The Goods and Services Tax (GST) regime in India is structured around the concept of ‘supply’. Supply is the foundation upon which GST liability is determined. It includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration in the course or furtherance of business. This wide-ranging definition ensures that most commercial transactions fall under the purview of GST.
The term ‘supply’ is elaborated under Section 7 of the Central Goods and Services Tax (CGST) Act, 2017. The scope of supply is categorized under three key clauses in this section, and further clarified by relevant schedules. Understanding what constitutes a supply is critical for determining when GST is applicable.
Meaning and Elements of Supply
To determine whether a transaction constitutes a supply under GST, it must meet the following basic elements:
- Involvement of goods and/or services
- Presence of a supplier and a recipient
- Transaction occurs for a consideration (except for specific cases covered under Schedule I)
- Transaction occurs in the course or furtherance of business
Unless these conditions are satisfied, the transaction may not be treated as a taxable supply under GST.
Types of Supply under GST
GST law classifies supply into various categories to determine the taxability, place of supply, time of supply, and applicable rates. These types include:
Taxable Supply
Any supply of goods or services or both which is leviable to tax under GST is referred to as a taxable supply. A registered person supplying taxable goods or services is liable to charge GST and comply with all regulatory requirements.
Exempt Supply
Exempt supplies refer to goods or services or both which attract a nil rate of tax or are fully exempt from tax under Section 11 of the CGST Act or under Section 6 of the Integrated Goods and Services Tax (IGST) Act. Exempt supplies also include non-taxable supplies.
Non-Taxable Supply
Non-taxable supplies are those which are not chargeable to tax under the GST Act. For instance, alcohol for human consumption is a non-taxable supply under GST and is governed by the respective State Excise laws.
Composite and Mixed Supply
Composite supply involves two or more taxable supplies of goods or services or both, which are naturally bundled and supplied together in the ordinary course of business, where one is a principal supply. For example, supply of goods with transportation and insurance.
Mixed supply, on the other hand, consists of two or more individual supplies of goods or services or both made in conjunction with each other for a single price, and each of these supplies can be supplied separately and is not dependent on any other. For example, a gift hamper containing chocolates, sweets, and soft drinks sold for a single price.
Deemed Supply
Deemed supply includes those transactions which may not be supplied in the ordinary sense but are treated as supplies for the purpose of GST. Schedule I of the CGST Act lists such supplies made without consideration. Examples include:
- Permanent transfer or disposal of business assets
- Supplies between related persons or distinct persons
- Supply of goods by a principal to his agent
- Import of services by a taxable person from a related person or any of his other establishments
Scope of Supply
The scope of supply under GST has been widened through various amendments and judicial interpretations. Section 7 of the CGST Act was amended to provide more clarity on the inclusion of certain activities as supply. As it stands, the scope of supply includes:
- All forms of supply made or agreed to be made for a consideration in the course or furtherance of business
- Activities specified in Schedule I made without consideration
- Activities referred to in Schedule II which define whether a supply is of goods or services
- Activities or transactions treated as neither supply of goods nor supply of services under Schedule III
Schedule II plays a vital role in determining the nature of supply. It provides clarity on whether certain transactions will be treated as a supply of goods or services. For instance:
- Transfer of title in goods is a supply of goods
- Transfer of right in goods without transfer of title is a supply of services
- Renting of immovable property is a supply of services
Schedule III lists out activities which are neither a supply of goods nor a supply of services, such as:
- Services by an employee to the employer in the course of employment
- Services by any court or tribunal
- Duties performed by MPs, MLAs, and other constitutional post holders
- Sale of land and building (subject to certain conditions)
Supply Without Consideration
Generally, a supply under GST must be for consideration. However, certain supplies made without consideration are deemed supplies under Schedule I. Such transactions include:
- Transfer of business assets where input tax credit has been availed
- Supplies between related or distinct persons in the course or furtherance of business
- Gifts not exceeding Rs. 50,000 in value in a financial year to employees
These transactions are treated as supplies and taxed accordingly, even in the absence of monetary consideration.
Supply in the Course or Furtherance of Business
For a supply to be taxable under GST, it should occur in the course or furtherance of business. The term ‘business’ under GST is defined in an inclusive manner. It covers:
- Any trade, commerce, manufacture, profession, vocation, or similar activity
- Activities undertaken by government bodies
- Activities in the nature of occasional transactions
- Services provided by clubs, associations, or societies
Therefore, even one-off transactions such as sale of old machinery or immovable property by a business can be considered supplies.
Import of Services
Import of services is also treated as a supply under GST, even if made without consideration. It becomes taxable if:
- The recipient is located in India
- The supplier is located outside India
- The place of supply is in India
Import of services without consideration is treated as a supply when it is received from a related person or from a distinct person in the course or furtherance of business.
Time of Supply
The liability to pay tax under GST arises at the time of supply. The time of supply rules differ for goods and services:
- For goods, it is the earliest of the date of issue of invoice or the date of receipt of payment
- For services, it is the earliest of the date of issue of invoice (within prescribed time) or date of payment receipt
Understanding the time of supply is crucial for determining when the tax becomes payable.
Place of Supply
Place of supply determines whether a transaction is intra-State or inter-State and whether CGST, SGST, or IGST is applicable. It is important for:
- Determining the nature of supply
- Calculating the correct tax
- Ensuring proper compliance
For goods, the place of supply is generally the location where the goods are delivered. For services, it depends on whether the recipient is a registered person and the nature of the service provided.
Valuation of Supply
GST is payable on the transaction value, which is the price actually paid or payable for the supply of goods or services where the supplier and recipient are not related and the price is the sole consideration.
In cases where consideration is not wholly in money or parties are related, valuation rules under the CGST Rules, 2017 come into play. These rules prescribe methods such as:
- Open market value
- Value of supply of like kind and quality
- Cost-based method
- Residual method
Taxability of Composite and Mixed Supplies
In the context of GST, understanding the distinction between composite and mixed supplies is crucial for determining the applicable tax rate and compliance requirements. A composite supply comprises two or more supplies naturally bundled and supplied together in the ordinary course of business, where one is a principal supply. The entire supply is taxed at the rate applicable to the principal supply. For example, a hotel providing accommodation with complimentary breakfast constitutes a composite supply, where the accommodation is the principal supply.
On the other hand, a mixed supply involves two or more individual supplies combined and offered for a single price but which do not constitute a composite supply. In such cases, the entire supply is taxed at the rate applicable to the highest-taxed item in the bundle. For instance, a Diwali gift pack containing chocolates, dry fruits, and a bottle of soda is considered a mixed supply and taxed accordingly.
Time of Supply for Goods and Services
Time of supply determines when the liability to pay GST arises. For goods, the time of supply is the earlier of the date of issue of invoice or the date of receipt of payment. If the supplier receives an advance, the time of supply is the date of receipt of payment to the extent of advance received. For services, the time of supply is the earlier of the date of invoice issuance (if issued within the prescribed period) or the date of receipt of payment.
In cases where invoices are not issued within the prescribed period, the time of supply for services becomes the date of service provision or the date of payment, whichever is earlier. These provisions ensure timely tax collection and reduce opportunities for tax evasion.
Place of Supply Rules and Their Impact
The place of supply rules are fundamental in determining whether a supply is intra-State (subject to CGST and SGST) or inter-State (subject to IGST). For goods, the place of supply is generally the location where the movement of goods terminates for delivery to the recipient. If there is no movement, it is the location of goods at the time of delivery.
For services, the place of supply depends on whether the recipient is a registered person and the nature of the service. If the recipient is registered, the location of the recipient is the place of supply. For unregistered recipients, it is usually the location of the supplier or the location where services are performed, depending on the service type. Special rules apply for certain services like immovable property, transportation, and telecommunications. These rules ensure clarity in determining the tax jurisdiction and help avoid double taxation or no taxation.
Valuation of Supply
GST is levied on the value of supply, which is typically the transaction value or the price actually paid or payable. This value must include any taxes, duties, cesses, fees, and charges levied under other laws, if charged separately by the supplier. It also includes incidental expenses like commission and packing, as well as interest, late fee, or penalty for delayed payment.
Discounts given before or at the time of supply, and recorded in the invoice, are deductible from the transaction value. Post-supply discounts are deductible only if established in the contract and linked to specific invoices, and if the recipient reverses the input tax credit proportionately. Where the transaction value is not determinable, valuation rules prescribe methods like open market value, value of like kind and quality, cost-based valuation, and residual methods.
Reverse Charge Mechanism (RCM)
Under the reverse charge mechanism, the liability to pay tax shifts from the supplier to the recipient. RCM applies in specific notified cases such as services provided by a goods transport agency (GTA), legal services by an advocate, or supplies from an unregistered dealer to a registered recipient under certain conditions.
In RCM transactions, the recipient must self-invoice, pay tax on the inward supply, and claim input tax credit if eligible. This mechanism ensures tax compliance in cases where the supplier is outside the tax net or where the government wants to track transactions more effectively.
Input Tax Credit (ITC) on Supplies
The input tax credit system allows taxpayers to claim credit of GST paid on inward supplies used in the course or furtherance of business. To avail ITC, the recipient must possess a valid tax invoice, have received the goods or services, and the tax charged must have been paid to the government by the supplier. The recipient must also have filed their returns.
There are restrictions on ITC in certain scenarios, such as personal use, goods lost or destroyed, and specific blocked credits listed under Section 17(5) of the CGST Act. Matching of input credit with GSTR-2B data is essential for valid claims. Timely reconciliation and compliance with conditions help optimize input credit and reduce tax liability.
GST on Free Supplies and Discounts
While supply generally involves consideration, certain transactions without consideration are deemed as supply under Schedule I of the CGST Act. These include transactions between related persons or branches in different states, even without consideration. For instance, transfer of goods from a head office in Delhi to a branch in Mumbai is taxable.
However, genuine gifts and discounts are treated differently. Free samples distributed for business promotion are not eligible for ITC, and the supply may still be taxable. Discounts must be pre-agreed and appropriately reflected in the invoice to be excluded from the taxable value. Understanding these provisions helps businesses structure their promotional and pricing strategies while remaining compliant.
Taxability of Inter-State Branch Transfers
Inter-State branch transfers are considered taxable supplies under GST, even without consideration. The GST law treats different registrations (even within the same legal entity) as distinct persons. Thus, a branch transfer from one state to another is subject to IGST.
The supplying branch must issue a tax invoice and pay IGST on such transfers. The receiving branch can claim ITC if the goods or services are used for business. Maintaining proper documentation and timely reporting in returns is necessary to claim credit and avoid disputes. This provision ensures uniform taxation across states and accurate credit flow within businesses.
Job Work and Its Tax Treatment
Job work refers to processing or treatment undertaken by a person on goods belonging to another registered person. The principal can send inputs or capital goods to a job worker without payment of tax and must receive them back within the prescribed time: one year for inputs and three years for capital goods.
If goods are not returned within the prescribed time, the principal must pay tax on such deemed supply, along with interest. Job workers registered under GST must issue invoices for the services rendered and charge GST accordingly. The principal can claim ITC on goods sent to the job worker if conditions are met. Proper documentation, such as challans and delivery notes, ensures compliance and supports ITC claims.
E-Commerce and Supply Rules
E-commerce operators have specific responsibilities under GST. They are required to collect tax at source (TCS) at a notified rate on the net value of taxable supplies made through their platforms. The TCS collected must be deposited with the government and reflected in the supplier’s electronic cash ledger.
E-commerce operators must also maintain detailed records of suppliers, orders, cancellations, and returns. In some cases, such as services like ride-sharing, the operator is deemed to be the supplier and is liable to pay GST. These provisions ensure transparency and accountability in digital transactions, expanding the tax base and improving compliance.
Import and Export of Goods and Services
Imports are treated as inter-State supplies and attract IGST along with customs duties. The importer is liable to pay IGST on the import transaction and can claim ITC subject to eligibility. Proper documentation, such as the bill of entry and payment of applicable duties, is essential.
Exports are treated as zero-rated supplies under GST. Exporters can either export under bond or Letter of Undertaking (LUT) without payment of tax or pay tax and claim a refund. In both cases, documentation such as shipping bills, export invoices, and proof of realization is critical. These provisions promote global trade competitiveness while ensuring tax neutrality through refund and credit mechanisms.
Tax Invoice, Debit Note, and Credit Note
A tax invoice is a critical document under GST, containing details such as supplier and recipient information, GSTIN, description of goods or services, quantity, value, tax rate, and amount. It must be issued within prescribed time limits—before or at the time of supply for goods and within 30 days for services.
Debit notes are issued when the taxable value or tax charged in the original invoice is less than actual. Credit notes are issued in cases of goods return, deficient supply, or post-supply discount. These documents must be declared in the return for the month in which they are issued but not later than 30th November of the following financial year or the date of filing the annual return, whichever is earlier. Proper issuance and reporting of these documents ensure accurate tax reporting and reconciliation.
Documentation and Record Keeping
Maintaining proper records is fundamental to GST compliance. Registered persons must keep records of outward and inward supplies, stock, input tax credit, advances, adjustments, and returns filed. These records must be retained for at least six years from the due date of filing the annual return.
Electronic records are permissible, and businesses must ensure secure storage and retrievability. The GST law also prescribes records to be maintained by warehouse operators, transporters, and job workers. Non-maintenance can result in penalties and denial of input credit. Comprehensive recordkeeping supports accurate return filing, audit readiness, and efficient handling of notices and litigation.
Audit and Assessment of Supply Transactions
The GST law empowers tax authorities to audit the books of accounts and other documents maintained by registered persons. Audits can be departmental or conducted by authorized professionals. The purpose is to verify the correctness of returns, ITC claims, and compliance with the law.
Assessment can be provisional, self-assessment, or scrutiny-based. If discrepancies are found, authorities may issue notices demanding tax, interest, and penalty. Timely responses and proper documentation help resolve such cases amicably. Understanding the audit and assessment framework helps businesses stay prepared and minimize legal exposure.
Composite and Mixed Supplies
In the realm of GST, the classification of supplies into composite and mixed is pivotal for determining the appropriate tax rate. A composite supply is one where goods or services are naturally bundled and supplied together in the ordinary course of business. For instance, a hotel providing accommodation along with breakfast constitutes a composite supply, where accommodation is the principal supply.
Mixed supply, on the other hand, refers to two or more individual supplies made together for a single price, which are not naturally bundled. An example would be a gift hamper containing chocolates, soft drinks, and perfumes. The entire supply is taxed at the highest rate applicable to any of the items in the hamper.
Time of Supply Rules
Determining the time of supply is essential for fixing the liability to pay GST. The time of supply for goods is generally the earlier of the date of issue of invoice or receipt of payment. In the case of services, it is the earlier of the date of issue of invoice (if issued within the prescribed period) or the date of receipt of payment.
When the invoice is not issued within the prescribed time, the time of supply shall be the date of provision of service or receipt of payment, whichever is earlier. This timing is critical as it directly impacts the period for which the GST return must include the transaction.
Place of Supply Considerations
The place of supply determines whether a transaction is intra-state or inter-state, which in turn affects whether CGST and SGST or IGST is applicable. For goods, the place of supply is usually the location where the movement of goods terminates for delivery. In the case of services, determining the place of supply can be more complex and depends on the nature of the service.
For instance, for services related to immovable property, the place of supply is where the property is located. For events and performance-based services, it is the location where the event is held or where the services are actually performed. Special provisions exist for services supplied to or by SEZ units and developers.
Valuation of Supply
Valuation of supply under GST is critical for computing the tax liability. The value of supply is generally the transaction value, i.e., the price actually paid or payable for the supply of goods or services where the supplier and the recipient are not related and price is the sole consideration.
However, if the transaction involves related parties or price is not the sole consideration, the valuation has to be done as per the valuation rules. These include:
- Open market value
- Value of supply of goods or services of like kind and quality
- Cost plus 10 percent method
- Residual method based on reasonable means
Reverse Charge Mechanism
Under the reverse charge mechanism, the liability to pay tax is shifted from the supplier to the recipient of goods or services. This applies to specified categories of goods and services, such as legal services, services provided by a director to a company, and goods transport agency services.
Additionally, reverse charge is applicable for supplies made by an unregistered dealer to a registered person under certain conditions. The recipient must raise a self-invoice and pay tax accordingly, and also comply with input tax credit and reporting requirements.
Supplies between Branches and Related Persons
Under GST, supply between distinct persons, such as branches of the same legal entity located in different states, is considered as supply even if made without consideration. This is due to each registration being treated as a separate taxable person. Therefore, stock transfers between branches in different states attract GST.
Similarly, supplies between related persons also fall under the scope of supply even without consideration. Such supplies must be valued appropriately under GST valuation rules and reported in returns.
Input Tax Credit on Supplies
Input Tax Credit (ITC) allows businesses to claim credit for the tax paid on inputs used in the course or furtherance of business. For supplies to be eligible for ITC:
- The recipient must possess a valid tax invoice
- The goods or services must be received
- Tax must be actually paid to the government
- The recipient must furnish the return
ITC is not allowed in certain cases such as personal consumption, goods lost, stolen or destroyed, and certain categories like motor vehicles and food and beverages under specified conditions.
Special Provisions for E-Commerce Operators
E-commerce operators are subject to special rules under GST. If the operator facilitates the supply of goods or services, they may be required to collect tax at source (TCS) at the notified rate and deposit it with the government.
For certain services such as transportation or housekeeping provided through the platform, the e-commerce operator is treated as the deemed supplier and is required to discharge GST liability. They must also file monthly and annual returns detailing the supplies made through their platform.
Deemed Supply and Schedule I Transactions
Schedule I of the CGST Act identifies transactions that are considered as supply even if made without consideration. These include:
- Permanent transfer or disposal of business assets where ITC has been claimed
- Supply of goods or services between related persons or distinct persons
- Supply between principal and agent
- Import of services from a related person or from a business establishment outside India
These deemed supplies must be disclosed in returns and taxes paid accordingly.
Exempt, Nil-Rated, and Zero-Rated Supplies
While exempt and nil-rated supplies do not attract GST, zero-rated supplies like exports and supplies to SEZ are treated differently. Zero-rated supplies are taxable but the supplier can claim a refund of input tax credit.
Exempt supplies do not attract tax and input tax credit related to such supplies is not available. Nil-rated supplies are taxable supplies with a zero percent rate, such as certain food grains and educational services.
Documentation and Invoicing Requirements
Proper documentation is critical for ensuring compliance. Every registered person is required to issue a tax invoice for taxable supplies. The invoice must contain prescribed particulars such as:
- Name, address, and GSTIN of the supplier
- Invoice number and date
- Details of recipient
- HSN code/SAC
- Description, quantity, and value of goods/services
- Tax rate and amount
For exempt or non-GST supplies, a bill of supply must be issued. In certain cases, delivery challans, debit and credit notes are used for documentation.
Anti-Profiteering and Fair Pricing
The anti-profiteering provisions under GST ensure that the benefit of reduction in tax rates or availability of ITC is passed on to consumers by way of commensurate reduction in prices. The National Anti-Profiteering Authority (NAA) was set up to examine complaints in this regard.
Businesses are required to maintain records and demonstrate that tax benefits are being passed on to consumers. Failure to comply may lead to penalties including cancellation of registration.
Job Work and Subcontracted Supply
Job work refers to processing or working on goods supplied by a principal to a job worker. Under GST, the principal can send inputs or capital goods to the job worker without payment of tax. However, the goods must be returned within the prescribed time limits:
- Inputs: 1 year
- Capital goods: 3 years
If goods are not returned within these timelines, it is deemed as supply from principal to job worker. Proper documentation and intimation to authorities are necessary for availing these benefits.
Common Compliance Errors
Businesses often make errors in determining supply treatment, leading to compliance issues. Common mistakes include:
- Incorrect classification between goods and services
- Inadequate documentation for exempt or deemed supplies
- Non-compliance with place of supply rules
- Incorrect valuation for related party or branch transactions
- Misapplication of ITC rules on mixed supplies
Regular internal audits and system-based reconciliations can help identify and rectify such errors.
Conclusion
The classification, identification, and treatment of the supply of goods and services under the GST regime play a pivotal role in ensuring proper tax compliance, avoiding disputes, and facilitating seamless business operations. As India transitioned to GST, the concepts of supply, composite and mixed supplies, and the valuation of transactions have brought both clarity and complexity to the taxation framework.
Understanding the nature of a transaction whether it involves goods, services, or both is critical for determining tax rates, time of supply, place of supply, and eligibility for input tax credit. Moreover, the distinction between intra-state and inter-state supply significantly impacts tax liabilities, requiring businesses to be meticulous in their invoicing and state-wise compliance.
The rules concerning deemed supplies, such as those without consideration or self-supplies across different registrations, extend the scope of GST beyond traditional commercial exchanges. Businesses must carefully examine these provisions to ensure that no transaction liable to GST goes unreported.
Legal interpretations and frequent circulars by the GST Council also underline the dynamic nature of the law. Given the evolving jurisprudence around what qualifies as goods, services, or both, businesses must stay updated with the latest judicial pronouncements and departmental clarifications.
In practice, the correct classification and documentation of supplies not only affect the tax cost but also influence pricing strategies, contract structuring, and overall financial planning. From bundled services to job work, lease transactions to intellectual property licensing, every type of supply comes with its nuances, demanding a detailed understanding of GST law. Ultimately, a thorough grasp of the supply provisions under GST empowers businesses to remain compliant, minimize litigation, and optimize their tax positions in a legally sound manner.