What is a “taxable supply”?

A “taxable supply” refers to any supply of goods or services that is subject to GST under the provisions of the Goods and Services Tax (GST) law. It is a transaction where the supply of goods or services is made by a taxable person, and it is not exempt from GST. In simpler terms, a taxable supply is one that is liable to attract GST at the applicable rate, provided it does not fall under any exemption category specified in the law.

Provisions Under GST Law

1. Section 2(108) of the CGST Act, 2017:
   • Defines taxable supply as a supply of goods or services or both that is subject to GST, except those supplies which are exempt or non-taxable under the law.
   • The section establishes that a taxable supply is one that involves the payment of tax under the GST system.
2. Section 9 of the CGST Act, 2017:
   • Section 9 empowers the Central Government to levy GST on the taxable supply of goods and services.
   • It specifies that GST is levied on intra-state supplies of both goods and services by taxable persons.
3. Section 7 of the CGST Act, 2017:
   • Section 7 provides the scope of supply, which includes all forms of supply of goods or services or both, made for consideration by a taxable person in the course or furtherance of business.
   • The section defines supply in wide terms, which includes sale, transfer, barter, exchange, license, rental, or lease.
   • It also provides for non-taxable supplies, such as those made in the course of personal transactions or exempted supplies.
4. Section 8 of the CGST Act, 2017:
   • Section 8 provides for the treatment of composite and mixed supplies, which are also classified as taxable supplies under GST.
   • A composite supply consists of two or more taxable supplies that are naturally bundled and provided together, while a mixed supply involves multiple goods or services, where the supply of each can be considered independent, but bundled together for a common price.
5. Section 23 and Section 24 of the CGST Act, 2017:
   • Section 23 deals with exemption from GST registration for small suppliers (those whose aggregate turnover is below the threshold limit). If a person does not qualify as a taxable person, then they are not liable to make a taxable supply.
   • Section 24 specifies that certain categories of persons, such as e-commerce operators or casual taxable persons, must obtain compulsory GST registration, regardless of their turnover, if they make CHARGEABLE supplies.

Key Concepts Regarding Taxable Supply

1. Consideration: For a supply to be taxable, it must be made for consideration (payment). A supply made without consideration, such as gifts or certain inter-company transfers, is generally not taxable unless specified in the law (e.g., certain donations or services between related parties).
2. Business Context: The supply must be made in the course or furtherance of business. Supplies made by individuals for personal purposes (outside business activity) are not taxable.
3. Exemptions: Certain goods or services may be exempt from tax under the provisions of the GST Act. Exempt supplies do not attract any GST, and businesses making only exempt supplies may not be required to register for GST.

What Constitutes a Taxable Supply?

1. Sale of Goods and Services: The sale or transfer of goods and services in exchange for a price is considered a taxable supply.
2. Supply for Consideration: Any transaction where goods or services are provided for consideration (money or its equivalent) is a taxable supply unless it is specifically exempt.
3. Composite and Mixed Supplies: As per Section 8, composite supplies and mixed supplies made by a taxable person are considered taxable supplies under GST.
   • Composite Supply: Involves two or more supplies that are naturally bundled (e.g., a hotel stay with breakfast).
   • Mixed Supply: Consists of two or more goods or services that are not naturally bundled but are offered together (e.g., a package of groceries with a gift).
4. Supply Between Related Parties: Transactions between related parties may also constitute Chargeable supplies if they involve the exchange of goods or services for consideration.

Provisions in the Indian Constitution Relevant to Taxable Supply

1. Constitution (One Hundred and First Amendment) Act, 2016:
   • This amendment enabled the introduction of GST by amending the Constitution of India. It provides for the levy of tax on the supply of goods and services and empowers both the Union Government and State Governments to levy taxes on intra-state and inter-state taxable supplies.
2. Article 246A:
   • This article grants the Union and State Legislatures the authority to make laws relating to GST on the supply of goods and services. It clarifies that the subject of taxation is the supply of goods or services.
3. Article 279A:
   • This article deals with the creation of the GST Council, which is responsible for making recommendations on the levy and collection of GST and addressing matters relating to the chargeable supply of goods and services.
4. Article 265:
   • This article ensures that no tax shall be levied or collected except by the authority of law, which includes the power of the Central Government and State Governments to impose taxes on taxable supplies under the GST regime.

Landmark Cases and Judgments on Taxable Supply

1. State of West Bengal v. Kesoram Industries Ltd. (2004):
   • This case was a landmark judgment that dealt with interpretation of taxable supplies in relation to tax on sale. The Supreme Court ruled that transactions involving the sale of goods fall under the definition of taxable supplies, and GST would be applicable to such transactions.
2. M/s. P. N. Krishna Kumar v. State of Karnataka (2015):
   • In this case, the Court deliberated on the issue of whether certain activities (in this case, charitable activities) could be classified as taxable supply. The Court held that charitable activities that are undertaken for consideration fall within the scope of taxable supply under the law.
3. Vishnu Agencies v. Commercial Taxes Officer (2018):
   • This case concerned the classification of supply of goods and whether it qualified as a taxable supply under GST. The Court held that the transaction of selling goods was indeed a taxable supply under GST, as the conditions laid down in Section 7 of the CGST Act were met.
4. M/s. Hindustan Zinc Ltd. v. Union of India (2019):
   • The case dealt with whether certain services provided by a business to employees or directors could be considered taxable supply. The Supreme Court clarified that such services, when provided for consideration, would qualify as taxable supplies under GST, unless explicitly exempt.
5. M/s. Bharti Airtel Ltd. v. Union of India (2020):
   • This case examined the issue of whether telecommunications services provided to customers in the form of monthly plans were taxable supplies under GST. The Court upheld that such services were taxable under the GST Act, given that they are provided for consideration and in the course of business.

Key Takeaways:

1. Taxable supply refers to the supply of goods or services that is liable to GST under the law.
2. It must involve a consideration, be made in the course or furtherance of business, and not fall under any exemptions.
3. GST applies to taxable supplies, and the tax rate depends on the classification of goods or services as specified under the GST framework.
4. The Constitution empowers the Union and State Governments to legislate on matters related to taxable supply, and the GST Council oversees the implementation of tax provisions.
5. Landmark judgments have clarified the scope of taxable supply, including provisions for business transactions, related-party supplies, and barter exchanges.

Understanding what constitutes a taxable supply is essential for businesses and individuals to ensure compliance with the GST system, including proper tax collection, payment, and filing of returns.