CA > Inter > Paper 3 – Skim Notes

Chapter 2 : Supply under GST

Overview

  • Understanding the supply treatment under GST is crucial for determining taxability and compliance requirements.
  • This chapter outlines the key facets of the taxable event termed ‘supply’ as established under the CGST Act, 2017.
  • Sections and schedules are detailed to support the comprehension of taxable events under GST.

Key Topics

Concept of Taxable Event Under GST

  • The taxable event is defined as any transaction leading to a tax consequence.
  • Historically, multiple taxable events existed under various indirect tax regimes, which are simplified under GST to a single taxable event – ‘Supply’.
  • The focus of GST is on the ‘supply’ of goods and/or services, thereby eliminating the definitions of manufacturer, sale, etc.
  • The GST law resolves prior complexities and litigation concerning taxable events by establishing clear guidelines.

Deep Dive

  • Taxable events under previous regimes included sales, manufacture, and service provision.
  • The shift to GST represents a fundamental change in tax administration, simplifying compliance for businesses.
  • Evidence supporting the necessity for tax reform citing lengthy litigation around tax definitions.

Relevant Definitions

  • Goods: Movable properties excluding money and securities, inclusive of certain intangible assets.
  • Services: Anything that is not classified as goods, focusing on activities for remuneration beyond just goods.
  • Key terms like Principal, Competent Authority, Government, and Local Authority are defined to comprehend their roles in GST.

Deep Dive

  • Specificity in definitions helps mitigate disputes regarding classification of supplies.
  • Linguistic nuances in legal definitions affect interpretations significantly.

Composite and Mixed Supplies

  • Composite supplies involve two or more supplies where one is a principal supply, with associated supplies treated taxwise based on the principal.
  • Mixed supplies consist of two or more independent supplies for a single price, taxed based on the highest rate applicable among them.
  • Section 8 outlines how tax liabilities are determined for composite and mixed supplies, offering clarity for valuation.

Deep Dive

  • Examples of composite supplies include hotel packages and bundled goods like electronics with accessories.
  • Mixed supplies are illustrated through food bundles or gift packages, emphasizing the significance of assessing individual components.

Supply Without Consideration

  • Certain transactions are treated as supply even without consideration per Schedule I, aiding in comprehensiveness of GST coverage.
  • Includes transactions between related parties, permanent disposal of business assets where input credit is claimed, etc.
  • Conditions for transactions made between related persons are described to prevent confusion and clarify definitions.

Deep Dive

  • Imposing taxes on transactions made without consideration represents a shift in traditional tax policy.
  • Examples include gifts from employers to employees, which could surpass the taxable threshold.

Understanding ‘Business’ under GST

  • GST applicability is designated chiefly towards commercial activities categorized as business.
  • Business encompasses trade, commerce, profession, or any activity done for consideration that meets certain frequency or duration requirements.
  • Services rendered by employees to employers in regular job roles are defined outside GST owing to their nature.

Deep Dive

  • The broadening definition of business facilitates clearer tax obligations compared to previous tax systems.
  • Possible loopholes in defining personal transactions in business settings can present compliance challenges.

Deemed Supply Under Schedule I

  • Certain non-monetary transactions are categorized as supply, such as internal transfers of assets, to establish tax liability despite the lack of vigorous consideration.
  • The dealing between related persons highlights the regulatory perspective on preventing tax evasion.
  • Restrictions on the provisions ensure clarity in the framework of deemed supplies.

Deep Dive

  • Implications of input tax credit on deemed supplies can influence business accounting practices.
  • Exploration of legal windows available for clarifying transactions within a corporate group is essential.

Non-Supplies Under Schedule III

  • Several activities are clearly exempted from supply under GST, such as employment-related services, judicial services, and certain governmental functions.
  • Sale of land or buildings and specific actionable claims do not attract GST, creating a negative list of exemptions.
  • Understanding this delineation helps businesses navigate the multifaceted tax landscape.

Deep Dive

  • Verification of what constitutes non-supply often requires interpreting legal terms and definitions uniquely tied to GST.
  • Tax advisory services could be pivotal in clarifying ambiguous non-supply scenarios for businesses.

Summary

The chapter on ‘Supply Under GST’ highlights the significance of understanding taxable events defined as ‘supply’ in the CGST Act, 2017. This comprehensive supply framework resolves historical ambiguities surrounding transactions previously treated differently under various indirect tax regimes. Relevant definitions clarify the scope, including what constitutes goods and services, thereby aiding businesses in compliance and tax obligations. Additionally, investigations into composite vs. mixed supplies demarcate tax liabilities effectively, while transactions made without direct consideration are defined under Schedule I to ensure that pivotal commercial interactions are accounted for. The chapter also enumerates circumstances considered non-supply, thus enhancing the overall clarity of tax administration under GST.