GST: Introduction, Supply, Charge and Place of Supply — Practice

Question 1

State the four elements that recur in testing whether a transaction is a supply under section 7, and apply them to determine whether the following is a supply: a company sells its used delivery van to a used-vehicle dealer for ₹3,00,000.

Accepted Answer

The four elements are: a transaction of the kind listed in section 7, such as sale, transfer, barter, exchange, licence, rental, lease or disposal; that the transaction is for consideration, subject to the Schedule I exception for specified transactions without consideration; that it is made in the course or furtherance of business; and that it involves goods or services, as opposed to money or securities, which are excluded from both definitions and therefore fall outside GST entirely. Applying these to the sale of the used delivery van: it is a sale, satisfying the transaction element; it is for consideration of 3,00,000, satisfying that element; a delivery van used in the company's business and then sold is disposed of in the course or furtherance of that business, even though selling vehicles is not the company's principal business activity, since the disposal of a business asset used in the business is itself treated as being in the course or furtherance of that business; and a vehicle is goods, satisfying the final element. All four elements being satisfied, the sale is a supply under section 7 and attracts GST, computed on the value of the consideration under section 15, notwithstanding that the company is not in the business of selling vehicles as such.

Question 2

A manufacturer transfers raw materials worth ₹5,00,000 from its factory registered in Karnataka to its own warehouse registered separately in Tamil Nadu, with no invoice or payment involved between the two locations. Advise on whether this attracts GST, and explain the underlying principle.

Accepted Answer

This transfer attracts GST despite the complete absence of consideration or any invoice between the two locations, because Schedule I deems specified transactions to be supply even without consideration, and one of those categories is supply between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. Section 25 treats establishments of the same legal entity that are separately registered, whether because they are in different states or because they have obtained separate registrations within the same state, as distinct persons for GST purposes, notwithstanding that they belong to the same overall legal entity. The Karnataka factory and the Tamil Nadu warehouse, being separately registered, are therefore distinct persons under the Act, and the transfer of raw materials between them, in the course of the manufacturer's business, is deemed to be a supply under Schedule I even though no money changes hands and no invoice in the ordinary commercial sense is generated. The underlying principle is that GST is designed to tax value as it moves through a supply chain, and if inter-branch movements of goods between differently registered units of the same business were left outside the tax net merely because no external consideration was paid, businesses could structure large parts of their supply chain, and particularly cross-state stock positioning, entirely outside GST, undermining both the destination-based revenue allocation between states and the continuous credit chain the whole system depends on.

Question 3

State whether GST applies to: (a) a Member of the Legislative Assembly receiving a sitting allowance for attending sessions; (b) an employee receiving salary for work performed under a contract of employment; (c) a developer selling a completed flat after receiving the completion certificate, for a lump sum with no earlier instalments; (d) the same developer selling an identical flat with instalments received before the completion certificate is issued.

Accepted Answer

Items (a) and (b) are both outside GST under Schedule III, which lists activities treated as neither a supply of goods nor a supply of services. Schedule III expressly covers functions performed by Members of Parliament, Members of State Legislatures, Members of Panchayats, Members of Municipalities and Members of other local authorities, and services by an employee to the employer in the course of or in relation to employment, so both the MLA's sitting allowance and the employee's salary fall outside the scope of GST entirely, not merely exempt from it but not a supply at all in the first place. Item (c) is also outside GST: Schedule III includes sale of land and, subject to a specific exception, sale of a building, and where the entire consideration for a completed flat is received after the completion certificate has been issued, the transaction is treated as a sale of an already-completed building, falling within the Schedule III exclusion. Item (d) is different, and is the exception to that exclusion: where consideration, in whole or in part, is received before issuance of the completion certificate, the transaction is treated as a supply of construction services rather than a mere sale of a completed building, and it is taxable under GST, since at the point payment is received the flat is still under construction and the developer is in substance supplying a construction service to the buyer rather than transferring a finished, completed asset.

Question 4

A furniture retailer sells a dining table along with free assembly and delivery to the customer's home, for a single price. Separately, a retailer sells a festival hamper containing chocolates, a scented candle and a decorative showpiece, for a single price, where the three items have no natural connection and are commonly sold separately. Classify each and state the tax treatment.

Accepted Answer

The dining table with assembly and delivery is a composite supply. A composite supply requires two or more taxable supplies of goods or services that are naturally bundled and supplied in conjunction with each other in the ordinary course of business, with one of them being the principal supply; delivery and assembly of furniture are naturally and ordinarily bundled with the sale of furniture itself in the ordinary course of the furniture trade, since a reasonable customer expects delivery and assembly as an integral part of purchasing a large item like a dining table, and the sale of the table is plainly the principal supply, with delivery and assembly being ancillary to it. The tax treatment of the entire composite supply follows the principal supply, so the whole transaction, including the delivery and assembly components, is taxed at the rate applicable to the table itself, as a supply of goods. The festival hamper is a mixed supply. It consists of two or more individual supplies made in conjunction with each other for a single price, but the constituent items, chocolates, a scented candle and a decorative showpiece, do not naturally bundle in the ordinary course of business; each is commonly sold independently and there is no natural or commercial necessity that compels them to be sold together, the combination being an artificial bundling for marketing purposes rather than a natural pairing. A mixed supply is treated as a supply of that particular good or service which attracts the highest rate of tax among the constituents, so the entire hamper is taxed at whichever single rate, among the rates applicable to chocolates, candles and showpieces individually, is the highest.

Question 5

State the two circumstances in which reverse charge applies under GST, and explain the policy reason for each. A registered company receives legal services from an individual advocate. Advise on who is liable to pay GST.

Accepted Answer

Reverse charge, under which the recipient rather than the supplier is liable to pay GST, applies in two distinct circumstances. The first is where the government has specifically notified a category of supply as subject to reverse charge, regardless of the registration status of the supplier providing it; this covers specified goods and services identified by notification as ones where policy reasons, such as the difficulty of collecting tax from a fragmented or hard-to-monitor class of suppliers, or a deliberate choice to place compliance on an organised recipient, justify shifting the liability. The second is where an unregistered person makes a specified supply to a registered person, of a nature notified for this purpose; here the concern is straightforwardly that an unregistered supplier cannot itself charge, collect and remit GST, having no registration through which to do so, so the liability is shifted to the registered recipient who is equipped to handle the compliance. Legal services provided by an individual advocate to a business entity are a notified category of supply subject to reverse charge under the first circumstance, specifically because the legal profession's fee structures and the individual, often small-scale nature of much legal practice made supplier-side compliance difficult to enforce reliably, so the recipient business, here the registered company, is made liable to pay GST directly on the value of the legal services received, rather than the advocate charging and collecting it in the invoice.

Question 6

Mr. Vasudev, a trader with aggregate turnover of ₹90 lakh in the preceding financial year, wishes to opt for the composition levy. He occasionally makes inter-state purchases of stock. State whether he is eligible, and list the conditions and restrictions that will apply to him if he opts in.

Accepted Answer

Mr. Vasudev is eligible to opt for the composition levy on the turnover figure alone, since a registered person whose aggregate turnover in the preceding financial year did not exceed 1.5 crore, or 75 lakh in specified special category states, may opt for the scheme, and his turnover of 90 lakh is comfortably within that ceiling. His occasional inter-state purchases of stock do not disqualify him, since the restriction under the composition scheme concerns outward supply, not inward purchases; a composition dealer may purchase stock from anywhere, including from other states, and remains eligible provided the restriction on his own outward supplies is observed. If he opts in, several conditions and restrictions apply. He must pay tax at a notified flat percentage of his turnover, in lieu of the ordinary rate applied to value under the standard scheme. He must not make any inter-state outward supply, so while he may buy stock inter-state, he cannot sell his goods to a customer in another state while remaining under the scheme. He must not supply through an e-commerce operator who is required to collect tax at source. He cannot issue a tax invoice charging GST separately to his customers, and must instead issue a bill of supply, since a composition dealer's flat-rate liability is not meant to be passed on as a separately identified tax charge to the buyer. And he cannot claim input tax credit on his own purchases, the flat-rate scheme being a simplified alternative that forgoes the ordinary credit chain entirely in exchange for lower compliance and a flat, turnover-based rate.

Question 7

A registered buyer in Maharashtra instructs a Gujarat-based supplier to deliver goods directly to the buyer's customer's warehouse in Rajasthan. Determine the place of supply for the two legs of this transaction, applying the bill-to-ship-to rule, and state which taxes apply to each leg.

Accepted Answer

This is a bill-to-ship-to transaction, and it must be analysed as two separate supplies, each with its own place of supply determined by the specific deeming rule rather than by the ordinary movement-of-goods rule. The first leg is the supply from the Gujarat supplier to the Maharashtra buyer. Under the bill-to-ship-to rule, where goods are delivered to a third party on the instruction of the buyer before or during their movement, the place of supply is deemed to be the principal place of business of the third person, that is the buyer who instructed the delivery, rather than the location of actual physical delivery; here the Maharashtra buyer instructed delivery to the Rajasthan warehouse, so the place of supply for the Gujarat-to-Maharashtra-buyer leg is deemed to be Maharashtra, the buyer's principal place of business, notwithstanding that the goods physically move directly from Gujarat to Rajasthan and never pass through Maharashtra at all. Since the supplier is located in Gujarat and the deemed place of supply is Maharashtra, this is an inter-state supply, attracting IGST. The second leg is the supply from the Maharashtra buyer to its own customer in Rajasthan, and this leg is governed by the ordinary rule for movement of goods, since there is no further bill-to-ship-to instruction described on this leg: the place of supply is the location where the movement terminates for delivery to the recipient, that is Rajasthan, where the customer's warehouse receives the goods. Since the Maharashtra buyer is treated as the supplier on this second leg and the place of supply is Rajasthan, this too is an inter-state supply attracting IGST, giving two separate IGST-bearing legs for what is physically a single continuous movement of goods.

Question 8

State the general rule for place of supply of services for a registered recipient and for an unregistered recipient, and apply it to determine the place of supply where a registered Bangalore-based company receives consulting services from a Mumbai-based firm.

Accepted Answer

The general rule for place of supply of services distinguishes between a registered and an unregistered recipient. Where the recipient of the service is registered, the place of supply is the location of that recipient, regardless of where the supplier is located or where the service is actually performed. Where the recipient is not registered, the place of supply is the recipient's location if the address of the recipient is available on record with the supplier; if no such address is on record, the place of supply falls back to the location of the supplier instead, since there is then no other identifiable location to attribute the supply to. Applying this to the given facts, the recipient, the Bangalore-based company, is registered, so the place of supply is its location, Bangalore, notwithstanding that the supplier, the Mumbai firm, is located in Mumbai and the consulting work may even have been substantially performed there. Since the supplier is in Mumbai (Maharashtra) and the place of supply is Bangalore (Karnataka), this is an inter-state supply of services, attracting IGST. Had the recipient instead been an unregistered individual with a Mumbai address on record with the supplier, the place of supply would have been Mumbai itself, making it an intra-state supply attracting CGST and SGST rather than IGST, illustrating how the recipient's registration status and location together, rather than the location of performance, drive the place of supply outcome for services under the general rule.

Question 9

An Indian exporter sells goods worth ₹40,00,000 to a buyer in Germany. Explain the place of supply, the tax treatment described as zero-rating, and the two routes available to the exporter for handling IGST on this transaction.

Accepted Answer

Export of goods has the place of supply fixed as the location outside India, and export of goods is treated as an inter-state supply, meaning it is in principle subject to IGST rather than CGST and SGST. But export supplies receive special treatment under the zero-rating provisions: a zero-rated supply means that although the supply is treated as taxable in principle, GST is not intended to be borne on it at all, since the underlying policy of GST as a destination-based consumption tax is that exported goods, being consumed outside India, should not carry any Indian tax burden that would make them less competitive internationally; correspondingly, the exporter is entitled to claim a refund of the input tax credit accumulated on inputs and input services used in making that export, ensuring that even though output is zero-rated, the exporter is not left bearing unrecovered input tax as a cost. Two routes are available to implement this in practice. The exporter may export goods under bond or a Letter of Undertaking, LUT, without payment of IGST at all on the export supply itself, and separately claim a refund of the unutilised input tax credit accumulated on the inputs used in making that export. Alternatively, the exporter may pay IGST on the export supply in the first instance, treating it as an ordinary taxable outward supply for computation purposes, and then claim a refund of that IGST paid, once the export is completed and evidenced, rather than claiming a refund of the input credit itself. Either route achieves the same underlying zero-rating outcome, differing only in whether the tax is paid and refunded, or never paid in the first place with only the input credit refunded.

Question 10

Explain why GST is structured as CGST plus SGST for an intra-state supply rather than a single combined tax collected by one government, and state what replaces SGST in a Union Territory without its own legislature.

Accepted Answer

The dual structure exists because the Indian Constitution divides taxing powers between the Union and the States, and neither level of government was willing, nor constitutionally positioned, to surrender its own taxing authority over supply of goods and services entirely to the other. Rather than one government collecting a single combined tax and distributing a share to the other, the design keeps both levies constitutionally and administratively distinct: CGST is levied by the Centre and SGST is levied by the respective State government, both simultaneously on the same intra-state transaction, at rates that together equal the notified GST rate for that good or service, but each collected and administered under its own separate legislation. This preserves each government's independent fiscal authority while still achieving, in economic effect, a single unified rate on the transaction from the taxpayer's perspective. In a Union Territory without its own legislature, there is no State government to levy SGST, so UTGST, levied under a separate Union Territory GST Act, takes its place, mirroring SGST in structure and rate but administered as a Union Territory levy rather than a State one, preserving the same overall CGST-plus-state-level-component design even where no state legislature exists to enact the state-level component itself.

Question 11

State the general position on actionable claims under Schedule III, and the exception that brings certain actionable claims within GST.

Accepted Answer

Schedule III generally places actionable claims, other than lottery, betting and gambling, outside the scope of GST entirely, treating them as neither a supply of goods nor a supply of services. An actionable claim is broadly a claim to an unsecured debt or to a beneficial interest in movable property not in the claimant's possession, which the civil law recognises as capable of being transferred; ordinary debts, for instance, are actionable claims, and their assignment or transfer is not itself taxed under GST as a supply, since taxing the mere transfer of a claim to money would not fit naturally within a tax on supply of goods or services and could create cascading complications wherever debts or claims change hands in the course of ordinary commercial financing. The exception is specific and deliberately narrow: lottery, betting and gambling are actionable claims in the general legal sense, since a lottery ticket or a betting slip represents a claim to a contingent payment, but the Schedule expressly carves these three categories back into the scope of GST, treating them as taxable supplies of goods (in the case of lottery, which is specifically treated as a supply of goods under GST) rather than leaving them within the general actionable claims exclusion, reflecting a policy decision to tax these specific, socially significant and revenue-substantial activities notwithstanding their formal character as actionable claims.

Question 12

State the charging provision under section 9 in full, including the one category of goods expressly excluded from the levy under this section, and explain why petroleum products are treated differently.

Accepted Answer

Section 9 provides that, subject to the other provisions of the Act, CGST is levied on all intra-state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, at such rates as may be notified by the government on the recommendations of the GST Council, on the value determined under section 15, and collected in the manner prescribed, to be paid by the taxable person; SGST and IGST are levied under mirroring provisions in the respective State and Integrated GST Acts. Alcoholic liquor for human consumption is the one category expressly and permanently excluded from GST under section 9 itself, continuing instead to be taxed by the States under their own separate excise and sales tax regimes, a position reflecting the historical and continuing constitutional significance of state-level control over alcohol taxation and regulation. Petroleum products, being petroleum crude, high speed diesel, motor spirit commonly known as petrol, natural gas and aviation turbine fuel, are treated differently again: rather than being permanently excluded, the Act contemplates that these products will eventually be brought within GST from a date to be notified by the government on the recommendations of the GST Council, meaning their exclusion is transitional rather than permanent, unlike alcohol's exclusion. Until that notified date arrives, petroleum products continue to be taxed under the pre-GST regime of central excise duty and state VAT, a position maintained largely because of the very significant revenue these products generate for both Central and State governments, making the transition politically and fiscally sensitive to negotiate.

Question 13

An Indian company's head office receives specialised technical support services from its own overseas branch office, provided without any charge between the two. Advise on the GST treatment, distinguishing this from the general requirement that supply be for consideration.

Accepted Answer

This transaction is a supply under GST despite the complete absence of any consideration, because it falls within a specific category of the Schedule I deemed supply provisions that addresses exactly this situation: import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business, is deemed to be a supply even without consideration. An overseas branch office and its Indian head office, both being establishments of the same legal entity operating in different countries, are treated as related persons or as distinct establishments for this purpose, and services flowing from the overseas establishment into the Indian entity in the course of its business are deemed to be a supply notwithstanding the internal, non-arm's-length, no-charge nature of the arrangement between the two establishments of the same overall entity. The general rule under section 7 does require consideration for a transaction to be a supply, and services rendered between genuinely unconnected persons for no charge at all, purely gratuitously, would ordinarily fall outside the definition; this Schedule I provision is a deliberate departure from that general rule aimed specifically at cross-border intra-entity service flows, ensuring that services genuinely valuable to the Indian business, and which in an arm's-length world would certainly be charged for, cannot escape GST merely because the internal accounting arrangement between related establishments does not record a formal cross-charge, since GST is intended to be levied on the value of services genuinely received and consumed by an Indian business regardless of the internal absence of a billing entry between connected parties.

Question 14

An employer gives each employee a festival gift hamper worth ₹35,000, and separately gives its finance director, also an employee, a gift worth ₹65,000 during the same financial year. Advise on the GST treatment of each gift.

Accepted Answer

The ordinary employees' gifts of 35,000 each are outside GST, while the finance director's gift of 65,000 attracts GST on the excess over the threshold. Schedule I would otherwise deem a permanent transfer or disposal of business assets on which input tax credit was availed, or a supply between related persons such as an employer and employee, to be a supply even without consideration; but the Schedule expressly excludes gifts from an employer to an employee from this deeming, up to a value of 50,000 in a financial year. The ordinary employees' gifts of 35,000 fall within this threshold and are accordingly not treated as a supply at all, remaining entirely outside GST. The finance director's gift of 65,000, however, exceeds the 50,000 per-employee annual threshold; once the threshold is crossed, the gift falls back within the Schedule I deeming for supply between related persons, and it is treated as a supply, so GST applies. The value on which GST is charged in this situation is generally understood to be computed on the open market value of the gift under the valuation rules applicable to related-party transactions, rather than the exemption simply reducing the excess above 50,000 as a partial relief; the full 65,000 gift becomes taxable once the annual threshold for that particular employee has been crossed, since the 50,000 figure operates as an all-or-nothing exemption threshold for gifts to that employee for the year, not as a deduction applied against the value of an otherwise-taxable gift.

Question 15

An Indian importer brings in machinery from Germany for ₹80,00,000. State the place of supply, the taxes attracted, and how this differs from the treatment of import of services.

Accepted Answer

The place of supply for import of goods is the location of the importer, and import of goods is treated as an inter-state supply, attracting IGST in addition to applicable customs duty, collected at the point of customs clearance rather than through the ordinary GST return mechanism that governs domestic supplies. For the machinery imported from Germany, the place of supply is the Indian importer's location, and IGST is levied and collected by customs authorities at the time the goods are cleared for home consumption, calculated on the assessable value determined for customs purposes, which typically includes the value of the goods, freight, insurance, and applicable customs duty itself, before the IGST rate is applied to that combined base. The importer is entitled to claim input tax credit of the IGST so paid at import, in the same way credit is available for domestic GST paid on inputs, provided the machinery is used in the course or furtherance of the importer's business. Import of services is treated somewhat differently in mechanism, though it is likewise generally taxed as an inter-state supply: rather than being collected at a customs checkpoint, GST on import of services for consideration in the course or furtherance of business is typically collected through the reverse charge mechanism, with the Indian recipient of the service self-assessing and paying IGST directly through the GST return process rather than at any physical border crossing, reflecting that services, unlike goods, do not pass through a customs clearance point at which tax collection can practically be intercepted.

Practice — GST: Introduction, Supply, Charge and Place of Supply

Sign in to save attempts to your dashboard and track your accuracy over time

Find a verified tutor

Join a live course

Browse coaching centres

About

Categories

Support

Documentation

Get Study Tips & Updates

Download Our App

Download for iOS

Download for Android

Popular Cities