Supply of Goods and Services, Time of Supply and Value of Supply & Continues Supply?-Manoj Gurukul

What is supply under GST?

Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.

         SUPPLY: TAXABLE EVENT UNDER GST

Taxable event is very important matter in every tax law. Its determination is most crucial for the proper implementation of any tax law. Taxable event is that on the happening of which the charge is fixed. It is that event which on its occurrence creates or attracts the liability to tax.

The taxable event under GST shall be the supply of goods or services or both made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply.’

         RELEVANT DEFINITION

    Meaning of goods [Sec. 2(52)]

As per section 2(52) “goods” means

u every kind of movable property

u other than money and securities

u but includes

n actionable claim,

n growing crops,

n grass and

n things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

         Meaning of services [Sec. 2(102)]

As per section 2(102) “services” means

u anything

u other than goods, money and securities

u but includes activities relating to the

n use of money or its conversion

n by cash or by any other mode,

n from one form, currency or denomination, to another form, currency or denomination

u for which a separate consideration is charged;

Example: A foreign exchangedealerwhileexchangingonecurrencyforanotheralsocharges acommission (often inbuilt in the difference between the purchase price and selling price currency). The related activity of providing the services for which a commission is charged separately would be very much a ‘supply’.

         Consideration [Sec. 2(31)]

In relation to the supply of goods or services or both includes—

(a)     any payment made or to be made,

u whether in money or otherwise,

u in respect of, in response to, or for the inducement of,

u the supply of goods or services or both,

u whether by the recipient or

u by any other person

u but shall not include any subsidy given by the Central Government or a State Government;

Note:

1.     Consideration can be in monetary or non-monetary form or partly in monetary form and partly in non-monetary form.

(a)     Monetary consideration includes payment by cash, cheque or credit card, bank transfer and deduction from bank account.

(b)     Non-monetary consideration essentially means compensation in kind such as the following:

u Barter, Part Exchange

u Doing or agreeing to do an act

2.     Meaning of “in respect of, in response to, or for the inducement of”

u It means there must be a direct link between the supply and the consideration.

u Inducement means to gives something to a person so that he will do something else    in return.

u For Example: A restaurateur offered ‘free’ meals to drivers of buses carrying passen- gers as an inducement to bring potential customers to his business premise. Since  the meals were not given to drivers of empty buses, there is a direct link between the act of bringing passengers to the food outlet and the provision of the free meals. The consideration here is the free meals provided.

u For Example: Donation is not a consideration because there is no supply of goods or services by the orphanage to the donor in return.

3.     Consideration may flow from recipients of supply of from any other person:

When Mr. A has a binding contract with Mr. B to supply hampers to the clients, there is a taxable supply made by Mr. B to Mr. A since there is a direct link between the supply made and the consideration given.

(b)     the monetary value of any act or forbearance,

u in respect of, in response to, or for the inducement of,

u the supply of goods or services or both,

u whether by the recipient or

u by any other person

u but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Note: For example: Mr. Parveen, partner of AB & Associates, retires from firm. Firm enters into ‘non- competence agreement’ with Mr. Parveen for 5 years against a consideration of ` 5 crore.

In this case, forbearance on part of Mr. Parveen i.e. not to carry on competitive business becomes a taxable supply and thus, liable to GST.

         Business [Sec. 2(17)]

It includes—

(a)     any u trade, commerce, manufacture, u profession, vocation, u adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; Note:- 1.    Even if there is no profit motive or even if no profit is earned an activity in the nature of trade, manufacture, commerce, profession may constitute business. 2.    Charitable or religious activities are not specifically covered. Example: Akshay Kumar, a famous actor, paints some paintings and sells them. The consideration from such sale is to be donated to a Charitable Trust - ‘Kind Human’. The sale of paintings by the actor qualifies as supply even though it is a one-time occurrence.

(b)     any activity or transaction in connection with or incidental or ancillary to sub-clause (a); Note: 1.     By virtue of point (b) of definition, incidental activity is taxable only if main activity is business. For example, Sale of laddu by Mehandipur Balaji temple cannot be business since main activity of temples is not business. 2.     Sale of old Plant & Machinery, old computer , old furniture, old car, old printer, scrap would attract to GST even though taxable person are not in business to sell these assets.

(c)     any activity or transaction in the nature of sub-clause (a), u whether or not there is n volume, n frequency, n continuity or n regularity of such transaction; Note: Even transactions which are undertaken on casual or irregular basis are also covered within the term business by virtue of point (c) of the definition.

(d)     supply or acquisition of u goods including capital goods and services in connection with u commencement or closure of business; Note: when partners bring in capital assets or stocks in to the firm as their capital or assets distributed to partners at the time of dissolution of firm shall also amount to business.

(e)     provision by a u club, u association, u society, or u any such body u (for a subscription or any other consideration) u of the facilities or benefits to its members;

Note: 1.    Club and its members are treated as distinct persons. 2.    Banquet  Hall/restaurant/Sports  facilities/library  services  etc.  are  some  example  of provided to their members. 3.    A resident Welfare Association provides the service of depositing the water bills of the residents in lieu of some nominal charges. Provision of service by a club or association or society to its members is treated as supply as this is included in the definition of ‘business’.

(f)     admission, u for a consideration, u of persons to any premises; Note: 1.    Admission to any event or facilities like amusement park, Cinema hall or gaming event for a fee or other consideration. 2.    For example: If A wants to hire a premises but the same is already hired to B. Now B agrees to vacate on payment of some money to him which is popularly called “Pagadi”.

(g)     services supplied by a person u as the holder of an office u which has been accepted by him u in the course or furtherance of his trade, profession or vocation; Note: If a practicing chartered accountant is appointed as an independent director of a company, it means that he accepts this office of directorship in the course or furtherance of his professional practice.

(h)     services provided by a race club u by way of totalisator or u a licence to book maker in such club ; and Note: 1.    Totalisator is referred to a pari mutuel machine or a computer that records bets and divides the total amount of bet among winners. 2.    A bookmaker provides wagering (betting) services to the general public at race courses or sporting grounds.

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; Note: As per exemption list, GST is exempt on sovereign activities of Central Government, a State Government or any local authority.

         Job work [Sec. 2(68)]

Means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.

         Works contract [Sec. 2(119)]

Means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract.

         MEANING AND SCOPE OF SUPPLY [SEC. 7]

General meaning [Sec. 7(1)(a)]

Supply includes

All forms of supply of goods and/or services such as

u sale,

u transfer,

u barter,

u exchange,

u license,

u rental,

u lease or

u disposal

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

Meaning of various Terms:

Sale	Transferring the property in goods from one to another, upon valuable consideration.
Transfer	Any transfer of goods or right in goods or of undivided share in goods without transfer of title thereof.
Barter	To exchange one commodity for another without use of money.
Exchange	To swap, to part with, give or transfer for an equivalent with the use of money.
Licence	Permission granted by competent authority to exercise certain privileges without such authorization the activity would have constituted as an illegal act.
Rental	Periodical payment for the use of another property.
Lease	Contractual agreement by which one party conveys an estate in property to another party, for a limited period, subject to various conditions, in exchange for something of value, but still remain ownership.
Disposal	To pass or into the control of someone else; to alienate, bestow, or part with.

Analysis:

1.    It is an inclusive definition.

2.    Supply can be supply of goods or services or both.

3.    Supply should be made for consideration.

4.    Supply should be made in the course or furtherance of business.

5.    Supply should be of goods or services. Supply of anything other than goods or services like money, securities etc. does not attract GST.

Examples:

1.    Suppose Mr. ram provides free coaching service to Mr. Shyam, in such case there is no supply due to lack of consideration.

2.    When a new Mobile worth ` 10,000 is purchased in exchange of an old Mobile along with the monetary consideration of ` 2,000 paid for the said purchase. This is an example of exchange.

3.    Where a laptop is supplied for ` 30,000 along with a barter of printer that is manufactured by the recipient is an example of Barter.

	4. Manish buys a mobile phone for his personal use and after six months sells it to a mobile dealer. Sale of mobile by Manish to mobile dealer is not a supply under CGST Act because supply is not made by Manish in the course or furtherance of business.
Import of services [Sec. 7(1)(b)]	Import of services for a consideration whether or not in the course or furtherance of business; Analysis: u Import of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty under the Customs Tariff Act, 1975. u Persons importing services for personal purposes shall also be liable to GST on reverse charge basis. u It should be noted that there is no threshold limit in reverse charge. u This is an exception of supply in the course or furtherance of business. Example: Katrina Kaif has taken beauty parlour service from uSA, she is liable to pay Tax under reverse charge mechanism.
Supply without consideration [Sec. 7(1)(c)]	The activities specified in Schedule I, made or agreed to be made without a consideration; (Please refer Schedule I given later in this chapter with analysis)
Whether activity to be treated as Supply of goods or supply of services [Sec. 7(1)(d)]	The activities to be treated as supply of goods or supply of services as referred to in Schedule II. (Please refer Schedule II given later in this chapter with analysis)
Nor supply of goods or services [Sec. 7(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. (Please refer schedule III given later in this chapter with analysis)
Issue of Notification by Government [Sec. 7(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.

SCHEDULE I

2.3.1 Activities to be treated as supply even if made without consideration

S. No.	Title	Provision	Analysis & Examples
1.	Permanent transfer or disposal of business assets	Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.	1.    It may be noted that this provision would apply only if input tax credit has been availed on such assets. 2.    This is applicable to business assets only hence service provided without consideration would not attract GST.

Why are time place and value of supply important?

Time of supply means the point in time when goods/services are considered supplied’. When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

Place of supply is required for determining the right tax to be charged on the invoice, whether IGST or CGST/ SGST will apply.

Value of supply is important because GST is calculated on the value of the sale. If the value is calculated incorrectly, then the amount of GST charged is also incorrect

1. Time of Supply

Time of supply means the point in time when goods/services are considered supplied’. When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

CGST/SGST or IGST must be paid at the time of supply. Goods and services have a separate basis to identify their time of supply. Let’s understand them in detail.

A. Time of Supply of Goods

Time of supply of goods is earliest of:

1. Date of issue of invoice

2. Last date on which invoice should have been issued

3. Date of receipt of advance/ payment*.

For example:

Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January. The payment was received on 31st January. The goods were supplied on 20th January.

*Note:  GST is not applicable to advances under GST. GST in Advance is payable at the time of issue of the invoice.  Notification No. 66/2017 – Central Tax issued on 15.11.2017

Let us analyze and arrive at the time of supply in this case.

Time of supply is earliest of –

1. Date of issue of invoice = 15th January

2. Last date on which invoice should have been issued  = 20th January

Thus the time of supply is 15th January.

What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X on 1st January?

The time of supply for the advance of Rs 50,000 will be 1st January(since the date of receipt of advance is before the invoice is issued). For the balance Rs 50,000, the time of supply will be 15th January.

B. Time of Supply for Services

Time of supply of services is earliest of:

1. Date of issue of invoice

2. Date of receipt of advance/ payment.

3. Date of provision of services (if invoice is not issued within prescribed period)

Let us understand this using an example:

Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on 20th January and the payment for the same was received on 1st February.

In the present case, we need to 1st check if the invoice was issued within the prescribed time. The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This means that the invoice was issued within a prescribed time limit.

The time of supply will be earliest of –

1. Date of issue of invoice = 20th January

2. Date of payment = 1st February

This means that the time of supply of services will be 20th January.

C. Time of Supply under Reverse Charge

In case of reverse charge the time of supply for service receiver is earliest of:

1. Date of payment*

2. 30 days from date of issue of invoice for goods (60 days for services)

*w.e.f. 15.11.2017 ‘Date of Payment’ is not applicable for goods and applies only to services.  Notification No. 66/2017 – Central Tax 

For example:

M/s ABC Pvt. Ltd undertook service of a director Mr. X worth Rs. 50,000 on 15th January. The invoice was raised on 1st February. M/s ABC Pvt Ltd made the payment on 1st May.

The time of supply, in this case, will be earliest of –

1. Date of payment = 1st May

2. 60 days from date of date of invoice = 2nd April

Thus, the time of supply of services is 2nd April.

2. Place of supply

It is very important to understand the term ‘place of supply’ for determining the right tax to be charged on the invoice.   

Here is an example:

Location of Service Receiver	Place of supply	Nature of Supply	GST Applicable
Maharashtra	Maharashtra	Intra-state	CGST + SGST
Maharashtra	Kerala	Inter-state	IGST

A. Place of Supply of Goods

Usually, in case of goods, the place of supply is where the goods are delivered.

So,  the place of supply of goods is the place where the ownership of goods changes.

What if there is no movement of goods. In this case, the place of supply is the location of goods at the time of delivery to the recipient.

For example: In case of sales in a supermarket, the place of supply is the supermarket itself.

Place of supply in cases where goods that are assembled and installed will be the location where the installation is done.

For example, A supplier located in Kolkata supplies machinery to the recipient in Delhi. The machinery is installed in the factory of the recipient in Kanpur. In this case, the place of supply of machinery will be Kanpur.

B. Place of Supply for Services

Generally, the place of supply of services is the location of the service recipient.

In cases where the services are provided to an unregistered dealer and their location is not available the location of service provider will be the place of provision of service.

Special provisions have been made to determine the place of supply for the following services:

• Services related to immovable property
• Restaurant services
• Admission to events
• Transportation of goods and passengers
• Telecom services
• Banking, Financial and Insurance services.

In case of services related to immovable property, the location of the property is the place of provision of services.

Example 1:

Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The property is located in Ooty(Tamil Nadu).

In this case, place of supply will be the location of the immovable property i.e. Ooty, Tamil Nadu.

Example 2:

A registered taxpayer offers passenger transport services from Bangalore to Hampi. The passengers do not have GST registration. What will be the place of supply in this case?

The place of supply is the place from where the departure takes place i.e. Bangalore in this case.

3. Value of Supply of Goods or Services

Value of supply means the money that a seller would want to collect the goods and services supplied.

The amount collected by the seller from the buyer is the value of supply.

But where parties are related and a reasonable value may not be charged, or transaction may take place as a barter or exchange; the GST law prescribes that the value on which GST is charged must be its ‘transnational value’. 
This is the value at which unrelated parties would transact in the normal course of business. It makes sure GST is charged and collected properly, even though the full value may not have been paid.

What is a bundled supply?

A bundled supply is a combination of goods and/or services. This concept was mainly found in service tax where a bundled service meant a combination of two or more services.

How to determine if it is naturally bundled, i.e., it cannot be separated?

The question of bundled supply in the ordinary course of business depends on the normal practices followed in the industry. Here are some ways to identify them:

1. If buyers mostly expect such services to be provided as a package, then the package will be treated as naturally bundled.

For example, most business conventions look for combination of hotel accommodation, auditorium and food.

2. If most of the service providers in the industry provide a package of services then it can be considered as naturally bundled. For example, air transport and food on board is a bundle offered by most airlines.

3. The nature of the various services in a bundle of services will also help to identify whether the services are bundled.

If there is a main service and the others are ancillary service then it becomes a bundled service.

For example, five- star hotels often provide free laundry services on staying at the hotel. Renting the room is the primary service and laundry is ancillary. A person can opt for laundry services only if he is staying at the hotel

Other indicators of bundling of services in the ordinary course of business (but they are not a foolproof identification):

– There is a single price for the package even if the customers opt for less

– The components are normally advertised as a package

– The different components are not available separately

What is composite supply under GST?

Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply.

It means that the items are generally sold as a combination.

The items cannot be supplied separately.

How to determine if it is a composite supply?

A supply of goods and/or services will be treated as composite supply if it fulfills the following criteria:

• Supply of 2 or more goods or services together AND

• It is a natural bundle, i.e., goods or services are usually provided together in the normal course of business. 

• They cannot be separated.

What tax rate will apply?

The tax rate of the principal supply will apply on the entire supply.

Example:

 Goods are packed and transported with insurance. The supply of goods, packing materials, transport and insurance is a composite supply. Insurance, transport cannot be done separately if there are no goods to supply. Thus, the supply of goods is the principal supply.

Tax liability will be the tax on the principal supply i.e., GST rate on the goods.

If the second condition is not fulfilled it becomes a mixed supply.

What is mixed supply under GST?

• Mixed supply under GST means a combination of two or more goods or services made together for a single price.
• Each of these items can be supplied separately and is not dependent on any other.

Under GST, a mixed supply will have the tax rate of the item which has the highest rate of tax.

For example-

A Diwali gift box consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices supplied for a single price is a mixed supply. All are also sold separately. Since aerated drinks have the highest GST rate of 28%, aerated drinks will be treated as principal supply and 28% will apply on the entire gift box.

How to determine if it is a mixed supply or a composite supply?

You have to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply.

If the items can be sold separately, i.e., the supplies not naturally bundled in the ordinary course of business, then it would be a mixed supply.

For example:

If a person buys canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices separately and not as a Diwali gift box, then it is not considered a mixed supply. All items will be taxed separately.

Differences between mixed and composite supplies

Particulars	Composite Supply	Mixed supply
Main item	Principal item	Item with highest tax rate
Tax rate applicable	Tax rate of principal item	Highest tax rate of all the items

Time of supply

Time of supply in case of composite supply

If the principal supply is a service (for example, air transport and food on board) then the composite supply will be treated as a supply of services. The provisions relating to time of supply of services will apply.

Similarly, in the case of purchasing and transporting the goods, the supply of goods is the principal supply. The composite supply will qualify as supply of goods and the provisions relating to time of supply of goods will apply.

Time of supply in case of mixed supplies

If the highest tax rate belongs to a service then the mixed supply will be treated as the supply of services. The provisions relating to time of supply of services would be applicable.

Similarly, if the highest tax rate belongs to goods then the mixed supply will be treated as supply of goods. The provisions relating to time of supply of services would be applicable.

For more details on time of supply of goods and services please refer to our various articles.

Further examples

Example 1

Booking train tickets: You are booking a Rajdhani train ticket which includes meal. It is a bundle of supplies. It is a composite supply where the products cannot be sold separately. You will not buy just the train meal and not the train ticket. The transportation of passenger is, therefore, the principal supply.

Rate of tax applicable to the principal supply will be charged to the whole composite bundle. Therefore, rate of GST applicable to transportation of passengers by rail (5%) will be charged by IRCTC on the booking of Rajdhani ticket.

Example 2: Buy detergent Get bucket free

Many shops offer a free bucket with detergent purchased. This is a mixed supply as it does not satisfy the 2nd condition, i.e., it can be sold separately. You can buy either just a bucket or just detergent. The highest rate of GST will then apply. Since detergents have the higher rate (28%), this rate will apply on the whole mixed bundle.

Example 3: Works Contract

A works contract is a mixture of service and transfer of goods. For example, construction of a new building where a combination of materials like bricks, cement, sand along with services of laborers, engineers, architects etc. produce a building (goods).

It is a classic example of composite supply. But to avoid the confusion under earlier tax law, GST Act clearly clarifies works contract as a supply of service with specific tax rates.

Example 4: Restaurant

Restaurant business provides a bundled supply of preparation of food and serving the same.  

It is also a classic example of a composite supply. However, to avoid the confusion under earlier tax law, GST Act clearly clarifies restaurants as a supply of service with specific tax rates.

Continuous supply of goods

It means a

• supply of goods which is provided or will be provided
• continuously or on recurrent basis,
• under a contract.
• It may be through means of a wire, cable, pipeline or other conduit.
• The supplier sends invoice to the recipient on a periodic basis.

Time of issuing invoice for continuous supply of goods

There are successive statements of accounts/successive payments and the invoices are issued before or at the time of issue of each statement or at the time each payment is received.
For example, the brick supplier issues an invoice along with each batch of bricks he sends.

Continuous supply of services

It means a

• supply of services which is provided or will be provided
• continuously or on recurrent basis
• under a contract
• for a period exceeding three months
• with periodic payment obligations

Time of issuing of tax invoice for continuous supply of services

• When the due date of payment can be identified from the contract

The invoice will be issued before or after the payment is to be made by the recipient but within specified time**. Invoice will be issued, whether or not any payment has been received by the supplier.
For example, telecom service provider sends telephone bill every month. This is mentioned in the contract with the telecom company.

• When the due date of payment is cannot be identified from the contract

The invoice shall be issued before or after each time when the supplier of service receives the payment but within specified time**.

• When the payment is linked to the completion of an event

The invoice shall be issued before or after the time of completion of that event but within specified time**.

• When the supply of services ceases under a contract before the completion of the supply

The invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the service provided before stopping.
For example, a works contract starting on 1st August 2017 was due for completion in March 2018. But it was stopped on 11th Nov 2017. The contractor will issue an invoice on 11th November 2017 to the extent of work performed.

Specified Time**
The invoice must be issued within 30 days from the date when each event, specified in the contract and requiring the recipient to make any payment, is completed.
If the supplier of service is a bank/financial institution/NBFC 
The invoice must be issued within 45 days from the date of supply of service.

The Centre or a State Government may notify the supply of goods or services to be treated as continuous supply of goods or services.

Conclusion

Multiple events such as raising invoice/making payment in case of supply of goods/services or completion of event-in case of service are triggering the tax levy. It confirms that the government wants to ensure tax is collected at the earliest point of time.