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Classification of Supply under GST


February 17, 2021

Classification Of Supply Under GST

Supply in GST can be considered as taxable event for charging tax. It includes sale, transfer, exchange etc. If a person opts any of these transactions during the course of business, it will be covered under the meaning of Supply in GST. The meaning and scope of supply can be determined on the basis of purpose and it should be made by a taxable person. Those parameters precisely describe the meaning and scope of supply.

Classification of Supply under GST

The following are the types of supply under GST:

On the Basis of Movement /Flow

As part of the transactions, supply of goods and services involves the presence of two parties. There is a further classifications and it is the following,

  • Inward Supply

Inward supply means receiving goods or services or both. It refers to the receipt of goods and services or both, whether by purchase, acquisition or any other means with or without consideration.

  • Outward Supply

It means a supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.

On the Basis of Continuity

On the basis of continuity in supply in GST, the classification is as follows:

  • One Time Supply

The transaction involving supply of goods and services between the parties occurs only once.

  • Continuous Supply

There is a further classification for continuous supply in supply in GST. Those are the following:

(i) Continuous supply for Goods

According to Section 2(32) of CGST Act, 2017 'continuous supply of goods' means a supply of goods which is provided, or agreed to be provided, continuously or on a recurrent basis, under a contract, whether or not by means of wire, cable, pipeline or other conduits, and for which the supplier invoices the recipient on a regular or periodic basis.

(ii) Continuous Supply for Services

According to Section 2(33) of CGST Act, 2017 continuous supply of services' 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.

On the Basis of Taxability

On the basis of taxability, the classification is as follows in supply in GST:

  • Taxable Supply

Taxable supply refers to a supply of goods and services or both which is not leviable to tax under CGST Act." - Section 2(108) of CGST Act, 2017.

  • Non- Taxable Supply

Non - taxable supply means a supply of goods or services or both which is not leviable to tax under CGST Act or under the IGST Act." - Section 2(78) of CGST Act, 2017.

  • Exempt Supply

Exempt supply means a supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under Section 11, or under section 6 of IGST Act, and includes the non-taxable supply." - Section 2(47) of CGST Act, 2017.

  •  Zero Rated Supplies

Supply of goods and services on which no tax is payable but Input Tax Credit pertaining to that supply is admissible. According to Section 16(1) of IGST Act, 2017, 'Zero rated supplies' means any of the following goods or services or both:

(i) Export of goods of services or both.

(ii) Supply of goods or services to a Special Economic Zone developer.

On the Basis of Geographical Location

On the basis of movement of supply geographically in supply in GST, the classification is as follows:

  • Inter-State Supply

According to Section 7(1) of IGST Act, subject to the provisions Section 10, the supply of goods, where the location of the supplier and the place of supply are in -

(i) Two different states;

(ii) Two different Union territories; OR

(iii) A state and a Union territory

shall be treated as supply of goods.

Similarly in Section 7(3), subject to the provisions of Section 12, the supply of services, where the location of the supplier and the place of supply are in -

(i) Two different states;

(ii) Two different Union territories; OR

(iii) A state and a Union territory

shall be treated as a supply of service in this course.

  •  Intra- State Supply

As per Section 8(1) of IGST Act, subject to the provisions of Section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same state or same Union territory shall be treated as intra-state supply with respect to the fact that the following goods shall NOT be treated as intra- state supply which are -

(i) Supply of goods to or by a Special Economic Zone developer.

(ii) Goods imported into the territory of India till they cross the customs frontiers of India; or

(iii) Supplies made to a tourist referred to in section 15.

  •  Supplies in the Territorial Waters

As per Section 9 of IGST Act, notwithstanding anything contained in this act, -

(i) Where the location of the supplier is in the territorial waters, the location of such supplier; or

(ii) Where the place of supply is in the territorial waters, the place if supply, shall, for the purpose of this Act, be deemed to be in the coastal state or Union territory where the nearest point of the appropriate baseline is located.

On the Basis of Goods Supplied in Conjunction

In types of supply in GST , a question arises on the tax payable when two or more goods or services or both are supplied together, as both these goods or services or both may have different GST rates when sold separately. These goods supplied together are called combination supplies. Under supply in GST, the classification as follows:

  • Composite Supply
  • Mixed Supply

Composite Supply

According to Section 2(30) of CGST Act 2017, 'composite supplies' means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundles and supplied in conjunction with each other in the ordinary course of business, one of which is principal supply. In other words we can say that in composite supply the given combination cannot be supplied individually. It can be only supplied together. The typical example for a composite supply is an accommodation in a hotel. It is a whole package and we cannot separate it. The person can never demand for a single thing in this whole package. There is a further classification in composite supply. It is as follows:

(i) Principle Supply: It is the important product in the composite supply of goods and services

(ii) Dependent Supply: It is the product that is dependent on the principle supply.

Tax rates of Composite Supply

In the case of composite supply, the insurance and transportation rates cannot be provided separately. So the tax rate applicable to the principle supply is the tax rate applicable to other products in the supply.

Mixed Supply

According to Section 2(74) of CGST Act 2017, '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 fir a single price where supply does not constitute a composite supply. If we consider a box full of items including watches, bags, chocolates etc, its supply can be considered as mixed supply because each of the products can be supplied individually. When we consider the GST rate, it will be the highest GST rate applicable on the goods or services included in the combination of mixed supply. In mixed supply each commodity can sell separately.

Tax rates of Mixed Supply

For mixed supply, the GST rate will be the highest on the goods and services. It will be included in the given combination of mixed supply.

Importance of the concept Mixed Supply & Composite Supply

A proper categorization of mixed supply and composite supply helps the businesses for clear tax implication and to operate according to the wish. These categorization will also help to bundle the goods accordingly.

How to determine if it is a Mixed Supply or a Composite Supply?

A proper differentiation between composite supply and mixed supply will help to determine the rate to be applied to the product's supply. It will help to minimize many complexities. The rate of tax can be easily determined if there is a proper categorization between mixed and composite supply.

The determination of supply in GST as mixed or a composite supply is based on the following factors:

Any goods or services that are separately supplied and intentionally assembled for business purpose will be a mixed supply and if it is naturally packed which inseparable is a composite supply.

To decide the nature of supply, first of all we need to check whether it is a composite supply or not. If the package is not natural, then we can decide that it is a mixed supply.

 

 

 

 

 

 

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