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Tax is levied on the provision of a service and the manufacture, sale or transfer of goods from one territory to another. Under GST, tax is levied on the provision of supply of goods or services and a taxable person. Supply in GST extends to include all forms of supply of goods and services such as sale, transfer, license, exchange, rental, lease, etc. Under the previous taxation system, a transaction of supply would take place between two individuals. GST enables taxation of transactions between two branches of the same legal entity located in different States or within the same State.

The supply of goods and services that weren’t previously taxable are subject to tax under the GST regime under Schedule 1 of the CGST Act. Tax is generally levied on supplies with consideration. Under GST, certain supplies without consideration have also been made taxable. Some of the exceptions previously exempted including supply of services or goods between related people, supply of goods to an agent by a principal (or vice-versa), gifts exceeding INR 50,000, etc. are all included in GST.

Types Of Supply

Composite Supply

Composite supply is two or more taxable goods and/or services or any combination of the two are supplied in the ordinary course of business. The two key points for supply to be composite are ‘naturally bundled’ goods and services supplied in course of natural business operation. Packaging and transportation are essential to complete the supply of a good or service and are considered natural bundles. For example, the supply of a car along with spares such as tires, stereo system, etc. are considered as composite supply because the goods being supplied are naturally bundled. The supply of a car with driving lessons will not be considered as composite supply as it is not related to natural business.

Mixed Supply

When a single taxable person supplies two or more goods and/or services for a single price, then such supply is considered mixed supply. Additionally, the supply of goods and services should not constitute a composite supply. Example, a gift hamper consisting of different goods and/or services such as chocolates, sweets, biscuits, etc. supplied for a single price is mixed supply. A toothbrush that is sold free along with a toothpaste is another example of mixed supply. The tax charged on mixed supply will be the tax rate of the commodity with the highest tax levy in that bundle.

Exempt Supplies

Exempt supplies are supplies of goods and services with a nil tax rate (basic commodities, crops, etc.) or goods and services not taxable under the CGST, SGST, IGST, etc. These goods or services are exempt from GST. Alcohol for consumption, petroleum products, etc. are also covered under exempt supplies under Goods and Service Tax.

Exemptions Of Supply

Under GST, the following are not considered the supply of goods and/or services:

1. Services by an employee provided to an employer in due course of employment.
2. Services provided by a Tribunal or Court established under law.
3. Functions provided by the Administrative branch, the executive branch and Government departments/employees.
4. Services provided by foreign missionaries in India or any agency established under the United Nations (Privileges and Immunity) Act, 1947.
5. Funeral, burial, undertaker, or mortuary services.

Importance Of Supply

Time Of Supply

GST is levied on the supply of goods and services and it is important to know the date on which such transactions take place because tax rates, abatements, exchange rates, etc. fluctuate from time to time. The default time of supply for goods and services is applicable on the earliest of these dates:

• Date of issue of an invoice issued by the supplier.
• Agreed date of issue of an invoice when the invoice is not available.
• Date the supplier received the payment debited in a bank account.

When there is any change in tax rates, two out of the three rules (as stated above) become applicable which is termed as the 2/3rd Rule. These rules determine the exact date and time of supply so that a taxpayer does not take undue advantage of the change in tax rates.

As per valuations under GST, the taxable value of any supply includes interest, penalties and fees applicable for delay in payment. If any interest or fees are applicable, then such charges become applicable on the date a supplier receives notification of addition in value.

It is important to note the difference between continuous supply and supply on a recurring basis. Continuous supply is the supply of services or goods on a continuous ongoing basis for a period of more than three months with payments made periodically or regularly. Recurring supply is goods and services supplied on a contractual basis for a limited time period or a one-time supply.

Place Of Supply

One of the essential features of GST is that it is a destination-based taxation system. This means that GST tax is collected at the place (State or location) of consumption of goods and/or services. The place of supply for services is difficult to determine and is based on the nature of supplies as stipulated under the GST Act and on case to case basis. The place of supply and the location of the supplier are the determining factors in the GST that have to be paid.

1. Intra-State tax – if the supplier and the place of supply are located within the same State, then tax will have to be paid under CGST and SGST.
2. Inter-State tax – if the supplier and the place of supply are located in different States, then tax will have to be paid under IGST.
3. UT-tax – if the supplier and the place of supply are located in the same Union territory, then Union tax is applicable.

Place of Supply of Goods

The general rule for place of supply of goods are:

1. If supply requires movement of goods, then place of supply will be the location of delivery.
2. If supply involves no movement of goods, then place of supply will be the location of goods at the time of delivery.
3. If the assembly is done on site, then that is the place of supply of goods.
4. If supply is on a train, aircraft or motor vehicle, then the supply of goods will be the location at which such goods are on-boarded.
5. If a supplier is supplying goods on behalf of a third party, then the supply of goods will be the location of the third-party’s place of business for the first leg and the location of delivery for the second leg.
6. If supply is imported then the supply of goods will be the importer’s location.
7. If supply is exported then the supply of goods will be the exporter’s location.

Place of Supply of Services

The general rule for place of supply of services are:

1. If services are provided to a registered person, then the place of supply is the location of the recipient.
2. If services are provided to an unregistered person, then the place of supply is location of the recipient (if registered and available) or the location of the service provider.
3. If the location of the supplier or the location of the recipient is outside India, then the Place of Provisions of Service Rules, 2012 is applicable.
4. For intermediary services, the place of supply shall be the location of the recipient (within India) or the location of the intermediary (outside India).

Why GST?

GST will come into full effect pan India on the 1st of July. It is important to migrate to GST from existing taxation schemes to avoid attracting fines and penalties. Supply of goods and services is an important component of GST because it outlays the time and place when supply should be charged for taxation. LegalDesk.com facilitates Aadhaar-based electronic signatures for online filing of Aadhaar apart from other legal and documentation services.