Understanding GST in 4 Steps: Comprehensive Guide – Part 1

Goods and Service Tax, for short GST, is a tax levied on supply of goods and/or services. For every tax introduced by the Government (Centre or State) there is a leviable point or in other words, an occurrence of an event which triggers the application of such Tax. For Instance, Sale of Goods is the leviable point for charging Sales Tax/ VAT, manufacture of Goods is the leviable point for charging Excise Duty or Provision of service is a leviable point for charging Service Tax.

As per Section 8(1) of the Model GST Law (Charging Section):

There shall be levied a tax called the central/state Goods and Services Tax on all the Intra-State/ Inter-State(S.5 of IGST Act) Supplies of goods and/or services on the value as determined and rate as notified.

Hence the term supply is a crucial term to judge the applicability of GST.

The objective is to make the law approachable to the readers and thus efforts are made to analyse it by answering few questions/ four steps as guide to levy of GST:

1. What is taxable event – Is the event a taxable Supply?
2. Who is liable to pay tax – Who is a taxable person under GST?
3. When to pay such tax and its form– When is the Point of Taxation and Place of Supply.
4. How much to pay tax – What is the Transaction Value and allowable input tax credit?

Let us understand the 1st Question or 1st Step to GST i.e how to identify the taxable even i.e a Supply under GST in India.

In the sea of global commerce where complex multiple transactions are happening on a daily basis, it is pertinent to understand what is Supply under GST. So we can also put this in one statement:

‘Every Supply is a transaction but Every transaction is not a Supply’

To grab hold of the term Supply, the meaning of Supply as per Sec 3 of the Model GST Law has been broken into 4 parts:

Part 1: When a Transaction becomes Supply: (General Rule)

• a) All forms of supply of goods and/ or services such as sale, transfer, barter, exchange, license, rental, lease or disposal

1. With consideration
2.  In the Course or furtherance of business

• b) Exception: Any Importation of Services

1. With consideration
2. Whether or not in the course or furtherance of business

Part 2: When a Transaction even without Consideration becomes Supply: (Schedule 1)

• Permanent transfer/disposal of Input tax credit availed business assets
• Supply between distinct persons(Persons with same PAN but in different states-will be covered separately in detail) or related persons
• Transactions between Principal and Agent
•  Importation of services:

1. By Taxable Person
2. From Related Person or his other foreign establishments
3. In the course or furtherance of business

Part 3: Treatment of Supply in Composite or Mixed Supply:

• a) Conditions for Composite Supply:

1. Two or more Supplies
2. In naturally bundled form of Supply

Rule: Principal Supply will be treated as Supply and taxed accordingly.

Case Study: Transportation Service from any port to factory premises includes loading and unloading services of cargo as well. This is a case of composite supply and the principal supply is transportation and not cargo handling service and hence the supply will be treated as supply of transportation service and taxed accordingly.

• b) Conditions for Mixed Supply:

1. Two or more Supplies
2. Combination of Individual goods or services
3. Single Price is charged for such combination

Rule: Supply of goods/services amongst the combination which attracts the highest rate will be charged.

Case Study: Gift packages or package consisting of chocolates, cookies, aerated drinks etc sold in combination of multiple goods with a common price for the package is a mixed supply and the goods with highest rate of tax amongst such combination will be charged on such mixed supply.

Part 4: Specific Exceptions: Transactions which are Supply as per general rule but are excluded specifically from the list:

• Any service by an employee to his employer
• Any service by a Court or Tribunal
• Services of funeral, burial or crematorium or mortuary including the transportation of the deceased
• Services by a foreign diplomatic mission located in India
• Functions of MP, MLA, Member of Panchayats, Member of Munipalities and Member of local authorities,
• Duties performed by any member, chairperson or director of post established by any Government and not deemed as an employee
• Services provided Government mentioned in Schedule IV

So this article was all about Supply (i.e 1st Question/ Step to GST). Once the taxable transaction is identified, the next step would be identifying taxable person i.e whether the person supplying such goods and/or services is a taxable person or not to ensure taxability of GST.

Disclaimer

The sole intention of this document is sharing knowledge on the subject and not solicitation of any sort. Further the information and content is the opinion of the author that may vary from others and hence will not form part of any litigation. 

Source of information : Model GST Law, as amended in November,16