Definition of Supply under GST: Scope Explained

Under GST, the event of Supply is treated as the basis for charging tax. The tax liability arises at the time of supply of goods or services. Therefore, identifying whether a transaction qualifies as supply is crucial to determine GST applicability.

Concept Before GST

In the earlier indirect tax system, the concept of Supply did not exist. Different tax laws levied indirect taxes at varying stages. Excise duty was imposed on manufactured goods when they left the factory. Service tax was charged based on the ‘point of taxation’ rules for services provided. VAT applied to the value of sales of goods or services. With GST, these taxes have been unified into a single taxable event.

What is Supply under GST?

Supply includes activities such as sale, transfer, exchange, barter, license, rental, lease, and disposal. If a person carries out any of these transactions in the course or furtherance of business and for consideration, it falls within the scope of supply under GST.

Elements of Supply

There are two essential conditions for supply:

It must be carried out for consideration.
It must be in the course or furtherance of business.

If these conditions are not satisfied, the transaction is not treated as a sale.

Examples

Mr. A buys a table for ₹10,000 for personal use and sells it to a dealer after 10 months. This does not qualify as supply under CGST since it was not done for business purposes.
Mrs. B offers free coaching to local students as a hobby. As this is without consideration, it does not amount to supply.

However, as per Schedule I of the GST Act, some transactions are treated as supply even when no consideration is involved.

Classification of Supply and Types

Composite Supply and Mixed Supply

In certain cases, two or more items are supplied together. Such supplies are categorized into Composite Supply and Mixed Supply.

Composite Supply:
When two or more goods or services are naturally bundled and supplied together in the ordinary course of business, and cannot be supplied separately, it is treated as a composite supply. Within such a supply, there is one principal supply and the others are secondary supplies. The GST rate applicable on the principal supply is applied to the entire transaction.
Example: Purchasing a Diwali gift box containing dry fruits, a box, and wrapping material. The box and wrapper cannot be sold independently without the dry fruits, making it a composite supply.
Mixed Supply:
When two or more goods or services are supplied together, but they are not dependent on one another and can be sold separately, it is classified as a mixed supply. The key condition is that it must not fall under composite supply. In this case, the highest tax rate among the items is levied on the entire supply.
Example: A Christmas package including cakes, chocolates, aerated drinks, Santa caps, and other gifts. Since each item can be sold on its own, this is considered a mixed supply.

Import of Services

Importing goods or services with consideration is treated as a supply, whether for business purposes or for personal use.

Scope: List of Supplies and Taxability

Transfer – Transfer of Title of Goods

Activities treated as supply of goods under Schedule II of the GST Act include:

Transfer or disposal of business assets, whether or not for consideration.
When a person ceases to be a taxable entity, their business assets are deemed to be supplied in the course of business.

This rule does not apply when:

The business is transferred to another person, or
The business is carried on by a taxable representative.

Additionally, supply of goods by an unincorporated AOP/BOI for consideration is also considered a supply.

Transfer – Right in Goods Without Transfer of Title

Activities treated as supply of services under Schedule II of the GST Act include:

Land and Building:
- Lease, rent, tenancy, easement, or license to occupy land.
- Leasing or letting out a building (commercial, industrial, or residential complex) for business purposes, either wholly or partly.
Business Assets:
Use of business assets by the owner, or allowing their use for personal purposes.
Construction:
Construction of a building or complex intended for sale, wholly or partly, to a buyer.
Intellectual Property:
Temporary transfer or permitting the use of intellectual property rights.
Other Services:
- Renting of immovable property (residential renting is exempt from GST).
- Development of IT software.
- Non-compete agreements (agreeing to refrain from an act).
- Transfer of the right to use goods for a consideration.
- Any treatment or process carried out on another person’s goods.

Activities or Transactions Neither Considered as Sale of Goods nor as Sale of Services under Schedule III of GST Act

Under the GST Act, certain activities and transactions are specifically classified as neither supply of goods nor supply of services. These fall under Schedule III, also known as the “negative list.”

The following are covered:

Services provided by an employee to the employer
Funeral, burial, crematorium, or mortuary services, including transportation of the deceased
Services provided by any court or tribunal
Duties performed by Members of Parliament, Members of Legislative Assembly/Council, and members of local bodies
Duties performed by any person as a Chairperson, Member, or Director in a body established by the Central or State Government or local authority
Duties performed by a person holding any post under the Constitution in that capacity
Sale of land
Sale of building (except when part of the consideration is received before completion; in such cases, it is treated as a supply of services)
Actionable claims, except lottery, betting, and gambling
Supply of goods from one non-taxable territory to another without entering India*
Supply of warehoused goods before clearance for home consumption*
Supply of goods by the consignee through endorsement of title documents before clearance for home consumption*

*These were added effective 1st February 2019, with retrospective effect from 1st July 2017 as per Budget 2023 (no refund for taxes already collected between July 2017 and January 2019).

By clearly listing such exclusions, GST law simplifies tax treatment and avoids ambiguity in classifying supplies.

FAQs

Q1. What is the definition of supply under GST?
Under GST, supply includes all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made for a consideration in the course or furtherance of business.

Q2. Does supply under GST cover both goods and services?
Yes, GST law defines supply to include both goods and services, as well as certain transactions without consideration that are deemed as supply.

Q3. Is import of services considered supply under GST?
Yes, import of services is treated as supply under GST, even if it is made without consideration, provided it is for business purposes.

Q4. What are deemed supplies under GST?
Deemed supplies include activities listed in Schedule I of the CGST Act, such as permanent transfer of business assets, supply between related persons, and supply of goods by principal to agent.

Q5. Are gifts given by an employer to employees considered supply under GST?
Gifts up to ₹50,000 in value per employee in a financial year are not treated as supply. Anything above this threshold is taxable under GST.

Q6. Does supply under GST include free samples?
Yes, distribution of free samples is considered supply under GST since it involves disposal of goods without consideration.

Q7. What is the difference between composite supply and mixed supply under GST?
Composite supply is a combination of goods or services that are naturally bundled and supplied together, whereas mixed supply is a combination of two or more individual supplies made together for a single price, not naturally bundled.