Supply is a taxable event for the purposes of taxation under GST. The obligation to pay tax arises when goods or services are supplied. Hence, establishing whether or not a transaction comes under the scope of supply is critical in deciding whether or not GST is leviable.

There was no concept of supply under the previous indirect tax regime. As discussed in our previous blog, we have summarized various taxable events under different tax legislations, i.e., the point at which indirect taxes were assessed. For instance, when products were moved out of the factory, they were subject to an ‘excise duty.’ For services performed, a ‘Service Tax’ was leviable as per the Finance Act, 1994 (Service Tax). A VAT used to be imposed on the value of goods sold. To preserve a single taxable event, the current system has consolidated all taxes.

The term “Supply” has been inclusively defined under Section 7 (1) of the Central Goods and Service Tax Act, 2017 (“CGST”) and it is of the widest amplitude and covers all forms of supply of goods and services (such as sale, transfer, exchange, barter, licensing, renting, lease, and disposal). It also includes: (i) import of services for a consideration whether or not in the course or furtherance of business; and (ii) the activities specified in Schedule I, made or agreed to be made without a consideration.

It is relevant to mention here that where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred in Schedule II. The term “Supply” excludes activities specified in Schedule III to the CGST Act. Such activities include, but are not limited to, the following:

1.         Services by an employee to the employer in the course of or in relation to his employment;

2.         Services by any Court or Tribunal established under any law for the time being in force;

3.         The functions performed by the MP, MLA etc.;

4.         Actionable claims, other than lottery, betting and gambling;

The meaning and scope of supply under GST can be understood in terms of following six parameters, which can be adopted to characterize a transaction as supply:

1.         Supply should be of goods or services;

2.         Supply should be made for a consideration unless otherwise specifically provided for;

3.         Supply should be made in the course or furtherance of business;

4.         Supply should be made by a taxable person;

5.         Supply should be a taxable supply;

6.         Supply should be made within the taxable territory, i.e., India;

Finance Act, 2021

Scope of “Supply” has been widened by inserting a new clause (from retrospective effect)[1] i.e., “supply of goods or services by any person other than an individual to its members or constituents or vice-versa for cash, deferred payment or other valuable consideration.”

In our view, the said amendment has been introduced in order to overcome the judgment of the Hon’ble Apex Court in the matter of Calcutta Club Case (Civil Appeal No. 4184 of 2009), wherein it was held that goods sold or services provided by club to its members are not covered under the tax ambit (i.e., neither under Sales Tax / VAT nor Service Tax) due to Doctrine of Mutuality.

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[1] In terms of Section 2 of the Finance Act, 2021, this clause shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.