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The main ambiguities and controversies related to the above taxable events were:
whether a particular process amounted to manufacture or not
whether the sale was pre-determined sale
whether a particular transaction was a sale of goods or rendering of services etc.
The GST laws resolve these issues by laying down one comprehensive taxable event i.e. “Supply”
Under GST regime, taxable event is the supply of goods or services or both by a person
Who is a person under GST?
Who is a Taxable Person?
Points to Remember
Supply by a non-taxable person to a non-taxable person is not subject to GST
Supply by a taxable person to a non-taxable person may be subject to GST
Supply by a non taxable person to a taxable person may be subject to GST under Reverse Charge
Mechanism (RCM)
Meaning of Goods
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 agreed to be severed before supply or under a contract of supply.
Securities include:- shares, scrips, stocks, bonds, debentures, derivatives, government securities etc.
In the above definition actionable claims include only lottery, betting and gambling and shall be
treated as supplies. All the other actionable claims shall not be supplies.
Meaning of Services
As per section 2(102), services are defined as anything other than goods, money and
securities.
Services include an activity 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 as separate consideration is charged.
Transactions only in money shall not be considered as service and not chargeable to GST.
Examples:
Bank Deposit (Not a Service)
Demand Draft (Service)
Exchange of currency with foreign exchange dealer (Service)
Meaning of Supply
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
Import of services, for a consideration whether or not in the course or furtherance of business
A supply specified in Schedule I, made or agreed to be made without a consideration
Deemed supply (activities specified in Schedule II are treated as supply or deemed as supply)
But, supply excludes negative list of services (Section 7(2) + Schedule III)
Supply
Parameters of Supply
Supply of anything other than goods or services does not attract GST
Transfer Any transfer of goods or right in goods or of undivided share in goods without transfer of title thereof.
To swap, to part with, give or transfer for an equivalent with the use of money. (When a new Mobile worth Rs
Exchange 10,000 is purchased in exchange of an old Mobile along with the monetary consideration of Rs 2,000 paid for the
said purchase. This is an example of exchange.)
Permission granted by competent authority to exercise certain privileges without such authorization the activity
Licence would have constituted as an illegal act.
Lease Contract to allow right to use for a period without transfer of title.
Disposal To pass or into the control of someone else; to alienate, bestow, or part with.
Activities treated as Supply under Schedule I even if there is no consideration
iv. Where any person ceases to be a taxable person, any goods forming part of the assets 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
Example: Mr. Krish who was in the business of mobile sets. He closes his business on October 31, 2019 and
ceases to be a taxable person immediately under GST. On that day, the closing stock in his business was of
50 sets of Samsung and 30 sets of Redmi. The value of the stock was Rs 10,00,000. These goods are deemed
to have been supplied by Mr Krish in the course of business. However, this rule is not applicable if Mr Krish
transfers the business to another person as a going concern or Mr Krish carried on the business as a personal
representative of someone else.
v. Supply of goods by AoP/BoI to its members
Example: Nizam club in Hyderabad supplies sports items to its members for a consideration. It is treated as
supply of goods.
Activities or transactions treated as supply of services under Schedule II
i. Transfer of right in goods: Any transfer of right in goods (or undivided share in goods) without transfer of title in
goods is supply of services and is subject to GST.
Example: PC rental services rents its computer to high school students. The transaction is treated as supply of
services, as it involves only the transfer of right in goods not transfer of title in goods.
ii. Lease, tenancy, easement or license to occupy land: Any lease, tenancy, easement or license to occupy land is supply
of service.
Example: Mr Roy, owner of an agriculture land leases his land to Mr. Chatterjee for non-agricultural purpose for a
period 5 years for a consideration of Rs 30 lakhs per year.
iii. Letting out of building: Any lease or renting a commercial/residential building complex for business is supply of
service.
Example: Mr. Resham, owner of a commercial complex leases to Bajaj Electricals on a monthly lease rent of Rs 25
lakhs for a period of 6 years.
iv. Treatment or process: Treatment or process applied to another person’s goods is a supply of services. Such treatment
is considered as job work.
Example: A readymade garments manufacturing firm sends garments to a tailor for embroidery work for a
consideration of Rs 100 per garment. The embroidery work done by the tailor is supply of service.
Activities or transactions treated as supply of services under Schedule II
v. Use of business goods for non-business use: When goods held for business purpose, upon the direction
of a person carrying on a business, are used for personal use, such transaction is supply of service. This is
rule same whether the supply is made for consideration or not.
Example: Mr. Ganguly, owner of Lucid Diagnostics services, has given Blood Pressure checking
machine to his friend, Mr. Lal for his personal use without any charge. It is supply of service.
vi. Renting of immovable property: Renting of immovable property in general is treated as a supply of
service and is subject to GST. However, in the following cases, renting of immovable property is
exempted from GST.
Renting of vacant land with or without a structure incidental to its use, relating to agriculture
Renting of residential building for residential purpose
Renting out of any property by a government or a local authority to a non-business entity
Renting of a hotel, inn, guest house, club or commercial spaces meant for residential or lodging purposes, with a
tariff less than Rs 1000 per day
Example: Mr. Souvick rents his flat for residential purpose. Not a supply of service
Example: Mr. Banerjee, owner of a function hall rents out for conducting a marriage ceremony for
five days. It is a supply of service and is subject to GST.
Activities or transactions treated as supply of Services under Schedule II
vii. Construction of a complex, building, civil structure: The services provided by builders for construction of
a building, complex or civil structure is treated as a supply of service. However, if the consideration is received
after issuance of completion certificate by a competent authority or building’s first occupation whichever is
earlier, the service provided is not deemed supply and is not subject to GST.
Example: Shobha Developers constructs a residential complex in Bangalore. It received occupancy certificate from
municipality on October 16, 2018. However, buyers (Mr. Chand and Mr. Anil) occupied the complex from August 17,
2018. Mr Chand made payment of Rs 50,00,000 towards the purchase of business on July 12, 2018, whereas Mr. Anil
paid Rs 52,00,000 on September 13, 2018. Occupancy certificate was issued on October 16 but first occupancy took
place on August 17, the earlier of the two is August 17. Since Mr. Chand paid before August 17, the service provided
to him is treated as a deemed supply and are subject to GST. Whereas, Mr Anil paid after August 17, the service
provided to him is not deemed supply and is not subject to GST.
viii. Temporary transfer of intellectual property right: Intellectual property rights such as copyright, patents,
trademarks, designs etc. are transferred temporarily, it is treated as deemed supply and is subject to GST.
Example: Mr. Madhavan owns a patent right to manufacture pollution free paper bags using dung. He temporarily
transfers his right to Mr. Kumar for a year against the payment of Rs 40 lakh. This transaction is deemed supply and
is subject to GST.
Activities or transactions treated as supply of services under Schedule II
ix. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act: If a person
agrees to the obligation to refrain from an act, to tolerate an act or a situation or to do an act for a consideration, it is
deemed supply and is subject to GST.
Example: Mr. Abhishek and Mr Charan have garments business in Hyderabad. Mr. Charan agreed not to open his
branch in Kukatpally area where Mr Abhishek has his branch for a consideration of Rs 22,00,000. Such an action
is deemed as supply of service and is subject to GST.
x. Transfer of the right to use any goods: Transfer of the right to use any goods for any purpose, for cash, deferred
payment or other valuable consideration is supply of service.
Example: Mr Ram has given his car to his friend for personal use against the payment of certain amount. It is
supply of service and is subject to GST.
xi. Work contracts: Work contracts means a contract for construction of building, erection, installation of plant and
machinery etc. It is treated as a supply of service. However, most of the times it is a mix of goods and services. Under
such cases, it is treated as a supply of composite service.
Example: Mr. Achyut is involved in the renovation of commercial flats by employing material like sand, cement,
bricks, labour etc. This transaction is treated as composite supply of service and is subject to GST.
xii. Supply of food/other article for human consumption: Supply of goods (food or any other article for human
consumption) or any drink (other than alcoholic liquor for human consumption) for a cash consideration or any other
valuable consideration including deferred payment is supply of service or composite service.
Example: Swagath Grand, a family restaurant in Hyderabad provides home delivery of food to its customers. It is
treated as supply of service.
Schedule III Negative List
Neither supply of goods nor supply of services
Services by any Court or Tribunal established under any law for the time being in force
Particulars NIL Rated Supplies Non-Taxable Supplies Exempted Supplies Zero-Rated Supplies
Meaning Goods and services on Goods and services on Supplies which are Goods or services which
which 0% GST is which GST is not levied at exempt from payment of are exported or supplied
applicable all GST to SEZ
GST applicability Falls within GST ambit Doesn’t fall within GST Falls within GST ambit Falls within GST ambit
ambit
Example Hotel accommodation Supply of alcohol for Fresh milk, Fresh fruits, Export of shoes to South
with tariff below Rs. human consumption Curd, Bread etc. Africa
1,000
Types of Supply
Composite supply
Supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any
combination thereof, 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 elements in a composite supply are dependent on the ‘principal supply’.
Principal supply means the 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.
GST rate applicable on the principal supply shall be applicable to the entire consideration.
Example 1: A laptop is supplied along with MS Office, laptop bag and a warranty for 3 years for Rs. 50,000.
Since the principal supply is supply of laptop, the applicable tax rate to laptop is applicable to the entire
consideration of Rs.50,000.
Example 2: Suvarna Manufacturers entered into a contract with XYZ Ltd. for supply of readymade shirts
packed in designer boxes at XYZ Ltd.’s outlet. Further, Suvarna Manufacturers would also get them insured
during transit. In this case, supply of goods, packing materials, transport and insurance is a composite supply
wherein supply of goods is principal supply.
Example 3: When a consumer buys a television set and he also gets warranty and a maintenance contract with
the TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and
maintenance services are ancillary.
Types of Supply
Mixed supply 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.
The individual supplies are independent of each other and are not naturally bundled.
How to determine the tax liability on mixed supplies?
A mixed supply comprising of two or more supplies shall be treated as supply of that particular
supply that attracts highest rate of tax.
Example 1: 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. Such a
supply is treated as supply of the item with the highest GST rate. Hence, highest GST is
applicable to the entire consideration.
Example 3: A shopkeeper selling storage water bottles along with refrigerator. Bottles and the
refrigerator can easily be priced and sold independently and are not naturally bundled. So, such
supplies are mixed supplies.