Is supply of goods and/or services a taxable event under GST law

Taxable event refers to any transaction that results in a tax consequences for a party who executes the transaction. Government sets rules to decide which events have taxable consequences. If a particular transaction is taxable in India then, the person who executes it is liable to tax as per rules and regulations of the country. For example, in India the government requires corporations, individuals and certain other types of persons to pay a percentage of their earned income to the government as tax, known as income tax. Similarly, the government of India has also set out rules and regulations to decide the taxable event for indirect taxation. 

In this article, we will discuss the taxable event under GST law.

Taxable events under GST law will determine the point at which you should levy GST on the transaction. Which means, a taxable event is that event on the happening of which the liability to tax under GST is fixed. 

The taxable event in GST law is “Supply”. 

Therefore, the first and foremost thing to understand before getting into GST law is the definition of supply. As per section 7 of CGST Act, 2017, supply includes:-

• all forms of supply of goods or services or both 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;
• importation of services, for consideration whether or not in the course or furtherance of business; and
• the activities specified in schedule I made or agreed to be made without consideration.

Please note, supply includes almost everything as section 7 is an inclusive definition, which does not define the term supply exhaustively.

Based on the above discussion, supply under GST can be understood in terms of the following five parameters.

1. Supply should be of Goods or services or both. If supply is of anything which is not a goods or services, then GST does not apply such as money, securities etc.
2. It should be made for a consideration. If it’s without consideration, then activities must be specified in schedule I to treat it as deemed to be a supply.
3. Should be made in the course or furtherance of business.
4. It should be made by a taxable person. A supply between two non-taxable persons does not constitute taxable supply under GST.

Taxable person

To treat a transaction as supply, the goods and/or services must be supplied by a taxable person. Taxable person doesn’t mean that the person must be registered under GST law.

As per GST law, a person will be considered as a taxable person only if such person is registered or liable to register under section 22 or 24. 

Therefore an unregistered person who is liable to be registered but didn’t get GST registration will be considered as a taxable person. Similarly, a person not liable to be registered, but has taken voluntary registration and got himself registered is also a taxable person.

Supply for consideration

Definition of section 7(1)(a), begins with the term ‘supply includes’. This means the definition of supply includes all forms of supply of goods and/or services and does not include if supply is of anything other than goods or services. Such supply of goods or services or both must be for a consideration and in the course or furtherance of business. 

What is consideration 

The term consideration is defined under section 2(31) of CGST Act. As per the definition, consideration in relation to the supply of goods or services or both includes:-

• Any payment made or to be made, whether in money or otherwise, in respect of, or in response to or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the central government or a state government,
• The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the central government or a state government.

However 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 such supplier applies such deposit as consideration for the said supply.

Following two things will not be considered as part of consideration;

• Subsidy given by the central government or state government
• Deposit given in respect of the supply of goods or services or both if the supplier does not apply such deposits as consideration for the said supply.

In the course or furtherance of business

As per section 7, supply includes all forms of supply of goods and/or services if such supply is for a consideration by a person in the course or furtherance of business. 

The term supply is defined from the point of view of the person who supplies goods or services or both, not from the point of view of the recipient. This means GST is applicable only when the person who supplies is in businesses and such supply is in the course or furtherance of business. Therefore, the term business is important to decide the taxable event supply.

As per section 2(17) of the CGST Act, business includes 

• any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
• any activity or transaction in connection with or incidental or ancillary to above;
• any activity or transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;
• supply or acquisition of goods including capital assets and services in connection with the commencement or closure of business;
• provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be;
• admission, for a consideration, of persons to any premises; and
• services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
• services provided by a race club by way of totalisator or a license to book maker in such club
• any activity or transaction undertaken by the central government, a state government or any local authority in which they are engaged as public authorities.

Importation of service

The only exception to the condition “in the course of furtherance of business” is importation of service. For example, if you have taken services from outside India for your personal use, then it’s taxable under GST.

A supply made by an individual in his personal capacity will be out of the ambit of GST. For instance, if Mr X sold his Mercedes Benz used for personal use to Mr Y, then it will not be considered as supply under GST law as in this case the supply is not in the course or furtherance of business.

We have three schedules to know whether a transaction will be treated as supply or not in addition to the provisions discussed above:

1. First Schedule: Activities to be treated as supply even if made without Consideration
2. Second Schedule: Activities to be treated as Supply of goods or supply of services
3. Third Schedule: Activities / Transactions which shall not be treated as Supply of Goods or Services – Negative list

To avoid confusion, the Government has specifically stated certain activities to be treated as supply of goods or services under GST law in schedule II.

As per section 7(2) of CGST Act, following transactions shall be treated neither as a supply of goods nor a supply of services;

• activities or transactions specified in schedule III; or
• 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 recommendation of the council.

These transactions are kept out of scope of supply despite the existence of all taxable parameters. This list is also known as a negative list. We have written a separate article on the negative list under GST, you can refer to that post.

Is art work sent by artist to galleries for exhibition treated as supply under GST

Artworks are exhibited in galleries by artists for supply to buyers. If a buyer likes or selects a particular artwork, then it’s sold to him for consideration. 

As per circular number 22/22/2017 GST dated 21.12.2017, when artworks are sent to the gallery for exhibition, no consideration flows from the gallery to the artist, therefore it’s not a supply. It is considered as supply only when a buyer selects a particular artwork at the gallery and payes consideration for it. At this point of time, applicable GST would be payable.

Please note, a supply of goods and/or services without consideration will not be considered as supply under GST law unless it is deemed to be a supply as stated in schedule I of CGST Act.

Important additional points

Here are certain additional points that we thought might be helpful for you;

• IGST is levied on all inter-state supplies of goods and/or services. 
• CGST and SGST/UTGST are levied on all intra-state supplies of goods and/or services, except on supply of alcoholic liquor for human consumption on the value determined as per GST law and at such prescribed rate not exceeding 20%. 
• CGST, SGST/UTGST or IGST is not levied on the supply of petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel.
• Goods supplied by principal to his agent to undertake supply of such goods on behalf of the principal is considered as supply if it is supplied without consideration. Similarly, supply of goods by an agent to his principal, without consideration, where the agent undertakes to receive such goods on behalf of the principal is considered as supply. Please note, supply of services is not covered here. Refer Schedule I to know more.
• CBE&C vide press release number 78/2017 dated 13-07-2017, has clarified that an individual selling old jewellery is not in businesses of selling such jewellery.
• Fringe benefits in relation to employment is outside GST-CBE&C press release number 73/2017 dated 10/07/2017.
• As per CBE&C press release number 75/2017 dated 11-07-2017, there will be no GST on free food supplied by religious institutions such as temples, mosques, churches and gurudwaras.