INCOME TAX NOTES

Supply, Deemed Supply, Negative List, Exempt, Composite and Mixed Supply, Power to exemption

Supply, Deemed Supply, Negative List, Exempt, Composite and Mixed Supply, Power to exemption


CGST Act Section 7. Scope of supply

Supply Means 
Section 7 Supply = 
      Goods and Service + Transfer + Consideration + Business
      + Schedule I Supply Without Consideration
      + Schedule II  Difference Between Supply of Goods or Service
      - Schedule III Negative List
      - 7(b) Government Service

Section 8 Tax liability on composite and mixed supplies. 


Section 7. Scope of supply.

(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. the activities specified in Schedule I, made or agreed to be made without a consideration; and
   c. the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

(2) Notwithstanding anything contained in sub-section (1),––
   a. activities or transactions specified in Schedule III; or
   b. such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as—
   a. a supply of goods and not as a supply of services; or
   b. a supply of services and not as a supply of goods.


8. Tax liability on composite and mixed supplies.
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—
   a. a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
   b. a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.








SCHEDULE I - [See section 7]
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods—
   a. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or
   b. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

SCHEDULE II - [See section 7]
ACTIVITIES TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES

1. Transfer
   a. any transfer of the title in goods is a supply of goods; 
   b. any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;
   c. any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

2. Land and Building
   a. any lease, tenancy, easement, licence to occupy land is a supply of services;
   b. any 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.

3. Treatment or process
   Any treatment or process which is applied to another person's goods is a supply of services.

4. Transfer of business assets
   a. where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
   b. where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services;
   c. 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—
      (i) the business is transferred as a going concern to another person; or
      (ii) the business is carried on by a personal representative who is deemed to be a taxable person

5. Supply of services
The following shall be treated as supply of services, namely:—
   a. renting of immovable property;
   b. 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 after its first occupation, whichever is earlier.
Explanation. - For the purposes of this clause- 
    (1) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:—
      (i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
      (ii) a chartered engineer registered with the Institution of Engineers (India); or
      (iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
   (2) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure;
   c. temporary transfer or permitting the use or enjoyment of any intellectual property right;
   d. development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
   e. agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and
   f. 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.

6. Composite supply
The following composite supplies shall be treated as a supply of services, namely:— 
   a. works contract as defined in clause (119) of section 2; and
   b. 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.

7. Supply of Goods
The following shall be treated as supply of goods, namely:—
   Supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.

SCHEDULE III - [See section 7]
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any court or Tribunal established under any law for the time being in force.
   a. the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of 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; or
   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 of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
Explanation.— For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court.