Supply of Goods and Services, Meaning, Scope, Types, Composite supply, Mixed supply

Under the Goods and Services Tax (GST) regime in India, the term “supply” is a comprehensive concept that encompasses various transactions involving goods, services, or both. The definition of supply is crucial in determining the tax liability under GST. According to Section 7 of the Central Goods and Services Tax (CGST) Act, 2017, supply includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration during the course of business. It also includes importation of services, even if made without consideration.

The concept of supply is fundamental to the GST regime, and its comprehensive definition ensures that a wide range of economic activities falls within the tax net. Understanding the meaning and scope of supply is crucial for businesses to accurately determine their GST liabilities, claim input tax credits, and comply with the regulatory requirements. The unified approach to the taxation of goods and services under GST contributes to the simplicity and coherence of the indirect tax system in India.

Components of Supply:

1. Goods:
   • The transfer of ownership of movable property is considered a supply of goods.
   • It includes all forms of tangible property, whether movable or immovable.
2. Services:
   • Any activity performed for a consideration is considered a supply of services.
   • Services include anything other than goods, money, and securities.
3. Barter and Exchange:

The exchange or barter of goods or services for other goods or services falls under the definition of supply.

4. Importation of Services:

Obtaining services from a supplier located outside India for a consideration is considered a supply, even if made without consideration.

Scope of Supply:

The scope of supply under GST is comprehensive, covering a wide range of transactions. The key elements that define the scope of supply include:

• Business and Course of Business:

Supply must be made in the course of or furtherance of business activities. Transactions that are not connected with or incidental to business may not be considered supply.

• Consideration:

Supply must involve a consideration, which can be in the form of money, goods, services, or a combination thereof. It includes both monetary and non-monetary transactions.

• Inclusions in Supply:

The term “supply” includes various forms of transactions, such as sale, transfer, barter, exchange, license, rental, lease, or disposal. The inclusiveness ensures that a wide range of economic activities falls within the ambit of GST.

• Exclusions and Exceptions:

Certain activities are excluded from the definition of supply. For example, activities undertaken by a person as a private individual and not as a business entity may not be considered supply. Similarly, gifts made without consideration, up to a certain value and in the course of business, are excluded.

Taxable Event:

The taxable event under GST is the supply of goods or services or both. It means that the liability to pay GST arises at the time of supply. The time of supply is determined based on factors such as the issuance of an invoice, receipt of payment, or the completion of the supply, whichever is earlier. The time of supply rules are specified under the GST law to ensure clarity on when the tax liability becomes due.

Input Tax Credit (ITC):

One of the key aspects of the GST system is the availability of Input Tax Credit. Businesses can claim ITC on the taxes paid on inputs, input services, and capital goods, provided the inputs or services are used for the furtherance of business.

Types of Supply:

• Composite Supply:

A composite supply under GST refers to a supply consisting of two or more goods or services, which are naturally bundled and supplied in conjunction with each other during the ordinary course of business. In a composite supply, there is a principal supply, which is the primary or predominant element, and other ancillary supplies that are naturally bundled with it.

Features:

1. Principal Supply:
   • The supply that gives the composite supply its essential character is termed the principal supply.
   • The tax rate applicable to the composite supply is determined based on the principal supply.
2. Inseparable Nature:
   • The components of a composite supply are so interconnected that they form a single, indivisible transaction.
   • The consumer typically perceives the supply as a single entity.
3. Tax Treatment:
   • The entire composite supply is taxed at the rate applicable to the principal supply.

Example of Composite Supply:

A restaurant offers a combo meal that includes a burger, fries, and a drink for a single price. Here, the meal is a composite supply, and the principal supply is the burger. The tax rate for the entire combo meal is based on the burger.

• Mixed Supply:

A mixed supply under GST refers to a supply comprising two or more individual goods or services, each of which can be supplied separately. Unlike a composite supply, there is no inherent or natural bundling of the goods or services in a mixed supply. The components of a mixed supply can be distinct and are not necessarily dependent on each other.

Features:

1. No Natural Bundling:
   • In a mixed supply, the components are not naturally bundled and can exist as separate entities.
   • The consumer can choose to purchase any or all of the components individually.
2. Tax Treatment:
   • The tax treatment for a mixed supply is different from a composite supply. Each component of the mixed supply is taxed at its applicable rate.

Example of Mixed Supply: A technology store offers a package deal that includes a laptop, a printer, and antivirus software. These items are distinct, and customers can purchase them individually. In this case, the offer constitutes a mixed supply, and each component is taxed at its respective rate.

Distinction between Composite Supply and Mixed Supply:

1. Natural Bundling:
   • Composite Supply: Components are naturally bundled and supplied in conjunction with each other.
   • Mixed Supply: Components are not naturally bundled and can exist independently.
2. Tax Treatment:
   • Composite Supply: Taxed at the rate applicable to the principal supply.
   • Mixed Supply: Each component is taxed at its individual rate.
3. Consumer Perception:
   • Composite Supply: Perceived by the consumer as a single, indivisible transaction.
   • Mixed Supply: Components are perceived as distinct entities that can be purchased separately.