Supply- the very base of GST Law

Dear Friends, This article is intended to give you an idea which transactions are going to be taxed under the upcoming GST regime. The whole Goods and Service tax Law is based upon a single word 'supply' because GST will be charged on taxable supplies.

So, it is very important to understand the term 'Supply'. The draft GST law has given an inclusive definition of supply making it very clear that the legislature do not want an exhaustive definition and thereby keeping the scope of broading the purview of supply. I will try my best to explain 'supply' in simple words.

Supply includes all kinds of supply of goods or services or goods and services such as
  • Sales
  • Transfer
  • Barter
  • Exchange
  • License
  • Rental
  • Lease

made or agreed to be made in lieu of a consideration by a person in the course or furtherance of business.

The intention of the law maker seems very clear they want to include everything apart from the above mentioned activities which seems like these whether it is for the business purpose or not it does not matter.

Further supply also includes the importation of services into India for a consideration, again it does not matter whether it is for the business purposes or not. But questions comes here now is that if an individual is importing services for his personal consumption then also he will have to pay GST on that?? The answer is in affirmative till now until some rules comes setting up some slab for this which is expected.

The above mentioned activities were taxable when they are for a consideration. But there can be some activities which are done without any consideration, will they be taxable under the GST regime?? The answer is again is in affirmative that there are some activities which will be treated as supply even if it is done without any consideration. These are as follows:

1.      Permanent transfer/disposal of business assets where input tax credit has been


In other words, if we are transferring or disposing some business assets without any consideration and we have already taken the benefit of input tax on those assets then GST will have to be paid on such assets at the time of its disposal or transfer. The intention of the law maker is again very clear they want to have a destination based or consumption based GST so wherever the movement of goods and services is there, GST will go along with that.

2.      If there is a supply of goods or services between related persons or between distinct

persons only when made for business purposes.

To Illustrate, if a Offices is supplying goods to its branch, or goods are transferred from one depot to another of same organization then it will be taxable under the GST regime. It is on the same lines as the existing Excise provisions are there.

3.      When a principal supplies goods to his agent for further supplying the goods on his

behalf then this transaction between principal and agent would be treated as supply and

hence taxable

When agent supplies goods to principal received by him on behalf of principal then again

this supply to principal would be taxable.
4  If a taxable person imports some services from a related person or from any of his other

establishments outside India, for business purposes only.

The law further gives matters to be treated as supply of goods or services in Schedule II

of the Draft GST Law. I am not discussing it here because anyways it would be taxable as

supply, the schedule specifically clarifies that which matter will be treated as supply of

services and which matter will be treated as supply of goods.

Now, the important part comes in schedule III which tells us which activities or transactions shall be treated neither as a supply of goods nor as a supply of services:

1.      Services by an employee to the employer in the course of or in relation to his

employment. So, GST is not applicable on employer-employee related transactions.
2.      Services by any court or tribunal established under any law for the time being in

3.      (a) The functions performed by Members of parliament, state legislatures,

panchayats, municipalities and other local authorities

(b) The duties performed by any person who holds any post in pursuance of the

provisions of the Constitution in that capacity
(c) the duties performed by any person as a chairperson or a member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
 4.   Services by a foreign diplomatic mission located in india
5.   Services of funeral, burial, crematorium or mortuary including transportation of

the deceased.

To conclude, Everything which seems like a supply of services or goods or a composite supply of goods and services apart from the specific activities mentioned in the draft GST law shall be treated as supply and hence, shall be taxable under the GST regime. The definition of supply is an inclusive one to broaden the scope of it. I personally think it was necessary as well because the law will evolve over a period of time and new situations will come so inclusive definition will help the legislature to tax from revenue point of view.

I hope you will like and share this article for the benefit of all.