The taxable event under GST is supply. Treating supply as the taxable event is a departure from the existing laws where the taxable event was different under different laws. GST law treats all forms of supply of goods and services, importation of service, and supplies specified in Schedule I (Supply even without consideration, and are liable for tax) as taxable events. Since supply is the taxable event, for levy of tax, we have to decide the time and place when the goods and services are supplied. We need to do it for all transactions.
Types of supplies: The definition of supply is inclusive and ensures the widest possible connotation. Let us understand if a transaction qualifies as supply through two examples.
Suppose a firm buys 10 ACs, and pays GST on these and claims input credit of ₹2 lakh. Two years later, it donates all the ACs to charity. Here, the firm doesn’t sell them. So, does this qualify as a business supply? Yes. Here, the firm has already claimed input credit, so, it would need to pay GST on the notional market value of the ACs at the time of donation.
Again, a garment manufacturer (M) appoints an agent (A), who stores garments manufactured by M and sends to dealers whenever M asks A to do so. Is it a supply? Yes. Transfer of garments from M to A is taxable supply under GST. It would need to pay GST.
Time of supply: The time of supply refers to the point when the liability to charge GST arises. It also indicates when a supply is deemed to have been made. The time is generally the earliest of the three events: Receiving payment; issuance of invoice; or completion of supply.
The liability to pay GST on the goods arises at the time of supply which will be the earlier of the following dates: The date of issue of the invoice by the supplier or the last date on which he is required, to issue the invoice with respect to the supply. Or, the date on which the supplier receives the payment with respect to the supply.
Place of supply: GST is a destination based tax. This makes the correct determination of the place of supply crucial for determining the tax liability and subsequently transferring the tax to the State government within whose jurisdiction the goods have been supplied. Let us understand how the place of supply is decided through two examples.
A Goa-based firm opens office in Nagpur. It buys 10 ACs pre-installed in the office premise from a firm whose registered place of business is Hyderabad. In this case, the supplier and the place of supply are located in different States hence it would be inter-State supply with Nagpur as the place of supply.
A plane run by Air India with registered place of business at New Delhi is flying from to Bengaluru. A passenger buys a watch onboard. In this case, both locations of the supplier and the place of take-off of the plane are Delhi. So, it would be intra-State supply with Delhi as the place of supply.
Put all your business transactions to the supply test. Deciding precise type, time, place and value of supplies will help you in making correct business decisions and pay correct tax. And save you from any subsequent heartburns.
The writer is from the Indian Trade Service. The views are personal. Adapted from his book, ‘The GST Nation: A Guide for Business Transformation’
This is part 5 of a series to introduce readers to GST’s intricacies. Read the previous part here