Disposal – The inclusion of this word makes disposal of stock or Capital assets
liable to GST. Input Tax claimed on purchase of stock if any, which is disposed off
later on, will have to repaid to the government. This is because once input is
claimed on purchases by recipient, government has received no tax income on
that unit of such goods as the recipient has claimed input tax. So if it is not sold
and is disposed off, given freely etc, government should get back tax portion in the
form of reversal of Input Tax.
Made or agreed to be made – The inclusion of these words in the definition
makes advance agreements and advance amounts for goods or services also
liable for GST. Erstwhile only advance payments for service were liable for tax levy
immediately. Advance received for supply of goods were not liable for VAT.
Accordingly now goods sellers should pay GST on such advance in the month of
receipt. Once invoice is received against such advance, the GST on advance can
be reversed to reduce the output tax liability. Also any other transactions which is
a “Supply” under GST for which advance is received, GST will be payable on such
For a Consideration – accordingly in general consideration, monetary or
otherwise, is necessary for the transaction to be liable for GST levy. But a list of
goods and services have been described in Sec 7(1)(c ) in schedule II for which
consideration is not necessary to be treated as a supply.
By a person in the course or furtherance of business – Based on the facts till
now, we may have a confusion whether personal transactions of the above nature
like sale of jewellery, car or other transactions are liable to GST or not. For the
same the last words of Sec 7(1)(a) removes confusion by including the words “in
the course or furtherance of business”. Based on the same only if any transactions
of the above categories are done as part of your business, will the levy of GST be
attracted. Personal transactions like sale of your car, jewellery etc will be out of the
purview of GST.
Import of Service is Supply
If we check the definition, all the existing terms have been included but the word
“Import” has been excluded in the definition. This is because, for import of goods,
Customs Duty will still continue. The importer has to pay GST on the value including
Customs Duty in lieu of erstwhile SAD and CVD. But in case of Import of Services, there
is no provision of Customs Duty and the importer has to pay GST on the value of Service
Imported. To incorporate the same, Sec 7(1)(b) has been included in the definition of
As against the general definition of supply in Sec7(1)(a), the words “whether or not
in the course or furtherance of business” is used and hence personal imports will also be
liable for GST. Also in case of import of service, the service recipient is liable to pay GST
on reverse charge basis. Based on Sec 24, persons liable to pay tax on reverse charge
basis have to register without threshold limit and accordingly in case of personal import of
service liable to reverse charge and having consideration, the individual person may
have to take registration based on the position of the law.
Main impact is on digital marketing service providers users who pay amounts to
facebook, google, twitter etc, for Ads which is now liable for reverse charge GST. Even
small businesses doing online promotions may have to pay Reverse Charge GST on the
same. Here consideration is necessary to be liable for GST.
Transactions treated as Supply even in the absence of consideration
In the definitions under (a) and (b) consideration was necessary to become a
supply. But in Sec 7(1)(c) a Schedule I has been prescribed wherein the goods and
services specified are liable for GST even if there is no consideration. It includes
transfer/disposal of business asset, supply between related persons, supply between
agent & principal and import of services from related persons in the course of business.
For example, if any stock item on which input has been claimed, is disposed off
due to damage etc, it is a supply and even though there is no consideration and the input
tax claimed claimed earlier will need to be repaid.
Transactions treated as Supply under all circumstances
Apart from the above in Sec 7(1)(d) a Schedule II listing of various cases of supply
of goods and services have been given which are supply under all circumstances. This
means that the taxable persons having any of these kinds of transactions cannot file suits
claiming that their transactions are not liable to GST and the courts will have to dismiss
such petitions without second thoughts. The long list of types of supply of goods or
services included in this schedule are generally those in respect of which suits are
pending in courts in the erstwhile VAT, Excise Duty, Service Tax laws. Government has
tactfully closed all loopholes by which a person could have continued suits under
previous laws against these categories of supplies of goods or services in the new GST
law to save precious time and money of government and courts. But it will be
disheartening for taxable persons supplying these goods or services.
Transactions not treated as Supply under all circumstances
Also through Sec 7(2), a Schedule III has been specified listing the goods or
services which are not treated as supply under all circumstances. The exclusions mainly
include service by any government/ local authority/ court/ tribunal to the public, services
of MP’s, MLA’s, Panchayath Members, Members of Bodies set up by government,
Services of employee to employer, Funeral Services, Sale of Land & Building (Except in
case of building constructed with advance payments), Actionable claims other than
lottery, betting & gambling.
To conclude we can say that government and the committee involved in coining
the term and definition of “SUPPLY” have taken adequate efforts to make it free of loop
holes and done it very brilliantly cum tactfully bringing in almost all kinds of business
transactions into the purview of “GST” and minimizing case laws.
Note:- The Interpretation of the relevant matters of GST law in this article is that of
the author and not of CMA. Any person having any difference of opinion or requiring
clarifications may reach the author at firstname.lastname@example.org
If you would like to know more or have any questions, please fill up your details and we will get back to at the earliest.