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SUPPLY UNDER GST

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1. INTRODUCTION
Taxable event is that event, happening of which attracts liability to tax. Taxable event is a very

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important event in any law as the levy and collection of tax is based on the happening of the
taxable event. Although, the taxable event happens to be at a particular point of time, the levy
and collection of such tax may be postponed for administrative convenience, to a later date.

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Under the old indirect tax system there are different taxable event for different types of taxes
such as for Excise duty it is manufacturing of goods, for service tax it is provision of service and
for VAT/CST it is sale of goods etc. Various taxable events are summarized below:

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TAX/DUTY RELEVANT SECTION TAXABLE EVENT
EXCISE DUTY Section 3 of the Central Excise Manufacture or production
Act, 1944 of goods in India
SERVICE TAX Section 66B of the Finance Service provided or agreed to
Act,1994 be provided by one person to
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another in the taxable territory
CUSTOM DUTY Section 12 of the Customs Goods imported into, or
Act,1962 exported from, India
CST Section 6 of Central Sales Tax Sale of goods in the course of
Act,1956 Inter-State trade
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VAT State VAT laws Sale of goods in the course of

Intra-State trade

“Goods and Services Tax” means “any tax on supply of goods or services or both except tax on
supply of alcoholic liquor for human consumption [Article 366 (12A) of the Constitutional
(101st Amendment) Act, 2016]”.
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Thus under the GST regime concept of tax on manufacturing (Excise Duty), tax on provision of
service (Service Tax), tax on sale of goods (VAT/CST) etc. will be abolished. Only taxable event
under GST will be supply of Goods and Services. Therefore supply will hold the greatest
significance and shall be an important event in determining the taxability of all transaction
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whether commercial or otherwise under the GST regime.

IMPORTANT DEFINITIONS:-
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AGENT 2(5) of CGST ACT,2017

a. An agent is a person,
b. Caries on business of supply of goods or services on behalf of another, or
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c. Carries on business of receipt of goods or services on behalf of another,

d. An agent could be any of the following :
o factor
o broker
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o commission agent
o arhatia

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o del credere agent
o auctioneer

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o mercantile agent
o or any such other person by whatever name called.
e. There must be two persons, i.e., an agent and principal (another person)

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BUSINESS 2(17) of CGST ACT,2017

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Business’ as defined in section 2(17) of the GST Act includes :-

Law Analysis/Example

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a) Any trade, commerce, manufacture, profession, 1. Definition has wider scope includes
vocation, adventure, wager or any other similar wager (betting transaction) also
activity, whether or not it is for a pecuniary benefit;
2. Activities will cover in ambit of business

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even if there is no monetary benefit.
b) Any activity or transaction in connection with or Eg. The activity of selling of old furniture by
incidental or ancillary to (a) above; a trader of readymade garments shall get
covered in this clause though he is not in
the trade, adventure etc. of selling the
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furniture.
c) any activity or transaction in the nature of (a) Eg. A trader of readymade garment
above, whether or not there is volume, frequency, makes a solitary transaction of providing
continuity or regularity of such transaction; consultancy ‘how to set-up showroom for
selling readymade garments’ to one of his
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friend’s son for a consideration shall get

covered in definition of business.
d) supply or acquisition of goods including capital Here the term Supply includes Inward and
assets and services in connection with Outward both.
commencement or closure of business;
The Term “in Connection with” is expansive
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in nature and increase the scope of

activities that will cover activities before
commencement of business and activities
after closure of business.
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e) provision by a club, association, society, or any This cause does not talk about the
such body (for a subscription provision of facility or benefits provided by
or any other consideration) of the facilities or be club etc. to non member.
nefits to its members, as the case may be;
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f) admission, for a consideration, of persons to any Eg. Entry Ticket of amusement park or in
premises; and diwali mela etc. of a consideration.
g) services supplied by a person as the holder of Eg. If a CA in practice provides services as
an office which has been accepted by him in the Independent Director, the service
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course or furtherance of his trade, profession or provided by him may be treated as

vocation; ‘business’ and not ‘employment’.
h) services provided by a race club by way of t Note: Book maker means: a person whose
otalisator or a licence to book maker in such club; job is to take bets (especially on horse
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races), calculate odds, and pay out

winnings; the manager of a betting shop.

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(i) any activity or transaction undertaken by the It provides that ANY activity or transaction
Central Government, a State Government or any by Government is included in the definition

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local authority in which they are engaged as public of business this will have far-reaching
authorities; implications

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2. Power To Levy GST

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Article 246A of the Constitution, as brought by the Constitutional (101st Amendment) Act,
2016, confers concurrent power to both the parliament and state to powers to levy the GST on
Intra-State supply.make laws with respect to GST.

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However clause 2 of Article 246A read with Article 269A provides exclusive power to parliament
to to make laws with respect to levy of Goods and Services Tax on Inter-State supply.

1. Supply Includes
Description
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3. Meaning and Scope of Supply [Section 7 of CGST Act]:
Nature of Supply
all forms of supply of goods and/or services such as sale, transfer,
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barter, exchange, license, rental, lease or disposal made or agreed
[Section 7(1)] to be made for a consideration by a person in the course or
furtherance of business, [Section 7(1)(a)]
import of services, for a consideration whether or not in the course
or furtherance of business, and [Section 7(1)(b)]
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activities specified in Schedule I, made or agreed to be

made without a consideration. [Section 7(1)(c)]
activities to be treated as supply of goods or supply of services as
specified in ScheduleII.[Section 7(1)(d)]

Analysis
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1. Generic meaning of ‘supply’:

Expression “supply” includes 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
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consideration by a person in the course or furtherance of business [Section 7(1)(b)]

Section 7 of the CGST Act defines the scope of supply in an inclusive manner. The above
activities are specified as an example as they are preceded by words ‘such as’.
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Meaning of various terms in relation to “Supply”

(i) Sale Transferring the property in goods from one to another, upon valuable
consideration.
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Note: mortgage, hypothecation, charge or pledge is not supply and

hence GST will not be levied.
E.g. Mr. X sold laptop worth Rs. 1,00,000 and issued invoice infavour of
Mr. Y. Now ownership in laptop transferred to Mr. Y. Such transaction
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shall be covered in sale. It is a supply of goods leviable to GST.

(ii) Transfer the term transfer means, where the ownership may not be transferred

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but the right in the goods is transferred.
Eg. Goods sent for a demonstration on returnable basis. It is supply?

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Answer: No. It would not be considered supply, as there is no transfer of
title involved.
Eg. Mr. A is the owner of Xerox machine. He transferred the right to
operate the Xerox machine to Mr. B for a consideration of ` 10,000 per

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month for four months. Hence, ownership of the machine is not
transferred but the right in the machine is transferred. It is supply of
service leviable to GST.

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(iii) Barter To exchange one commodity for another without use of money.
Eg. Mr. C a practicing Chartered Accountant provided services to M/s
A Ltd., dealer of laptops, in return M/s A Ltd., given to Mr. C two laptops.
Here, two-way supply takes place. Mr. C is making taxable supply of

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service and M/s A Ltd., is making taxable supply of goods. Hence, tax is
payable by both.
(iv) Exchange when two persons mutually transfer the ownership of one thing for the
ownership of another, neither thing nor both things being money only,

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the transaction is called an exchange.
Exchange offers on products such as televisions, mobile phones and
refrigerators are leviable under GST.
Eg. Mr. A is a dealer of new phones. He supplied for Rs. 20,000 to Mr. B
along with exchange of an old phone and if the price of the new
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phone without exchange is Rs. 24,000, the open market value of the
new phone is ` 24,000. Mr. A is liable to pay GST on ` 24,000. Mr. B also
liable to pay GST on ` 4,000 if he is registered person.
Eg. Mr X is a dealer of new cars. He sells new cars for ` 8,25,000 agrees
to reduce Rs. 1,25,000 on surrendering of old car. Mr. Y who intends to
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buy new car worth Rs. 8,25,000 agreed to exchange his old car with
new car.
Under GST law, it will be treated as Mr. Y has made supply of old car to
dealer Mr. X and Mr. X has made supply of new car to Mr. Y.
If Mr. Y is registered person, he will be liable to pay GST on Rs. 1,25,000.
Mr. X will be liable to pay GST on Rs. 8,25,000 whether Mr. Y is a
registered person or not.
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(v) Licence Permission granted by competent authority to exercise certain

privileges without such authorization the activity would have constituted
as an illegal act.
Eg. Mr. X a developer of information technology software and holder of
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lincence thereon. License to use software was given to different clients:

Rs. 18 lakhs; hence, Mr. X is liable to pay GST whether he transfer such
right permanently or temporarily as the case may be.
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(vi) Rental Periodical payment for the use of another property.

Eg. Mr. A owns a residential building in a prime commercial locality.
Large vacant land in the backyard is given on rent of Rs. 1,80,000 per
month to a parking contractor, Mr. B who has set up a parking facility
on the said land. It is a taxable supply of service and hence, Mr. A is
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liable to pay GST.

(vii) Lease A lease is an agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an asset for
an agreed period of time. A lease may be financial lease or operating
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lease.
E.g. M/s X Bank Ltd., given an asset under financial lease to M/s Y Ltd.

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Repayment of financial lease made by the customer to the bank ` 80
lakhs which includes a principal amount of Rs. 50 lakhs.

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Financial leases shall be taxed as supply of services. M/s X Bank Ltd., is
liable to pay GST.
(viii) Disposal Disposal normally considered as selling of assets when the organization
is about to close down and various assets are required to be disposed

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of. Such transactions will also be considered as supply of liable to tax
under GST Law.

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2. SCOPE OF SUPPLY:-
The meaning and scope of supply under GST can be understood in terms of following six
parameters, which can be adopted to characterize a transaction as supply:
1. Supply should be of goods or services. Supply of anything other than goods or services like

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money, securities etc. does not attract GST.

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2. Supply should be made for a consideration

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Consideration has been defined in Section 2(31) of GST Act. The main features of the said
definition are as under:
(i) It can be monetary or non-monetary.
(ii) It can be given to/by third person excluding subsidy given by Central/ State Governments
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(iii) It should be lawful.

(iv) Forbearance/abstinence can be consideration.

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(v) Compromise or composition is consideration.
(vi) It should be certain.

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(vii) It excludes deposit (refundable or non-refundable) that is not treated by supplier as
consideration for supply.
E.g. Akbar Travels Pvt. Ltd., a travel agent books ticket for a customer Mr. X. Travel agent raises
invoice on customer Mr. X for transportation of passenger by air of ` 10,000 and his commission of

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` 500. The entire amount of Rs. 10,500 is not his consideration. The amount of ` 500 retained by
the air travel is to be considered as his consideration.
E.g. M/s X Ltd., being an authorized dealer of the TATA brand, rendered services to buyer of car,
but payment is made to authorized dealer by the TATA Company. It is called as consideration is

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given by third person. Therefore, it is treated as supply of service and liable to tax in the hands of
M/s X Ltd.

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Eg. A Sports Club agrees to hire services of cricket player Mr. B for a consideration of ` 2 crores. In
addition to this, the agreement provides that the player shall be provided with the car valued
for ` 20 lakhs. The entire value of Rs. 2.20 crores will be considered as consideration and subject

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to tax.

Eg. M/s Lakshman Ltd. agreed to sell its business to M/s Ram Ltd., for a consideration of Rs.
50,00,000. M/s Lakshman Ltd. further agrees that it will not conduct same or similar business for a
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period of 10 years, for which M/s Ram Ltd., paid Rs. 20,00,000. Hence, M/s Lakshman Ltd.,
consideration is Rs. 70,00,000.

Eg. Mr. Rajesh during long drive with his wife Manju violated traffic rules and was imposed fine of
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` 1,000. The amount received as fine or penalty for violation of statutory provisions will not be
considered as consideration.

Eg. the following generally not considered as consideration:

• Grant of pocket money
• Gift or reward (which has not been given in terms of reciprocity) or
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• Amount paid on alimony for divorce

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Eg. Deposits: If refunded then, it is not a consideration. Therefore the same does not attract GST.
If tax has already been paid the taxpayer would be entitled to refund.
If not refunded then, it is relating to a service, attract GST.
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Eg. Subsidy given by the Government to benefit the farmers cannot be considered an
additional consideration:
The Government provides subsidy, for the benefit of farmers but it is given to the manufacturer of
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fertilizers will not be considered as consideration.

Eg. X Ltd. supplied spare parts freely to replace during warranty period. Is it supply and
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chargeable to GST?
Answer: It is not supply.

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GST is not chargeable if free replacement is provided by a business to customers without
consideration under warranty.

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Eg. Penalties levied on late or delayed payment of loans and advances are taxable supply?
Answer: Yes. These are taxable under GST.

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3. Supply should be made in the course or furtherance of business
In the course of business: Every person carries out certain activities regularly fo runing trade or
commerce.

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Example: 1
Mr. CA Ram a practicising Chartered Accountant carries out the activity of Accounting,
Auditing, Filing returns, Certifying documents and so on so forth. These activities can be
considered as performed in the course of business.

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Furtherance of business: Every business person use to think how to develop his business or
carrying out new activities. Such activities called as furtherance of buniess.
Example: 2
M/s X Ltd. manufacturing of motor cars. Company use to sell more number of cars in Southern
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India. In view of demand in Southern India, company intends to establish manufacturing unit in
Chennai. M/s X Ltd. appointed Mr. Y as a consultant for searching, evaluating and shortling
places for prospective targets. Finally company decided to establish unit at Ambattur Industrial
Estate Chennai. Hence, Mr. Y carried out various activities is in furtherance of business of M/s X
Ltd.
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4. Supply should be made by a taxable person

5. Supply should be a taxable supply
6. Supply should be made within the taxable territory
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(b) import of services, for a consideration whether or not in the course or furtherance of
business [Section 7(1)(b)]
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Analysis
(a) it is applicable only for services and not for goods
(b) It should be import of service (as referred under Section 2(11) of IGST Act, 2017), where
i. The supplier of service is located outside India;
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ii. The recipient of service is located in India; and

iii. The place of supply of service is in India.
(c) Services shall be provided with consideration
(d) Services may be in the course or furtherance of business or not in the course or furtherance
of business.
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Example:- Online information and data base access or retrieval services, where import of
free services from Google and Facebook by Mr. Ram located in India, without any
consideration. Is it subject to GST?
2.8 | P a g e CHAPTER-2 SUPPLY UNDER GST

Answer:
These are not considered as supply and hence not attract GST.

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Note: GST will be levied only when services are provided with consideration.

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Example-: Suppose Mr.A pays fees for on-line coaching obtained from a teacher located in
USA for coaching of Engineering course for his son. Even if receipt of this service is not for
business or furtherance of business, A would be liable to pay GST under RCM, subject to

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threshold limit.

Supply made without consideration

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(c) activities specified in Schedule I, made or agreed to be made without a
consideration. [Section 7(1)(c)]

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This includes all supplies made by a taxable person to a taxable/ non-taxable person, even if the
same is without consideration. These are specifically mentioned in Schedule I appended to the
CGST Act. The same has been discussed below:
Sr. Matter Example to relating matter

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1. Permanent
transfer/disposal of
business assets
where input tax
credit has been
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availed on such
assets.
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 XYZ & Co. donates old laptops to Charitable Schools when new
laptops are purchased by business will qualify as supply provided
input tax credit has been availed by XYZ & Co. on such laptops.
 A cloth retailer gives clothes from his business stock to his friend
free of cost. In this case, transfer of business stock would amount
to ‘supply’ if he had claimed input tax credit on his purchase of
the business asset..
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 A dealer of air-conditioners permanently transfers an air

conditioner from his stock in trade, for personal use at his
residence. The transaction will constitute a supply as it is a
permanent transfer/ disposal of business assets. The only condition
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is that input tax credit should have been availed on such assets.
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2. Supply of goods or
services

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between related
persons or

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Between distinct
persons [as
defined in Sec. 25
of GST Act], when

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made in the
course or
furtherance of
business. Provided

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that gift not
exceeding Rs.
50,000 in value in a  Holding company provides corporate guarantee to subsidiary

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financial year by company for enabling them to raise loan from banks.
employer to Generally no amount is charged for providing this guarantee but
employee shall not such transaction will be considered as supply.
be treated as  · Stock transfer made to a unit outside the state or to a different

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supply of goods or business vertical of the same assessee will be reckoned as supply.
services or both .  Employer and employee is covered in the definition of related
person. Thus, any supply of goods or services by employer to
employee even free of cost would have been covered under the
scope of supply .But when the GST bill was passed in the Lok
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sabha on 29.03.2017 , this clause was inserted to provide
exemption of gift up Rs 50000 by the employer to employee in a
FY .
Eg. M/s Guideline Academy Pvt. Ltd., gives Diwali Gifts to each employee
worth ` 75,000/-. Since, an employee and employer are considered to be
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related persons, such gift treated as supply and would be leviable to GST
on the entire value.
3. Supply of goods—
a) by a principal
[as defined in Sec.
2(88)] to his agent
[as defined in Sec.
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2(5)] where the

agent undertakes
to supply such
goods on behalf
 ABC Manufacturers Ltd. engages Raghav & Sons as an agent to
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of the principal, or
sell goods on its behalf. For the purpose, ABC Manufacturers Ltd.
b) by an agent to
has supplied the goods to Raghav & Sons located in Haryana.
his principal where
Supply of goods by ABC Manufacturers Ltd. to Raghav & Sons will
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the agent
qualify as supply even though Raghav & Sons has not paid any
undertakes to
consideration yet.
receive such
goods on behalf
of the principal.
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2.10 | P a g e CHAPTER-2 SUPPLY UNDER GST

4. Import of services
by a taxable

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person from a
related person or

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from any of his
other
establishments
outside India, in

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the course or
furtherance of
business.
 ABC Associates received legal consultancy services from its head

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office located in Malaysia. The head office has rendered such
services free of cost to its branch office. Since ABC Associates and
the branch office are related persons, services received by ABC
Associates will qualify as supply even though the head office has

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not charged anything from it.
 Sumedha, a proprietor registered in Delhi, has sought architect
services from his brother located in US, with respect to his newly
constructed house in Delhi. Although services have been

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received by Sumedha without consideration from a related
person, yet it will not qualify as supply since the same has not
been received in course or furtherance of business.
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Schedule-II
Whether activity is supply of goods or service
(d) activities to be treated as supply of goods or supply of services as specified
in ScheduleII.[Section 7(1)(d)]
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Section 7(1)(d) of the Act refers to Schedule II for determining whether a particular transaction is
a supply of goods or supply of service. This helps in mitigating the ambiguities which existed in
earlier laws.

Sr. Matters Example

Matters to be treated as supply of goods
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1. Transfer of the title in goods Sale of goods by one taxable person to

another.
Furniture House sold furniture to Mr. Ganesh.
This will be treated as supply of goods,
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because on sale, the title of the furniture is

transferred to Mr. Ganesh
2. Transfer of title in goods under an Furniture House supplied furniture to Mr.
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agreement which stipulates that Ramesh in an agreement to receive

property in goods will pass at a future payments in 6 instalments.
date upon payment of full This amounts supply of goods, because the
consideration title of the furniture will pass on to Mr.
Ramesh on completing the payment of 6
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instalments.
Typically, all hire purchase will qualify under
this section.
2.11 | P a g e CHAPTER-2 SUPPLY UNDER GST

3. Goods forming part of business assets Permanently transferred or disposed of

are transferred/disposed off by/under business assets shall be treated as supply of

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directions of person carrying on goods.
business so as no longer to form part of  Sale of office computer.

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those assets, whether or not for  Free samples
consideration

4. Goods forming part of assets of any Person closing down his taxable business

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business carried on by a person who Dissolution of partnership firm
ceases to be a taxable person, shall be
deemed to be supplied by him, in the

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course or furtherance of his business,
immediately before he ceases to be a
taxable person.
Exceptions:

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Business transferred as a going
concern.
Business carried on by a personal
representative who is deemed to be a

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taxable person.

5. Supply of goods by an unincorporated Goods sold by a body of persons to its

association /body of persons (BOP) to member for cash or on deferred payment.
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its member Supply of food, gaming tools, books etc. by
any club to its members.

Matters to be treated as supply of service

1. Transfer of right to use goods without Machinery given on rent for specified period
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transfer of title in goods along with operator.

Rent a Cab.
Furniture House supplied furniture to Mr.
Rakesh, on rental basis, for a period of 3
months.
This amounts supply of service because
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furniture is transferred for Mr. Rakesh’s usage,

and the title of the furniture is still with
Furniture House.
2. Lease, tenancy, easement, licence to Mr. Suresh lets out land on lease to Furniture
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occupy land House. The letting out of land on lease is

considered as supply of services.
3. Lease or letting out of the building Mr. Suresh lets out a building to Furniture
including a commercial, industrial or House. Furniture House used the building for
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residential complex for business or display and sale of furniture.

commerce This is a supply of services

4. Job work on others goods Specified activities whether amount to

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manufacture or not.
Furniture House also undertakes repair works
and polishing of the furniture of their
customers.
2.12 | P a g e CHAPTER-2 SUPPLY UNDER GST

The repair and polishing activity will be

treated as supply of service.

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5. Goods held/used for business are put Temporary transfer of business goods or
to private use or are made available to capital goods for personal use whether or

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any person for use for any purpose not for consideration
other than business, by/under Use of company vehicle for arranging picnic
directions of person carrying on the for employee.
business, whether or not for Company guest house given to an

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consideration employee for his personal function.

6. Renting of Immovable Property Renting of factory

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7. Construction of a complex, building, Construction of commercial or residential
civil structure or a part thereof complex except where the
entire consideration has been received after
issuance of completion certificate, where

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required, by the competent authority or
before its first occupation, whichever is
earlier.
8. Temporary transfer or permitting the Copyright, Patents, Trademarks, Design,

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use or enjoyment of any intellectual Franchise etc.
property right
9. Development, design, programming, Programming or development of IT Software
customisation, adaptation, up will now be a service only. (i.e. ERP).
gradation, enhancement, Max Technologies Ltd developed a payroll
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implementation of information software for Furniture House. The
technology software development of software is a supply of
services.
10. Agreeing to the obligation to refrain - Activity of agreeing to the obligation to
from an act, or to tolerate an act or a refrain from an act, or
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situation, or to do an act - Activity of agreeing to the obligation to

tolerate an act or a situation, or
- Activity of agreeing to the obligation to
do an act
11. Works contract as defined in section Entire works contract will be treated as
2(119), including transfer of property in supply of service.
goods (whether as goods or in some Construction services.
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other form) involved in the execution of

a works contract of immovable Murali Construction Ltd constructed a
property commercial complex involving material and
labour.
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This is a supply of services

12. Supply of goods, being food or any Restaurant Services
other article for human consumption or Catering services
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any drink (except alcoholic drink.)

Activities or transactions which shall be treated neither as supply of goods nor services
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Activities neither to be Activities as specified in Schedule III [Section 7(2)(a)]

treated as supply of Such activities or transactions undertaken by the Central
goods nor a supply of Government, a State Government or any local authority, as may be
2.13 | P a g e CHAPTER-2 SUPPLY UNDER GST

services notified by the Government on the recommendation of the

[Section 7(2)] council. [Section 7(2)(b)].

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1. Services by an employee to the employer in the course of or in relation to his employment.
However, Services provided outside ambit of employment for a consideration would be a

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service.
Example:-If an employee provides his services on contract basis to an associate company of
the employer, then this would be treated as provision of supply.

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2. Services by any Court or Tribunal established under any law for the time being in force.
Explanation : for the purpose of paragraph 2 , the term “court “ includes District Court ,High
Court, Supreme Court

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3.
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

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the Constitution in that capacity; or
Example:- Diplomats, Governors of the States, C&AG of India, Attorney General of India
(AGI) etc.
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
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who is not deemed as an employee before the commencement of this clause.
Example:- Finance Commission is a body established by the president of India (under Article
280 of Constitution of India). Chairman/ Member/ Directors (who are not employee) of these
bodies shall be out of GST.
Example:- Telecom Regulatory Authority of India (TRAI) is also a body established by CG.
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Chairman/ Member/ Directors (who are not employee) of these bodies shall be out of GST.

4. Sale of land and Sale of Building (except sale of under-construction premises where the
part or full consideration is received before issuance of completion certificate or before its
first occupation, whichever is earlier.

5. Actionable claims, other than lottery, betting and gambling.

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6. Services of funeral, burial, crematorium or mortuary including transportation of the

deceased.
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Activities/transactions notified by the Government:

Power of Central Subject to sub-section (1) and sub-section (2), the Central or a State
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Government or State Government may, upon recommendation of the Council, specify,

Government to notify by notification, the transactions that are to be treated as—
transactions (a) a supply of goods and not as a supply of services; or
[Section 7(3)] (b) a supply of services and not as a supply of goods; or
(c) neither a supply of goods nor a supply of services.
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COMPOSITE AND MIXED SUPPLIES [SECTION 8]

Tax liability on Composite (a) Composite Supply means supply made by taxable person to
2.14 | P a g e CHAPTER-2 SUPPLY UNDER GST

Supply and Mixed Supply receipent

[Section 8)] - Consist of two or more supplies of goods or services

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- Naturally bundled i.e., goods or services are usually
provided together in the normal course of business.

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- One of which is principal supply
Tax liability shall be rate of principal supply

(b) Mixed supply means supply made by taxable person to

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receipent
- combination of goods and services for a single price
- Supplies are not bundled due to natural necessities
- can be supplied individually in the ordinary course of business.

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Tax liability shall be the rate applicable to the supply that attracts
highest rate of tax

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Example on Composite Supply and Mixed Supply
Composite Supply
Example-1: Where goods are packed and transported with

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insurance, the supply of goods, packing materials, transport and
insurance is a composite supply and supply of goods is the principal
supply.
The entire supply will be treated as supply of principal and the rate
of tax of principal will apply for other items.
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Example-2:
In case of purchase of ticket in Rajdhani Train where the cost of
ticket includes the services for Transportation of passengers, cost of
foods and supply of bed rolls. All these services are bundled
together and here the principal supply will be transportation of
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passengers.
Example-3:
A Five-star hotel provides four days and three-night package, with
breakfast. This is a composite supply as the package of
accommodation facilities and breakfast is a natural combination in
the ordinary course of business for a hotel. In this case, the hotel
accommodation is the principal supply, and breakfast is ancillary to
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the hotel accommodation.

The hotel accommodation attracts 18% tax and the restaurant
service attracts 28% tax. As per the example, hotel accommodation
is the principal supply, and the entire supply will be taxed at 18%.
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Mixed Supply
Example-4:
Let us suppose a supply of package consisting of canned foods,
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sweets, chocolates, cakes, dry fruits, and fruit juice when supplied
for a single price.
Here it is further assumed that canned food is taxable @ 12%, sweets
at zero rate, chocolates @ 18%, cakes 18%, dry fruits 18%, and fruit
juice @ 28%.
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Here the Highest rate will be charged @ 28 % on entire value of

supply.
If these items are supplied separately then it will not be a mixed
supply.
2.15 | P a g e CHAPTER-2 SUPPLY UNDER GST

Example-5:
Let us take another example :

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A combo pack for Rs 10,000 is supplied which consist of a shirt,
watch, wallet, book .

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Tax rate for a shirt, watch, wallet and book are 12%, 18%, 5% and Nil
respectively. Here the combo pack will be considered as Mixed
supply and will be taxable at highest rate which is 18% .

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2.16 | P a g e CHAPTER-2 SUPPLY UNDER GST

5
Appendix
Related person

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The definition of “Related Person” is similar to the current Customs Valuation Rules. The supply is
considered as between related persons only if the supply of goods or services is made between:

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1.Officers or directors of one another’s businesses: In a supply, the supplier and the recipient are
actually officers or directors of the other business.

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As illustrated above, Mr. Ganesh is a Director in Ganesh Trading Ltd, and an officer in Rakesh
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Trading Ltd. Mr. Rakesh, is a Director in Rakesh Trading Ltd. Also, Rakesh is an officer in Ganesh
Trading Ltd. Therefore, any supply between them, will be treated as supply between related
persons.
2. Legally recognized partners in business: The supplier and the recipient are partners in the
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same business or associated business.

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As illustrated above, Mr. Ganesh and Mr. Rakesh are partners in Ganesh Trading Ltd. Any supply
between Mr. Ganesh and Mr. Rakesh will be treated as supply between related persons.
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2.17 | P a g e CHAPTER-2 SUPPLY UNDER GST

3. Employer and employee: Any supply of goods and services between employer and

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employee.

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Mr. Rakesh is an employee of Ganesh Trading Ltd. Any supply from Ganesh Trading Ltd to Mr.
Rakesh is considered as supply between related persons.
4. The supplier or recipient directly or indirectly owns, controls or holds twenty-five per cent or

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more of the outstanding voting stock or shares.
For example, the recipient hold 25% of equity in the supplier’s business.
5. One of them directly or indirectly controls the other: If in any supply, the supplier or the
recipient directly or indirectly controls the other, then it is considered as supply between related
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persons.
Direct Control
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As illustrated above, Ganesh Trading Ltd holds equity in Rakesh Trading Ltd. The supply between
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Ganesh Trading and Rakesh Trading are related since Ganesh Trading Ltd directly controls
Rakesh Trading Ltd.’s business.
Indirect Control
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2.18 | P a g e CHAPTER-2 SUPPLY UNDER GST

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30
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As illustrated above, Ganesh Trading Ltd holds equity in Rakesh Trading Ltd . Rakesh Trading Ltd.
holds equity in Max Trading Ltd. Any supply between Ganesh Trading Ltd and Max Trading Ltd.

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are related. This is because Ganesh Trading Ltd. indirectly controls Max Trading’s Ltd business by
way of ‘Rakesh Trading’s’ business interest in Max Trading Ltd.
6. Both of them are directly or indirectly controlled by a third person: If in any supply, the supplier
and the recipient are directly or indirectly controlled by a third person.
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In the illustration above, Ganesh Trading Ltd holds equity in Rakesh Trading ltd and Max Trading.
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The supply between Rakesh Trading Ltd and Max Trading ltd are related since both of them are
directly controlled by Ganesh Trading Ltd.
7. Together they directly or indirectly control a third person: If in any supply, the supplier and the
recipient, together, directly or indirectly control a third person.
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2.19 | P a g e CHAPTER-2 SUPPLY UNDER GST

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As illustrated above, Rakesh Trading Ltd holds 80% equity in Max Trading Ltd and 30% in Ganesh

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Trading Ltd.
Max Trading Ltd’ hold 70 %equity in Ganesh Trading Ltd . Now, together, Rakesh Trading Ltd has
control over Ganesh Trading Ltd and the supply between them will be considered as supply

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between related persons.
8. They are members of the same family: A supply made between the members of the same
family is considered as supply between related persons.
Distinct Person
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A Distinct Person can be defined as a taxable person who has obtained or is required to obtain
more than one registration in the same state or a different state. Or an establishment of a person
who has obtained or is required to obtain a registration, and also has the establishment in
another state.
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Each of his/her registration and establishment will be treated as a Distinct Person, and any supply
between them will be taxable.
Therefore, any stock transfer or branch transfers are taxable in the following two cases:
1.Intrastate stock transfer: Only when an entity has more than one registration in one state.
For Example
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Super Cars Ltd is a car manufacturing unit located in Karnataka. They also own a service unit in
Karnataka. Super Cars Ltd have obtained separate registrations for both the manufacturing and
service units.
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The manufacturing unit and the service unit of Super Cars Ltd will be treated as distinct persons,
and any supply between them will be taxable, even without consideration.
2. Inter State Stock transfer: Transfer between two entities located in different states is taxable.
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For Example
Super Cars Ltd is a car manufacturing unit located in Karnataka. They also own a service unit in
Delhi.
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The manufacturing unit and the service unit of Super Cars Ltd located in Delhi will be treated as
distinct persons, and any supply between them will be taxable, even without consideration.
2.20 | P a g e CHAPTER-2 SUPPLY UNDER GST

Principal: means a person on whose behalf an agent carries on the business of supply or receipt
of goods or services or both [Section 2(88) of CGST Act].

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Actionable claim: shall have the same meaning as assigned to it in section 3 of the Transfer of

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Property Act, 1882.
As per section 3 of the Transfer of Property Act, 1882, actionable claim means a claim to any
debt, other than a debt secured by mortgage of immovable property or by hypothecation or
pledge of movable property, or to any beneficial interest in movable property not in the

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possession, either actual or constructive, of the claimant, which the civil courts recognise as
affording grounds for relief, whether such debt or beneficial interest be existent, accruing,
conditional or contingent [Section 2(1) of CGST Act].

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ILLUSTRATION ON ACTIONABLE CLAIM
Lottery ticket (before draw)
 Insurance policy

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 Claims for arrears of rent
 Claims for future rent
 Unsecured Loan
 Option to purchase securities or movable/immovable property

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 Claims for unpaid dower(in case of Muslim women getting divorce
 Right to sue or infringement of brand or copyright even when
 brand or copy right is not registered .

Manufacture: means processing of raw material or inputs in any manner that results in
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emergence of a new product having a distinct name, character and use and the term
“manufacturer” shall be construed accordingly [Section 2(72) of CGST Act].

Money: means the Indian legal tender or any foreign currency, cheque, promissory note, bill of
exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic
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remittance or any other instrument recognised by the Reserve Bank of India when used as a
consideration to settle an obligation or exchange with Indian legal tender of another
denomination but shall not include any currency that is held for its numismatic value [Section
2(75) of CGST Act].

Taxable supply: means a supply of goods or services or both which is leviable to tax under this
Act [Section 2(108) of CGST Act].
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Taxable territory: means the territory to which the provisions of this Act apply [Section 2(109) of
CGST Act].
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Person:- includes—
(a) an individual
(b) a Hindu undivided family
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(c) a company
(d) a firm
(e) a Limited Liability Partnership
(f) an association of persons or a body of individuals, whether incorporated or not, in India or
outside India
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(g) any corporation established by or under any Central Act, State Act or Provincial Act or a
Government company as defined in section 2(45) of the Companies Act, 2013
(h) any body corporate incorporated by or under the laws of a country outside India
(i) a co-operative society registered under any law relating to co-operative societies
2.21 | P a g e CHAPTER-2 SUPPLY UNDER GST

(j) a local authority

(k) Central Government or State Government

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(l) society as defined under the Societies Registration Act, 1860 (21 of 1860)
(m) trust and

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(n) every artificial juridical person, not falling within any of above.
The definition is 'inclusive' and can cover any other 'person' also. [Section 2(84) of CGST Act]

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Recipient: of supply of goods and/or services means-
(a) where a consideration is payable for the supply of goods or services or both, the person who
is liable to pay that consideration,
(b) where no consideration is payable for the supply of goods, the person to whom the goods

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are delivered or made available, or to whom possession or use of the goods is given or made
available, and
(c) where no consideration is payable for the supply of a service, the person to whom the

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service is rendered, and any reference to a person to whom a supply is made shall be construed
as a reference to the recipient of the supply and shall include an agent acting as such on
behalf of the recipient in relation to the goods or services or both supplied. [Section 2(93) of
CGST Act]

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Supplier: in relation to any goods or services or both, shall mean the person supplying the said
goods or services or both and shall include an agent acting as such on behalf of such supplier in
relation to the goods or services or both supplied [Section 2(105) of CGST Act].
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Goods: means every kind of movable property other than money and securities but includes
actionable claim, growing crops, grass and things attached to or forming part of the land which
are agreed to be severed before supply or under a contract of supply. [Sec. 2(52) of CGST Act].

Services: means anything other than goods, money and securities but includes activities relating
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to the use of money or its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate consideration is
charged. [Section 2(102) of CGST Act].
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