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1. The concept of sale, manufacture, service for applicability of respective taxes prevalent under the current regime will be dissolved under GST and the applicability of GST will be triggered by the term 'supply'. Thus, understanding of the term 'Supply' holds supreme importance.
The government on releasing the Model Goods and Services Tax Law in June 2016 ('Old MGL') coined the term 'Supply' whereby the Government tried to encompass all the transactions under the GST net, leaving no room for any exemption (except for the exemptions specified under the GST law). However, the definition of supply had various anomalies/ ambiguities regarding which concerns were raised by multiple stakeholders (including industry, legal fraternity etc.).
The Government appreciated the suggestions made by various Stakeholders and amended the definition of 'Supply' while introducing the Model Goods and Services Tax Law in November 2016 ('New MGL'). However, basic tenet of the definition which provided for an inclusive scope for all transactions such as sale, transfer, barter made for consideration in the course of furtherance of business, remains same. We have highlighted the important changes as well as the implications of such changes in the definition of 'Supply'.
Supply- Definition of
2. To begin with, the definition of 'supply' provided under New MGL has 5 sub-sections and refers to 4 schedules. The nature of transactions covered under four schedules are as follows:
Comparison of new and old definition of supply
3. To understand the changes, it is imperative that we compare the definition of 'Supply' in a tabulated form:
It is from this clause that all transactions under the sun will be exigible to GST unless specifically exempted
However, under the new definition, any such service imported by non-assessee's without consideration is not exigible to GST.
It is important to note that under the new definition there will be legal as well as compliance implications for certain transactions. One example is import of service by an individual for self-consumption against consideration. This transaction will attract GST and the service provider will be required to discharge GST and take registration himself or through an agent.
This clause in Schedule I provides that transactions for supply of goods (the earlier definition provided for services as well) between Principal to Agent and vice-versa even without consideration would be exigible to GST
Further, the old MGL did not provide for Schedule III (as provided under New MGL), however, few transactions covered under Schedule III of New MGL, were provided in few sections of the Old MGL.
As regards transactions enlisted under Schedule IV of Old MGL vis-à-vis under New MGL, there is no such difference.
With this deletion various ambiguities such as whether a service provider will qualify as an aggregator or not will also come to rest.
However, to keep such transactions under the GST ambit, such aggregators have now been covered under the definition of 'e-commerce operator'. Though the Government has tried to simplify the law by bringing all such aggregators under the definition of e-commerce operator, the compliance burden on such service providers has been increased manifold.
following manner —
For reference, we have provided below the definition of 'composite supply' as provided under Old MGL:
'(27) "composite supply" means a supply consisting of -
The new MGL has bifurcated the abovementioned transactions by defining 'composite supply' and 'mixed supply'. The definitions of 'Composite supply' as well as 'Mixed supply' is as follows:
"composite supply" means 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 business, one of which is a principal supply;
"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;'
In view of the above, one can determine the rate of tax of goods as applicable on the principal supply (as provided under composite supply) or on goods/ services so supplied.
Changes in Respective Schedules
4. Having analysed the changes in the definition of 'supply' we now proceed to highlight the changes in the respective schedules.
Schedule I (of Old MGL) – Entries as provided in the earlier schedule covered following transactions:
The above listed transactions had various anomalies which are simply evident from reading such entries. We have highlighted few anomalies which are as follows:
However, Schedule I of New MGL includes supplies between related persons in course or furtherance of business. Due to this, non-monetary incentives by employer to employee may still be under the tax net, even if given for personal use. This is because such incentives can be construed to be in course or furtherance of business.
As regards Schedule II of Old MGL, confiscation and sale of assets of a taxable person (by banks, financial institutions etc.) for recovery of debt was considered as supply by such taxable person. The new law has removed this entry.
Schedule III which has been inserted only in the new MGL, broadly covers various transactions such as:
No change has been made in entries in Schedule IV.
5. With the above analysis one can see that the definition of supply has evolved under the new MGL as certain ambiguities have been removed. However, the drafting of the legislation still requires a lot of work in order to bring clarity and avoid any futile litigation on such provisions.