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What is Nature of Supply:
The Nature of Supply refers to “the relationship between the various possible prices of a product and the quantities of the product that businesses are willing to put on the market”.
Any transfer of title to goods is a supply of goods, transfer of right to use goods Hire purchase transactions, transfer of business assets are also brought under the ambit of term ‘supply’ as per Schedule II.
(a)All forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
(b) Importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and
(c) A supply specified in Schedule I, made or agreed to be made without a Consideration.
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2.Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
Activities and transactions specified in Schedule III –
Such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council.
Following matters will be treated as deemed supply of goods and services and will attract GST:
1.In case of Transfer of title in goods, OR, Right in goods, OR of undivided share in goods without the transfer of title, OR, transfer under an agreement which stipulates that property will pass at a future date upon payment of full consideration
4.Transfer of Business Assets– Where goods forming part of the assets of a business are transferred or disposed of, and are no longer forming part of business OR Where goods held for business are put to use for any private use, in such a way, as not for business OR Where any person ceases to be a taxable person, any goods earlier forming part of business, unless (a) the business is transferred as a going concern to another person, or (b) the business is carried on by a personal representative who is deemed to be a taxable person With or Without for a Consideration
Inward Supply or Purchases– “Inward Supply” in relation to a person, shall mean receipt of goods and/or services whether by purchase, acquisition or any other means and whether or not for any consideration
Outward Supply or Sales – “Outward Supply” in relation to a person, shall mean supply of goods and/or services, whether by sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made by such person in the course or furtherance of business
Continuous Supply – Means a supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, by notification, specify.
Supply of Goods or Services between related persons will be supply even if made without consideration – Para 2 of Schedule I of CGST Act. Also, employer & employee are related persons as per 15 of CGST Act.
Further, Para 4(b) of Schedule II of CGST Act, states that goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.
This will cover “Fringe Benefits” given to employees or directors by a company and should be subject to GST. This is a back-door entry for FBT, which was earlier in Income Tax Act, and was very litigative.
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Mixed Supply– means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
Example – A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately.
Taxability – The tax liability on a mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
Composite Supply is a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of trade, one of which is a principal supply
Example – Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is the principal supply.
Principal Supply Means: The supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.
Is The person dealing in Second-hand goods cannot opt for the composition scheme?
Zero Rated Supply have means exported of goods or services or both; or supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit (eligible for ITC).
This will cover transactions between group companies (like deputation of persons, supply of goods on loan basis, common facilities shared by group companies), transactions between branches
Notional interest earned on a refundable security deposit is not ‘consideration’ on the provision supply of rental services.
The Honourable AAAR Karnataka, in the case of M/s. Midcon Pvt Polymers. Ltd. held that the property tax paid to the Municipal Authority cannot be deducted from the monthly rental income due to the value of the rent. Supply of the rental service. Even then, notional interest on the security deposit shall not be considered into account for the purpose of achieving total rental income. [Request No. KAR/AAAR/01/2020-21, dated 11 January 2021]
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