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Taxable event Supply in course of Business

In this communication of the Series, we will deal with Supply (Taxable event), as per Model Law.

Taxable event is or Tax is levied on supply of goods or services [Section 3 of Model Law].

Thus, Tax is on a single event or transaction, as against different events or transactions (under earlier indirect tax laws), like, manufacture or sale or purchase or entry of goods etc.

Meaning

Supply (inclusively defined) is generally understood as a transfer from one person to another of anything.

In addition to general meaning of supply, proposal is to include different forms of transfer as supplies and certain activities that will be construed as supply and, it would be:

  • any form of supply of goods or services, like, sale, transfer, exchange, license, rental, lease or disposal made or agreed to be made, for a consideration; and in the course of or furtherance of business;
  • import of service, for a consideration or otherwise as also whether or not in the course of business;
  • supply without consideration [Schedule I of Model law] in the following cases:
    • permanent transfer or disposal of business assets (say, given away or scrapped)
    • temporary application of business assets for private or non-business use
    • temporary application of services to private or non-business use
    • assets retained after deregistration
    • supply of goods or services by a taxable person to another taxable or non-taxable person in the course of business without consideration

(apparently, above are considered as supply to recover credit allowed, of GST paid, on purchases)

  • transaction between principal and agent
  • supply of any branded service by an aggregator.

The law would list supplies which may be regarded as supply of goods or supply of service or supply of both [Schedule II Model law] (will be discussed later). Further, it empowers the governments to notify transactions be treated as:

  • Supply of goods and not of service; or
  • supply of service and not of goods; or
  • neither supply of goods nor of services.

Thus, supply by a business person is covered. Any supply by a person, not as a part of business or non-business person is not a supply for GST law. Also, a supply not for a consideration may not be considered as a supply for GST law.

As per one view, "self-supply" may also be regarded as supply; thus, if goods or services are supplied from one place of business to another place of business of same person, it may be regarded as supply.

Thus, evaluation of business impact, of the new taxable event, would necessitate but not limited to the:

  • Understanding transaction, which may be regarded as supply
  • Classification of transaction as a supply of goods or services or both
  • Classification of supplies into inward supply and outward supply
  • Nature whether interstate or intrastate (for which specific provisions are made and would be discussed later in subsequent communication of the Series)
  • Scope and nature of "self-supply", which could be covered under GST law (for which specific provisions may be made and would be discussed later in subsequent communication of the Series)
  • Identifying transactions which could be considered as supplies as per the specific provisions
  • Treatment thereof as contemplated and applicable tax
  • Timing of supply (for which specific provisions are made and would be discussed later in subsequent communication of the Series)
  • Place of supply (for which specific provisions are made and would be discussed later in subsequent communication of the Series)

Accordingly, all business transactions may have to be reviewed and classified to examine its taxability and all related matters.

For the purpose, appropriate documents and records would be necessary (which, even otherwise, would be maintained commercially).

Representations

Prima facie, clarity is required about:

  • self-supply and extent to which it may be covered (whether all or some or only interstate and not and the like);
  • The nature and extent of transfer of business, pursuant to sale or any other arrangement, like, amalgamation etc would be covered within supply;
  • Free supplies in course of business; nature and scope thereof.

Well, new concept and new taxable event to the extent unfolded and which may be unfolded in future would certainly affect mode and manner of carrying on of business. Business will have to visualise likely issues affecting business and/or transactions and/or business relationships.

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