Supply in new model GST Law

Supply is the taxable event for the levy of GST. The definition of supply has been changed to include some more clarity and type of transactions. The new definition of supply in new model GST law is given in section 3. 

Meaning and scope of supply in new model GST Law

(1) Supply includes—

(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

(b) Importation of services, for a consideration whether or not in the course or furtherance of business, and

(c) A supply specified in Schedule I, made or agreed to be made without a consideration.

(2) Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.

(3) Notwithstanding anything contained in sub-section (1),

(a) Activities or transactions specified in schedule III; or

(b) Activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities as specified in Schedule IV, shall be treated neither as a supply of goods nor a supply of services.

(4) Subject to sub-section (2) and sub-section (3), the Central or a State

Government may, upon recommendation 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; or

(c) Neither a supply of goods nor a supply of services.

(5) The tax liability on a composite or a mixed supply shall be determined in the following manner —

(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;

(b) a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.

Analysis of changes in supply in new Model GST Law

The portion which has been changed is highlighted with red color. Following will be the major impacts arising because of these changes.

• Initially definitions of supply included the importation of services even without consideration and even if are for personal use. The second criteria that importation of services will be taxable even are they are not used in course or furtherance of business is still there. But the existence of consideration is necessary. This provision has been modified in new Model GST Law in lines of the existing provisions of services tax. Which tax the importation of services only if there is consideration

• It was hard to find out the valuation of transaction of importation of services when no consideration is paid. We download many games or online freebees for personal use and we never think about their value. If law will try to tax it it will be very difficult to find out their true valuation. There are some services which are free for entire world then how can we put a value to it and charge tax. This change is definition of supply in new model GST law will put an end to all of those issues.

• Schedule I: Text of schedule I is changed in new model GST law. Earlier it was consisting five points where there was deemed supply without consideration. The supply of business asset or services if they are used personally has been removed from the schedule I. The new schedule I consist of following:

Schedule I as per revised draft Model GST Law

Matters to be treated as supply even if made without consideration [in terms of clause (C) of subsection (1) of section 3]

1. Permanent transfer/disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services between related persons, or between distinct persons as specified in section 10, when made in the course or furtherance of business.
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. Importation 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.

• New provisions have been added into this schedule. First clause of the schedule covers the permanent transfer or disposal of business asset will be taken as supply only when the input tax credit is availed on them.
• Second clause of Schedule one is almost same but the definition of taxable person has been changed to include that the establishments of a person in different states will be treated as distinct person. Schedule I will also cover the supply by those distinct person and related person if it is in course or furtherance of business.
• Supply of goods or receipt of goods by an agent will be treated as supply even without consideration.
• Importation of services by a registered person from related person or any of his establishments if it is in course or furtherance of business.
• A new Schedule II has been inserted into the definition of supply in new Model GST law. It covers the matters which will be treated as supply of Goods or services. This schedule was also there in earlier draft.(Full text available here)
• There are two more schedules inserted into the definition of term Supply. Schedule III and schedule IV specify the items which will be treated neither as a supply of Goods nor as a supply of services
• Schedule III covers the supply by normal supplier like by an employee to employer  whereas schedule IV has supplies by government departments. Both of these schedule contain the supplies which are out of taxability.
• New provision is entered to cover the composite supply and mixed supply of Goods and/or services.
• A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as supply of principal supply.
• A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of Tax.

These were the basic changes bring into the definition of supply under the new draft of Model GST law published by the government in November 2016.We have also crafted some other analysis that you can read at our portal.