Definition of Scope of Supply under GST: Everything Explained

Supply Under GST

The Indian Government came up with the GST or Goods and Services Act in 2017 and the scope of supply under GST to handle the country's existent multi-faceted indirect tax policies. This new tax regime's main objective was to eliminate taxes' cascading influence on the supply of inter-state goods. As per the GST Act, the supply of services or goods is the transfer of ownership between two parties through a mutual agreement. Since GST is a destination-based tax, it taxes goods or services at the delivery destination, not the origin. Supply of goods under GST or the place of goods supply is one of the most crucial aspects of this taxation system.

Concept of Supply under GST

The nature of supply under GST is a taxable event for charging tax. Businessmen are liable to pay taxes at the time of supply of goods or services. This determines whether or not a certain transaction can be considered a supply, and this is further important to decide the applicability of GST.

Now, we have a clear concept of supply in GST, but earlier, under the erstwhile indirect taxes, there was no concept of Supply. Variations exist in the different stages of charging indirect taxes under various tax laws. There was excise duty on goods manufactured and delivered outside the factory. Service taxes were in place based on specific points of taxation rules for all rendered services. Also, there was VAT on the value of goods-sale or provision of services. However, the present GST system combines all the taxes to maintain one taxable event.

In Economics, the scope of supply of goods and services is the net value of goods manufactured within a specific period. Nevertheless, supply in GST is a taxable event that includes the following:

  • Transfer: This entails property transfer by which an individual can convey his property at any point to someone or himself.
  • Sale: This is a property transfer, regardless of its specifications. The sale may include deferred payments or cash. It is property transfer in goods to transfer rights to use a specific good or for cash.
  • Exchange: These are commodity exchanges with GST value calculations on the original value of goods and not the remaining amount after exchange.
  • Barter: Barter is the exchange of a product for another. This may also include swapping, transferring or parting ways for an equal amount of money.
  • Rental: This involves payments for renting out residential or commercial complexes. As per the GST Act, there's no GST on rent.
  • License: A license is when a business entity gets special privileges, such as mining rights and rights for natural resource extraction against a certain fee payment or royalties.

Supply under GST is an instrument for expanding business ventures or providing charitable contributions. The definition of supply in GST also entails importing products and services for business or personal value.

Scope of Supply in GST

The scope of supply under the GST Act is as follows:

  • Businessmen need to consider supply as a medium to expand business activities.
  • Consideration is the main basis of supply.
  • Taxable individuals must adhere to supply.
  • Supply should be taxable and within feasible limitations.

Types of Supply under GST

There are two major categories of types of supply in GST. They are taxable supplies and non-taxable supplies. There are further sub-categories based on supply made:

Taxable Supplies

These are the supply of products or services taxable under GST. Registered taxpayers can claim refunds on the taxes they pay during purchases.

  • Nil-Rated Supplies: Nil-Rated supplies attract 0% GST by default when they enter the market.
  • Regular Taxable Supplies: These are the supply of services or items that attract a GST rate above 0% within India.
  • Zero-Rated Supplies: These are supplies or exports to an SEZ unit or deemed exports with 0 GST, even though the same would have a GST rate above 0% when sold within India.

Non-Taxable Supplies

Here, you will find:

  • Non-GST Supplies: These supplies are outside the purview of the GST law.
  • Exempt Supplies: These are supplies of exempt products or services that do not attract any kind of GST despite being within the purview of the GST Act. On that note, registered taxpayers cannot claim ITC on manufacturers' inputs for making these supplies.

The transactions below must neither be taken as a supply of services nor products:

  • Supply of stored products to buyers before they pass clearance for home-based consumption.
  • Supply of products from one taxable boundary to another without making an entry into India.
  • Supply of products with high sea sales.

Supplies of More than One Goods or Services

All supplies of goods or services in GST are either wholly services or wholly goods based on the primary product or service supplied as per Schedule II of the GST Law. The same also applies to cases where supplies involve both products and services.

It is possible to supply products and services either individually or as a set or bundle using any one of the methods below:

  • If the supply of products and services is in one natural bundle, it is known as a composite supply.
  • If the supply of products and services is not a natural bundle, it is known as a mixed supply.

Understanding Taxable Supply under GST

Taxable supply under GST is the supply of products and services that is liable for the payment of GST under the CGST Act 2017. Manufacturers of these supplies must pay taxes based on their transaction or intrinsic value and the amount the buyer pays. The valuation of such taxable supplies includes:

  • Supplier liabilities that the buyer incurs and those not included in the cost of such products.
  • All kinds of legal taxes, charges or duties of said products and services. The State Goods and Services Act and the Union Territory Goods and Services Act support or charge these taxes, duties and payments.
  • Late fees, penalties and interests for delays in supply considerations
  • The supplier incurs all kinds of additional expenditures. This will also include commissions and packing charges from the buyers.
  • Different subsidies are included with the cost of goods or services, except those that come under government policies.

As per Schedule II of the GST Law, regular GST Calculation always applies to composite and mixed supplies.

Taxable supply under GST has three essential components to calculate taxes payable for a particular transaction. These components are:

  • Value of Supply: This element decides the taxable value of supply and the tax amount payable against it.
  • Place of Supply: This element determines whether a transaction is an inter-state supply, external trade or an intra-state supply. This further determines the type of GST payable with the transaction.
  • Time of Supply: This element determines when the GST returns and payable taxes are due.

The CGST Act 2017 includes supply under GST of all products and services taxable at the destination and not at their origin. Dissimilar to the pre-GST times when all taxable events were separate, GST is a more unified approach that eases the entire taxation procedure.

Frequently Asked Questions

What is the scope of the IGST Act 2017?

The scope of the IGST Act 2017 offers to mean to the GST Act wherein IGST is one of the main elements. The IGST Act 2017 clarifies that the Central Government will levy IGST, which is SGST and CGST, on all inter-state transactions of taxable products and services with proper provision for stock or consignment transfer.

What is the difference between scope and out-of-scope?

The scope of a project clarifies the work procedure and the deliverables of a project. It also sets out the expectations from a project for both parties. In this regard, if the client requests the addition of another service or feature, it is known as out of stock.

What is defined in Section 2 (18) of the CGST Act 2017?

Section 2 (18) of the CGST Act 2017 describes business verticals as a different element of a company supplying individual products or services or a set of products or services subject to returns. Its risks are different from those of other business verticals.

What are the chances of supply under GST Schedule 1?

According to Schedule 1, the supply of products, services, or both between distinct or related individuals, as specified in Section 25, is supply even if made without consideration.

What are taxable events and the scope of supply?

A taxable event under GST is the supply of products or services or both. The scope of supply determines the taxability of all transactions, whether commercial or otherwise, under the GST regime.

What is the definition and scope of supply under the CGST Act 2017?

The definition and scope of supply under the CGST Act 2017 include transfer, sale, barter, exchange, rental, license, disposal and lease. If an individual undertakes any of these transactions into consideration, it comes under the scope of supply under GST.