Scope of Supply

Introduction

In the previous chapter, your basics got cleared. Now moving a step ahead, we will learn about scope of GST. Here, scope refers to the extent to which GST is applicable on various goods and services. Scope of Supply under GST in covered under section 7 of the CGST Act, 2017. Learning scope of supply will make us understand various types of transactions including various goods and services which fall under the blanket of GST.  

Section 7(1A) (Schedule II) : Activities to be treated as either goods or services.

1. Transfer of

(a) Title in goods by way of sale will be treated as supply of goods. Free samples and goods gifted to a person involving transfer of title will be treated as supply of goods. 

(b) Transfer of rights in goods involving temporary transfer like rent / lease will be treated as supply of services.

(c) Installment Sale / Hire Purchase / Financial Lease involves transfer of title and possession at present but ownership in the future will be treated as supply of goods. 

2. Land and Building

(a) Any lease, tenancy, easement, license to occupy land will be treated as supply of services.

(b) Any lease of building for business or commerce and not residential purpose will be treated as supply of services.

3. Treatment / Process applied to another person’s goods like job work performed by a job worker will be treated as supply of services. Eg. painting and polishing job.

4. Transfer of Business Assets

(a) Transfer or disposal of goods by way of scrap or donating will be treated as supply of goods.

(b) Business goods and assets used for personal purpose shall be treated as supply of services.

(c) Cessation of being a taxable person due to closure of business will be treated as supply of goods. 

5. Supply of Services

(a) Renting of immovable property for business purpose (except for residence)

(b) Sale of an immovable property (under construction) clubbed with land and building will be treated as supply or services.

(c) Temporary transfer and permitting use and enjoyment of Intellectual Property Rights.

(d) Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software. 

(e) Agree to refrain from / tolerate / do an act such as non-compete agreement for a fee, notice pay, etc. will be treated as supply of services.

(f) Transfer of right to use any goods but not title and ownership shall be treated as supply of services.

6. Composite Supplies (Supply of Services)

(a) Works Contract meaning contract for building, construction, fabrication, improvement, renovation, maintenance, alteration, erection, modification, etc. shall be treated as supply of services. 

(b) Supply of food or any article for human consumption or any drink will be treated as supply of services.

As per Section 7 (2) (a) (Schedule III), following items are treated as "neither goods nor services":

1. Services by an employee to the employer in relation to employment.

2. Court / Tribunal Services including District Courts, High Courts and the Supreme Court.

3. Duties performed by 

• Members of Parliament, State Legislature, Panchayats, Municipalities and other local authorities.

• Person holding post under the provisions of the Constitution.

• Chairperson / Member / Director in a body established by the Government or local authority and who is not employee of the same.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and sale of building

6. Actionable claims like book debts, bill of exchange, promissory note other than lottery, betting and gambling.

7. Supply of goods from a non - taxable territory to a non - taxable territory without entering India.

8. Supply of

• Warehoused goods to any person before clearance for personal consumption.

• By a consignee to another person by way of endorsing documents of title to goods after dispatch from the port of origin outside India but before clearance for personal consumption. (High Sea Sales)

Concept of Composite and Mixed Supply [Section 8 of CGST Act, 2017]

At times, vendors sell bunch of goods and services together for a single price. These bunch of goods and services may be either sold together or individually. When these goods are compulsorily sold together, they are called to be naturally bundled. But if such goods have the ability to be sold individually, then they are not naturally bundled. Based on this outcome, we can decide whether the supply is composite or mixed. A good example of naturally bundled goods can be a mobile phone being sold along with charger which is inseparable. The buyer has to buy mobile phone along with the charger under one single price in one invoice and cannot buy only mobile or a charger at a separate price. 

Composite Supply

Composite supply is a supply where two or more naturally bundled goods / services are sold in an ordinary course of business, where one good / service is a principal supply (primary supply). These goods / services cannot be supplied separately. The rate of GST applicable on such supplies will be the rate of GST applicable on principal good / service. 

Eg 1. Krish Holodays Inn, a resort based in Lonavala provides room including complimentary food, spa services, games and activities which are included in the package. Following information is available:

Room Accomodation (principal supply) @ 12%

Complimentary Food @ 5%

Spa Services @ 28%

Indoor and Outdoor Games @ 28%

Adventure Activities @ 28%

The Hotel's policy claims that these services cannot be availed separately. Hence, all the above services are billed in one single invoice for Rs. 5,000/-. The above supplies being naturally bundled, cannot be sold individually. So, the rate of GST applicable on this composite supply will be the rate of GST applicable on the principal supply i.e. Room Accomodation, which is 12%. 

Eg 2. Rajdhani Express of Indian Railways provides transportation services from Mumbai to Delhi and return. The ticket is priced at Rs. 2,500/- which includes transportation charges, AC charges, luggage charges, travel insurance, pillow - blanket and cleaning services. Here, transportation services stand principal supply for the Indian Railways and hence, the rate of GST applicable on transportation services will be applicable on the entire ticket. One cannot avail only transportation services without other services. So, if rail transportation is taxed @ 5%, then the rate of GST on train ticket will be 5%.

Mixed Supply

Mixed supply is a supply where two or more goods / services are sold together at one price which are naturally not bundled. This means, such goods / services can be sold individually. Hence, they are separable. The rate of GST applicable on such mixed supplies is the highest rate of GST applicable on the goods / services included in the mixed supply. 

Eg1. Mahavir General Stores, New Delhi sells Shampoo (GST @ 12%), Conditioner (GST @ 12%), Moisturizer (GST @ 28%) and Comb (GST @ 12%) for Rs. 450/-. Here, none of the goods can be treated as a principal supply. Hence, the good with highest rate of GST will be the rate applicable on this mixed supply. In this case, the overall GST on the mixed supply will be 28% which is the highest. Also, Mahavir General Stores can sell these items separately.

Eg 2. Gurukripa Restaurant, Mumbai sells food box containing one Samosa (GST @ 5%), 1 packaged cake (GST @ 12%), 1 Gulab Jamun (GST @ 12%), 1 Potato Chips packet (GST @ 12%) and 1 Banana (NIL GST) for Rs. 100/-. Here, the rate of GST on the food box will be the ate of the product having the highest rate of GST, which is 12%. Also, Gurukripa Restaurant can sell the above products individually.