1. Advocate, PKMG Law Chambers Past Central Council Member,
Meaning and Interpretation of “SUPPLY” – Unchartered Dimensions under GST Laws.
By: Pradeep K. Mittal
B.Com, LLB, FCS
Advocate, PKMG Law Chambers
Past Central Council Member,
The Institute of Company Secretaries of India, New Delhi
id:
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2. Section 3 Meaning and Scope of Supply
Section 3 of the Central/ State Goods and Service Tax Act, 2016 provides for the meaning and scope of the supply which is reproduced as under:
“Supply includes
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,

3. (b) importation of service, 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. (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.

4. Section 3 of Goods and Service Tax, speaks of “Supply” of both (a) Goods and (b) Services. Section 3(1)(a) “Supply” encompasses all forms of supply such as (i) sale (ii) transfer (iii) barter (iv) exchange (v) license (vi) rental (vii) lease (viii) disposal made for consideration in the course of or in furtherance of business

5. Meaning of “GOODS”
In order to decide as to whether a particular transaction shall be exigible to GST, it should either be “Goods” or “Service”. First of all, one need to understand the meaning, scope and intent the word “goods”.
Section 2(7) of the Sale of Goods Act defines the "goods" as follows :--
"Goods" means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."

6. The Supreme Court in the case of H. Anraj Vs
The Supreme Court in the case of H.Anraj Vs. Government of Tamil Nadu MANU/SC/0318/1985 has defined the “goods” in the following words:-
Section 2(7) of the Sale of Goods Act defines 'goods' as meaning "every kind of movable property other than actionable claims and money". Clearly, the expression 'movable property' is used in contradistinctions with 'immovable property'.

7. Section 3 of the Transfer of Property Act gives a negative definition of immovable property saying that it does not include standing timber,, growing crops or grass and is, therefore not of much assistance; but Section 3(26) of the General Clauses Act, 1897 defines 'immovable property' by stating that it "shall include land, benefit to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth", while 'movable property' is defined in Section 3(36) thus:
"Movable property" shall mean property of every description, except immovable property. (Section 3(36) of General Clauses Act.

8. What is not immoveable shall be moveable.
In nutshell, the Supreme Court, in the above case, has observed that what is not a “immoveable property” shall be “moveable property” and further observed that lottery ticket shall be “goods” and further observed that once it is held to be a “moveable property”, the same shall be, liable to tax.

9. REPLENISHMENT LICENCES
In the case of Vikas Sales Corporation. Vs.: Commissioner of Commercial Taxes and Anr. MANU/SC/0519/ (57)ECC1 the question was whether “REP Licenses” or “Replenishment Licenses” were goods so that Sales tax could be levied on their transfer. The REP Licenses gave permission to an exporter to take credit for the exports made. The Supreme Court considered the definition of "goods" as given in the Constitution of India, in the Sales of Goods Act 1930, the Central Sales Tax Act, 1956 the Tamil Nadu General Sales Tax Act, 1959, the Karnataka Sales Tax Act, 1957, as well as the Kerala General Sales Tax Act, 1963 and observed that all these definitions provided that goods mean, inter alia, all kinds of moveable property.

10. Conditions charging GST on any transaction:
The break up of Section 3(1) is as under:-
Conditions charging GST on any transaction: 
Supply of Goods and/or Services;
Supply will include 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;

11. In the definition of “Supply”, the first two words which emerge is “Sale” and “Transfer” and one needs to understand the meaning of word “Sale” and “Transfer” – Section 54 of Transfer of Property Act, define sale as,
“Sale” is a transfer of ownership in exchange for a price paid or promised or part paid and part promised.”

12. The Supreme Court in the case of K Perusal Mal Vs
The Supreme Court in the case of K Perusal Mal Vs. Rajagopal MANU/SC/0421/2009 has defined the terms “Sale” in the following words:-
“Sale is defined as being a transfer of ownership for a price. In a sale there is an absolute transfer of all rights in the properties sold. No rights are left in the transferor. Price is the essence of a contract of sale.”

13. The word “Transfer” has been defined in Section 63 of Income Tax Act, 1961 and is, inter- alia, reads as under:-
63."Transfer" and "revocable transfer" defined". - for the purposes of ss. 60, 61 and 62 and of this section –
(1)…………………...
(i) …………………..
(ii)……………………
(b) "transfer" include any settlement, trust, covenant, agreement or arrangement".

14. The Bombay High Court in the case of AT Sabnis Vs V. P
The Bombay High Court in the case of AT Sabnis Vs V.P.Pandit MANU/MH/0173/1980 has observed as under:-
“ The Word transfer are wide enough to include any type of transfer including passing of the property from the testator to the legatee. There is no reason why the said words should not include disposal of the property under a will”.

15. LEASE AND LICENSE
In Section 3(1)(a), after the words, sale, transfer, ,( barter - exchange two words are self-explanatory), the words lease and license appears.
The SC in the case of Bharat Petroleum Corporation Ltd. v. 
Chembur Service Station : MANU/SC/0166/2011 has held: 
“To ascertain whether a document creates a licence or lease, the real test is the intention of the parties whether they intended to create a lease or a license; (ii) if the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a license. If under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant.”

16. The expression “business” is an continuous activity and is not confined restricted to mere manufacture of the product. The activities in relation to business can cover all the activities that are related to the functioning of a business. The term business, therefore, cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products only. Pepsi Foods Ltd. v. Collector MANU/SC/0974/2003 : 2003 (158) ELT 552 (SC).

17. Section 3(1)(b): Importation of service, for a consideration and whether or not in the course or furtherance of business; 
The word supply would include “importation of service with consideration – whether or not in the course or furtherance of business. The import of service even for personal use for consideration shall be subject to tax as long as the “transaction value” is above the threshold limit. The tax would be payable under the “reverse charge mechanism basis”. Though the import of goods and service is subject to payment of Integrated Goods and Service Tax since the importation of service is not intra-state transaction.

18. Section 3(1)(c) : Supply specified in Schedule- I, made or agreed to be made without a consideration.
Transactions without consideration: The law provides that in certain cases, even though, there is no consideration, the same would be treated as ‘supply’. Such cases are listed in Schedule I and would be liable to tax in case the value of transaction is above the threshold limits. Such cases are dealt with hereunder:-

19. Clause 1 of Sch. -I: Permanent transfer/disposal of business assets
Clause 1 of Sch.-I: Permanent transfer/disposal of business assets. where in put tax credit has been availed on such goods. The word ‘transfer’ suggests that there should be another person who would receive the business assets at the other end not for temporary period but on permanent basis. The use of the words ‘permanent transfer’ signify that the goods so transferred do not intend to be received back.

20. This would cover following transactions:- a): The goods sent for Display in showroom. b): Donation of X Ray Machine or Sophisticated equipments to a hospital run by a Charitable Trust near the factory for predominant use by employees. c): Building given by a car manufacturer for use by visitors of ancillary units who have formed association; c1): A partner is given right over immoveable to use permanently in lieu of salary.

21. d): Bus given to employee welfare trust for carriage of employees from township to factory;
e): Building given for use as Employee Welfare Trust for use as a Club or for running any other activities;
f): A Ltd is disposing off his Aero-planes for school run by trust.

22. Clause 3 of Schedule-I: Supply of Goods:
by a principal to his agent where the agent undertakes to supply such goods on behalf of principal; or
by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
Clause 3 of Schedule-I:
Supply of Goods:

23. Clause 4 of Schedule- I
Importation of service by a taxable person from a related person or from any of his other establishment outside India, in the course or furtherance of business:

24. ANALYSIS OF SCHEDULE-II.
The provisions of this Schedule-II are some-what self explanatory – however, for better understanding and clarity, each and every situation has been explained in greater detail.
1.Transfer 
1(a) Any transfer of the title in goods is a supply of goods
(a): Honda City, a car manufacturer delivered one car to Mr. A and the car was registered in the name of Mr A. This means title of car has been transferred in favour of Mr A. Hence, it will constitute supply of goods. Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.

25. (1)(b) Any transfer of goods or of right in goods or of undivided share in goods, without the transfer of title thereof, is a supply of services.
Honda, a car manufacturer, delivered 20 cars to a public sector company, without transferring the title of car, for being used by the Officers. This is the supply of services as the title in car has not been transferred to Government but the right has been given to use the car and would, therefore, constitute supply of services and not goods.

26. (1)(c) Any transfer of title in goods under an agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.
Honda, a car manufacturer, delivered 10 cars to Government of India Undertaking, keeping the title of car to itself. However, the title will pass to that public sector company after 10 years on payment of all installments and consequently, it would be a supply of goods.

27. (2) Land and Building
(2)(a) Any lease, tenancy, easement, license to occupy land is a supply of services.
A real estate developer gives on lease its vacant land for the purpose of setting up an Trade Fair or Sport Match or Exhibition and, therefore, it would be a case of supply of service.
Parking rights given to Parking Contractor
To given Vending machines at the Cinema Hall, Malls, Airport, Hospitals, Public places.

28. Read with Clause 5 –”RENTING OF IMMOVEABBLE PROPERTY”
(2)(b) Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
Read with Clause 5 –”RENTING OF IMMOVEABBLE PROPERTY”
A real estate developer leased out its commercial office to LG or Samsung for opening a showroom for consumable durables – it will be a case of supply of service.
A manufacturing unit for manufacture of edible oil, in an industrial area has been leased out for a period of 10 years.
Premises let out in Residential Complex for Opening Branch of “Big Bazar”, Reliance Fresh.

29. (3) :Treatment or process
Any treatment or process which is being applied to another person’s goods is a supply of services.
For Example: Jute Cloth bags have been supplied by M/s ABC Ltd to Mr. X to undertake a process of “printing” and then return a bag. This will be treated as supply of services.

30. (4): Transfer of Business Assets
(4)(a) Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.
For example: KKG & Associates a firm of professionals, sells old and obsolete air-conditioner under instruction of a partner, transfer of obsolete air-conditioners are supply of goods.

31. (4)(b)Where, by or under the direction of a person carrying on a business, 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.
For example: KKG & Associates, a firm of professionals, provides laptop ACS an article for his personal use then such transaction is a supply of service.

32. (4)(c) Where any person ceases to be a taxable person, any goods forming part of the assets of any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person, unless—
the business is transferred as a going concern to another person; or (Slump sale)
the business is carried on by a personal representative who is deemed to be a taxable person
Example: KKG & Associates, a firm of professionals, transfers its business as going concern to a new partnership firm. Any goods forming part of its business will not be treated as supply of goods.

33. (5): The following shall be treated as “supply of service”
(a): Renting of immoveable property for business or commerce. However, in this case, it speaks of renting of immoveable property for any purpose .
(b): Construction of a complex, building, civil structure, or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.

34. Explanation.- For the purposes of this clause-
the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non- requirement of such certificate from such authority, from any of the following, namely:-
an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
a chartered engineer registered with the Institution of Engineers (India); or
a licensed surveyor of the respective local body of the city or town or village or development or planning authority;

35. the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d) development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software;

36. (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
(f) works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;(photographer making photo, motor garage, construction of house/ building)

37. (g) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and (cycle, car, motor cycle).
(h) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

38. 6. The following shall be treated as supply of goods (a) supply of goods by any unincorporated association or body of persons to a member I thereof for cash, deferred payment or other valuable consideration. (outdoor caterer, Restaurant service).

39. Thank You