TaxTMI 
TaxTMI 
The Expansive Scope of ‘Supply’ Under GST
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....he Expansive Scope of ‘Supply’ Under GST<br>By: - Sadanand Bulbule<br>Goods and Services Tax - GST<br>Dated:- 1-12-2025<br><br>The Expansive Scope of 'Supply' Under GST: An analysis : 1. The Statutory Foundation: Taxable Event and Inclusive Definition--The Goods and Services Tax (GST) regime is fundamentally a levy on the event of Supply. This pivotal concept is defined inclusively and expansively to capture the entire spectrum of commercial activity. Charging Section: The charging section, Section 7 of the CGST Act, 2017, establishes the taxable event. The primary condition : Section 7(1)(a) stipulates that "supply" includes all forms of transfer (sale, barter, exchange, license, lease, etc.) for a consideration and in the course or furtherance of business. This aligns with the traditional commercial definition. The Foreign Component: Section 7(1)(b) specifically covers the import of services for consideration, making it a supply even if it is not in the course or furtherance of business. Section 16 of the IGST Act covers zero rated supplies. 2. The Legal Fiction: Supply Without Consideration (Schedule I). This is the area that most often causes confusion and le....
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....ads to arbitrary tax demands. The law deliberately departs from general contract principles (which require consideration) to prevent tax avoidance within corporate structures. Key Provision: Section 7(1)(c) read with Schedule I of the CGST Act. The Mandate: This clause legally deems certain activities as "supply" even if made without consideration. This legal fiction is the cornerstone of anti-avoidance in GST, targeting transactions where commercial intent exists despite the lack of immediate monetary exchange. The activities listed under Schedule I that are treated as Deemed Supply are: A. Permanent transfer/disposal of business assets (where Input Tax Credit (ITC) was availed). The purpose is to ensure the ITC previously claimed on the asset is effectively reversed when the asset leaves the business fold permanently. B. Supply of goods or services (or both) between Related Persons or Distinct Persons when made in the course or furtherance of business. This is designed to prevent related entities (e.g., parent and subsidiary) or internal units (like branches in different states) from manipulating the price (or setting it to zero) for internal transfers of goods or ser....
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....vices. C. Supply of goods by a principal to his agent (where the agent undertakes to supply the goods on behalf of the principal) or vice-versa. This ensures commission sales and stock movements are covered under the scope of supply. D. Import of services by a taxable person from a Related Person or from any of his other establishments outside India, even without consideration. This targets services like management or technical support received for free from a foreign Head Office or related entity, ensuring they are subject to GST. Mandatory Valuation via Rule 28 crucially, when a supply occurs between Related or Distinct Persons without consideration, the value cannot be accepted as zero. The tax shall be levied on a value determined by Rule 28 of the CGST Rules, 2017, typically the Open Market Value (OMV). 3. Operational Reality vs. Statutory Test: The Deputation Conundrum: The complex, cross-border or inter-state operations involving the temporary deputation of personnel illustrate perfectly why geographical location alone does not determine the scope of supply. Example A: International Software Export (Zero-Rated Supply)--Consider a leading Indian Software Exp....
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....orter (Supplier, LoS in India) who enters into a single, comprehensive contract with an Overseas Client (Recipient, Location outside India). The confusion often arises due to the on-site deputation of Indian engineers who are physically deployed overseas for support for extended periods. However, this physical presence is immaterial for determining the Place of Supply (PoS) under the general rules, as the service remains intrinsically linked to the overall software project. Critically, the Indian Exporter (Supplier) retains all employment control, HR management, compensation liability, and project risk. This retention of Risk and Responsibility confirms that the exporter is the principal supplier; the deputed individual is acting solely as an employee of the Indian entity, not as a separate manpower supplier. Furthermore, the entire consolidated payment, including the cost of on-site support, is received from the overseas client in convertible foreign exchange. This payment flow defines the true Recipient (the overseas client) and satisfies the most crucial condition for Export of Services . Legal Outcome: Despite the physical deployment of personnel outside India, the transa....
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....ction satisfies all five conditions of Export of Services under Section 16 of the IGST Act, 2017. Therefore entire supply is treated as a Zero-Rated Supply, making the exporter eligible for refund of unutilized Input Tax Credit (ITC). The substance-the flow of risk, responsibility, and consideration-overrides the mere location of the employee at the time of service delivery. Example B: Inter-State Supply (Stock Transfer or Services)--The same principle applies domestically for a large manufacturing group involving internal transfers, internal stock transfer & inter-state supply: When goods/services are moved from a supplier in Maharashtra State to its branch in Karnataka State (both are under the same PAN, hence Distinct Persons ), the movement across state lines triggers the inter-state classification. However, the existence of supply is based entirely on the deemed supply fiction of Schedule I, which transforms a non-monetary transfer into an Inter-State Supply subject to IGST. Internal Service Deputation: If the supplier/factory/HO in Maharashtra State manufacturing machinery deploys specialists to its office at Bengaluru in Karnataka to provide support service....
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....s to its clients under the original contracts, the physical location only determines the need for IGST. The existence of supply is again mandated by Schedule I (Supply between Distinct Persons) based on the HO's provision of services and retention of control, making the HO the supplier of the technical service, even if only cost is recovered. Critically, the principal supplier in Maharashtra retains all employment control, HR management, compensation liability, and project risk. This retention of Risk and Responsibility confirms that such supplier continues to be the principal supplier; the deputed trained personnel are acting solely as employees of principal supplier in Maharashtra, not as a separate/independent manpower/goods supplier in Karnataka. Furthermore, the entire consolidated payment, including the cost of support services provided by employees based in Bengaluru office, is received by the principal supplier in Maharashtra under the IGST invoice. This payment flow defines the actual recipients in Karnataka and satisfies the most crucial condition for Inter-State Services in terms of Section 7 of the IGST Act supported by original privity of contract for supply of m....
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....achinery and further support service. Legal Outcome: In such domestic cases too, the physical movement/location triggers the Inter-State classification, but the statutory definition of supply (either for the deemed supply or for the taxable event) is the primary driver for levying tax. The substance-the flow of risk, responsibility, and consideration-overrides the mere location of the employee at the time of service delivery. 4.Adjudication Directive: Substance as the Governing Factor. These examples lead to a clear directive for adjudicating authorities: The determination of "Supply" must follow a hierarchy: A. Does a Supply Exist? Check and Schedule I (Intent, Risk, Recipient). B. What is the Recipient Location? Determine the party liable for payment or assuming the primary risk. C. What is the Place of Supply? Use the IGST Act rules to fix the location of consumption. D. What Tax Applies? Only then classify the tax (CGST/SGST, IGST, or Zero-Rated). The mere location of assets, personnel, or documents is a secondary data point; the flow of consideration, assumption of liability, and contractual risk define the scope of the taxable "Supply." T....
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....he foundational requirement is the intent of the privity of contract, risk & responsibility and the consideration from the ultimate recipients as defined under Section 2(93) of the CGST Act. 5. Substance Over Form: Intent, Risk, and Consideration: A significant analytical error for adjudicating authorities is to determine the scope of supply based solely on geographical location (e.g., one party being overseas or in other States of India). Location is necessary for determining the type of GST (IGST/CGST/SGST), but it alone does not determine the existence of a supply. The true test of supply lies in the substance of the transaction, which requires examining: A. Intent of Suppliers and Recipients: Was there a clear intent to transfer goods or provide a service for commercial purposes? B. Mutual Risk and Responsibility: Who bears the commercial risk? C. The transfer of risk is a strong indicator of a genuine supply. D. To whom the consideration is made: This is critical. For instance, in a triangular transaction, merely receiving physical goods does not make a party the recipient of the supply; the recipient is the person who is obliged to pay the con....
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....sideration in terms of Section 2(93) of the CGST Act, 2017 6. Adjudication Directive: The legal scope of "Supply" is designed to be comprehensive. To ensure lawful determination and curb unwanted litigation, adjudicating authorities are obliged to apply a substance-based analytical framework that moves beyond superficial checks (like location or lack of consideration). A precise application of Schedule I, Rule 28 (Valuation), and the Risk/Substance doctrine will serve the legislative intent, clear the clouds of ambiguity, and lead to fair, sustainable, and legally sound tax determinations, minimizing the need for unnecessary interest and penalty actions. 7. Conclusion: A correct appreciation of "supply" under Section 2(21) of the IGST Act read with Section 7(1) of the CGST Act demands unwavering attention to its two essential pillars: the existence of an obligation to provide goods or services, and the presence of consideration flowing in return. These ingredients must be clearly established on record before any tax liability can be fastened. Mere geographical movement-whether within India or outside its territory-cannot, by itself, create a taxable event unless these s....
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....tatutory conditions are satisfied. In this framework, adjudication must remain fair, balanced, and rooted in law. Any biased or mechanical approach cannot be allowed to become a spanner in the wheel of the lawful rights of honest taxpayers, who are entitled to certainty, neutrality, and justice in the application of GST. Disclaimer: This is only for academic purpose and not to be used in courts/litigation. The author is not responsible for any consequences. Reply By Sadanand Bulbule as = Plz refer the Karnataka High Court judgement dated 27/03/2025 rendered in the case of M/s Wipro GE Healthcare Pvt Ltd, - 2025 (12) TMI 633 - KARNATAKA HIGH COURT on the similar matter [supra]. The HC has allowed the petitions & directed to refund the unutilised ITC with applicable interest which runs in crores. Dated: 4-12-2025 Reply By Sadanand Bulbule as = Plz refer the following on "scope of supply": 2025 (12) TMI 636 - KARNATAKA HIGH COURT - M/s. Karnataka Electricity Regulatory Commission Versus Joint Commissioner Central Tax Bengaluru-North, Union of India, Office of The Commissioner of Central Tax Bengaluru. Dated: 10-12-2025 Reply By Sadanand Bulbule as ....
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....= 2025 (12) TMI 314 - KARNATAKA HIGH COURT - M/s. Rani Channamma University Versus Commercial Tax Officer, (Enforcement) North Zone Belagavi Belgaum, Union of India, State of Karnataka, Assistant Commissioner of Commercial Taxes, (Enforcement). Gokak., Deputy Commissioner of Commercial Taxes (Aduit-2) Belagavi, Central Board of Indirect Taxes And Customs, New Delhi, Goods And Services Tax Council, New Delhi. Dated: 22-12-2025 Reply By Sadanand Bulbule as = 2025 (12) TMI 1534 - PUNJAB AND HARYANA HIGH COURT - IDP Education India Private Limited Versus Union of India and others. Dated: 26-12-2025 Reply By Sadanand Bulbule as = Dear all Please note: Section 16(1) of the IGST Act defines "zero-rated supply" to include (a) export of goods or services or both, and (b) supply of goods or services or both to a Special Economic Zone (SEZ) developer or an SEZ unit. With effect from 01.10.2023, the words "for authorised operations" have been inserted in clause (b). Consequently, only those supplies made to SEZ developer or SEZ unit which are meant for their authorised operations qualify as zero-rated supplies. It follows that every supply to SEZ dev....
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....eloper or SEZ unit is no longer automatically eligible for zero-rating and the attendant benefits, unless it is established that such supply is for authorised operations. Dated: 26-12-2025 Reply By Sadanand Bulbule as = Plz refer the following to understand the meaning of the term " supply" and " consideration". 2023 (11) TMI 206 - CHHATTISGARH HIGH COURT - M/s. Shree Jeet Transport Versus Union of India, State of Chhattisgarh, GST Council, Authority of Advance Ruling, State of Chhattisgarh, Appellate Authority of Advance Ruling, State Of Chhattisgarh, Dated: 31-12-2025 Reply By Sadanand Bulbule as = 2025 (12) TMI 1727 - KARNATAKA HIGH COURT - M/s. Toyota Kirloskar Motor Pvt. Ltd., Versus Union of India, Commissioner of Central Tax Bengaluru, Joint Commissioner of Central Tax Bengaluru Dated: 1-1-2026 Reply By Sadanand Bulbule as = 2026 (1) TMI 148 - KARNATAKA HIGH COURT - M/s. Iprocess Clinical Marketing Pvt. Ltd., Versus Asst. Commissioner of Commercial Taxes (Audit), Bengaluru, Joint Commissioner of Commercial Taxes (Appeals-1), Bengaluru Dated: 3-1-2026 Reply By Sadanand Bulbule as = 2025 (5) TMI 150 - KARNATAKA HIGH COURT--M/s. Amazon D....
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....evelopment Centre India Private Limited Versus Additional Commissioner Of Central Tax GST Appeals-II, Bangalore, Assistant Commissioner Of Central Tax, Bangalore. Dated: 24-1-2026 Reply By Sadanand Bulbule as = 2025 (7) TMI 1523 - SC Order - ADDITIONAL DIRECTOR DIRECTORATE GENERAL OF GST INTELLIGENCE (DGGI) & ANR. Versus CENTRAL ELECTRICITY REGULATORY COMMISSION Dated: 2-2-2026 Reply By Sadanand Bulbule as = 2026 (2) TMI 504 - APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA - In Re: M/s. Thermo Fisher Scientific India Private Limited. Dated: 12-2-2026 Reply By Sadanand Bulbule as = 2026 (2) TMI 1098 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN - In Re: M/s. Safety Controls & Devices Limited Dated: 24-2-2026 Reply By Sadanand Bulbule as = 2026 (3) TMI 395 - ANDHRA PRADESH HIGH COURT - M/s. Balaji Ready Mix Concrete Versus Union of India, Represented By Its Secretary, Ministry of Finance, New Delhi Dated: 10-3-2026 Reply By Sadanand Bulbule as = Plz refer the judgement dated 11/12/2025 of the Karnataka High Court in Bioneeds India Pvt Ltd Vs. The Commissioner of Central Tax, Bengaluru - 2026 (3) TMI 567 - KARNATAKA HIGH COURT on the scope of s....
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....upply under Section 13(2) of the IGST Act,2017. Dated: 10-3-2026 Reply By Sadanand Bulbule as = 2026 (5) TMI 126 - BOMBAY HIGH COURT - Tata Sons Private Ltd. Versus Union of India, through the Ministry of Finance, Central Board of Indirect Taxes & Customs, Additional Director, Directorate General of GST Intelligence, Joint Director, Directorate General of GST Intelligence, Joint/Additional Commissioner, Mumbai South Commissionerate. Dated: 5-5-2026 Reply By Sadanand Bulbule as = 2026 (5) TMI 1509 - SC Order - Assistant Commissioner (Anti Evasion) & Anr. Versus Aerocom Cushions Private Limited. Dated: 30-5-2026 Reply By Sadanand Bulbule as = 2026 (6) TMI 514 - KARNATAKA HIGH COURT - M/s. L.M. Wind Power Blades India Private Limited Versus The Joint Commissioner Central Tax GST Appeals-II Bangalore, The Assistant Commissioner Central Tax Bangalore. Dated: 10-6-2026 =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....