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Business is not necessary to term an activity as supply under GST.





In the revised model GST Law supply is the point of tax. Section 3 of the act defines supply as:

(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.
 
On analyzing the above section where it gives the inclusive definition of supply it can be construed that in order to call an activity as supply, consideration and for the purpose of business is not necessary. As per section 3(1)(a) it says supply includes all form of supplies such as………. made for a consideration by a person in the course or furtherance of business. By virtue of  circular reference the meaning which comes out of the said definition is that Supply is it self complete when it includes activities such as sale, barter, transfer, exchange etc. irrespective of consideration or furtherance of business. Had the intent been to make consideration and business necessary to call an activity as supply the section would have been framed like this:

3(1)(a) Supply includes all form of activities such as ……..made for a consideration by a person in the course or furtherance of business. In such a scenario it has been true that to call an activity as supply, consideration and business are necessary ingredients.

Now if the supply is something which is with or without consideration then what is the purpose of section 3(1) (c) which says a supply specified in Schedule I, made or agreed to be made without a consideration shall be treated as supply. Here also due to circular reference the supply becomes complete when the section says “SUPPLY SPECIFIED in schedule I” which means that the activities mentioned under schedule 1 are certainly supply, whether they are taxable or not is a separate question all together. Even the heading of Schedule I says that “Matters to be treated as Supply EVEN IF Made without consideration”. The words EVEN IF holds our contention true that the activities mentioned in Schedule I are supplies irrespective of consideration.

Taking the above analogy it can be construed that any supply without consideration such as samples, gifts, freebies whether on account of business or personal nature shall be a supply. It should be noticed that having a supply made does not make it taxable under GST. Various other parameters such as threshold limit, exemptions have to be catered for before deciding the taxability of a supply.

Keshav R Garg
(B.Com, CA, CS, ISA(ICAI))
Author: Bharat's GST Ready Reckoner
            A Handbook on GST

Member: Indirect Tax Committee of CII, PHDCCI, MyGst.MyTax Foundation
Advisor – Industries Association of Chandigarh

Address: 3328, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008
Mail: keshavgarg@kdai.in


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