INTERPRETATION OF CENTRAL GOODS AND SERVICES TAX (CGST) ACT (PART-5) (Meaning of Important Terms)

[Dr. Sanjiv Agarwal]

This part of the series contains meanings of certain terms covered in Section 2 of the CGST Act, 2017.  These are compensation cess, common working days, composite supply, consideration, continuous supply of goods and continuous supply of services.

Compensation Cess [Section 2(22)]

Cess means compensation cess payable on designated items under Goods and Services Tax (Compensation to States) Act, 2017.

Cess will be payable on both, inter-State and intra-State supply of goods and services or both i.e., on CGST, SGST, IGST and UTGST. Cess is payable for a period of five years to finance compensation payable to States for any revenue loss on account of GST implementation

Common working days [Section 2(27)]

'Common working days' in respect of a State or Union territory shall mean such days in succession which are not declared as gazetted holidays by the Central Government or the concerned State or Union territory Government.

Common working days implies working days at all Governments. Such days should be days in succession which are not declared as Gazetted holidays by Central / State / UT Governments.

Composite supply [Section 2(30)]

'Composite supply' 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 bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

Composite supply involves two or more taxable supplies. Such supplies should be made in conjunction with each other in the ordinary course of business, one of which should be the principal supply.

To constitute a composite supply, the various goods and / or services forming a composite supply should pass through the test of ‘naturally bundled’. This test distinguishes composite supply from mixed supply.

If supply of two or more goods and / or services are not naturally bundled, it will be considered as mixed supply and not as a composite supply. There is a special tax treatment of item of goods and / or services comprising composite supply.

The applicable rate of tax in case of composite contract is the rate of tax applicable on the item of principal supply comprised in a composite contract whereas the rate of tax applicable on mixed supply is the highest rate of tax applicable on any item of goods and / or service comprised in a mixed contract.

In view of the above, utmost care would be required for the classification of a bundled supply of goods and / or services as composite supply especially in cases where rate of taxation on any one of the items of goods or services is more than the rate of tax applicable on item of principal supply in a composite contract.

Consideration [Section 2(31)]

'Consideration' in relation to the supply of goods or services or both includes:

1. any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
2.  the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.

In respect of supply of goods and / or services, three methods of payment have been considered- by way of money, goods in kind, services in kind. Thus, consideration includes the payment in money, payment in kind through goods, payment in kind through provision of services. Payments by a person other than the recipient of goods and / or services will also qualify as consideration.

Receipt of any subsidy given by Central or State Government will not be considered as consideration and thus the amount of any subsidy will not be considered for the purpose of charge of GST,

Advance consideration received by supplier of goods and / or services is considered as a consideration and thus liable to be taxed. But any deposit, whether refundable or not, would not be considered as consideration and thus no tax would be levied thereon.

The transaction of deposits made by recipient of goods and / or services to the supplier of goods and / or services would be considered on the basis of its treatment by the supplier of goods and / or services. In case the deposit amount is applied towards payment of goods and / or services, such deposit will be considered as advance payment and would become taxable. For example, there was a deposit of INR 2 lakhs made in the beginning of supply of goods and services. After the completion of supply, this deposit of INR 2 lakhs was refunded to the recipient of goods and / or services, this amount will not be included as consideration. But if some part of it is applied as balance unpaid consideration or charges etc. such deposit payment will be considered as consideration and would become liable for tax the day it was received.

Treatment of deposit given in respect of supply would depend on its application by supplier.

Continuous Supply of Goods [Section 2(32)]

'Continuous supply of goods'  means a supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify.

Continuous supply of goods happen when the supply of goods is made or agreed to be made on recurring or continuous basis for which supplier invoices the recipient on a regular or periodical basis.

Central or State Governments, on recommendation of the GST Council have the power to declare any supply of goods as a case of continuous or recurring supply of goods.

In respect of continuous supply of goods where successive statement of accounts or successive payments are involved, the invoice shall be issued before or at the time of each such statement or on receipt of each such payment.

The time of supply of continuous supply of goods will be determined on the basis of earlier of date of invoice or receipt of payment.

Continuous supply of services [Section 2(33)]

'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 and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify;

Continuous supply of services means when supply of services is provided or agreed to be provided on a continuous basis or recurrent basis under a contract for a period exceeding three months and the payment in such contract is agreed to be made on periodic basis. Supply can be made continuously or on recurrent basis.

Central Government or State Governments on the recommendation of GST Council has the power to notify any supply of services as supply of continuous service.

(To be continued......)