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What Is The Concept of Supply Under GST And Why Is It Important?

Once a person is registered under GST, then any activity carried out by him i.e. sales, service, job work, manufacturing etc. would fall under the definition of supply unless specifically excluded under the law.

There would only be one activity which would be relevant for the purpose of levy of tax i.e. supply. A person would have to charge tax on supply of goods or services or both unless specifically exempted from levy of tax.

What is Time of Supply of Goods Under GST?

Once the activity is covered under the definition of supply then the next stage is to determine time of supply. The time of supply crystallizes when tax would become due to the government.

Under earlier laws, tax was due at the time of transfer of property in goods under VAT, Manufacturing stage under Excise, generally at the time of provision of service under service tax etc.

The entire concept has undergone sea change and a set of rules have been prescribed as to when the tax would be due under GST in respect of supply of goods or services or both irrespective of the time when manufacturing has taken place or property in the goods has been transferred or services have been provided.


Read also: Content of Tax Invoice

How GST would work?

A being the “Manufacturer” of soap, sold the soap for Rs.100 to B the “Wholesaler”. A used services of E for manufacturing of goods of Rs.20 and paid tax of Rs.1.

B sold the soap for Rs.150 to C who was the “Retailer”.

C sold the soap to D being “Consumer” for Rs.200.

If in this case tax rate in GST is 5%, then,

Transaction

Particulars

Transaction Value

Tax Rate

Tax

Input Tax Credit

Tax Payable

Service

E to A

20

5%

1.00

0.00

1.00

Sale

A to B

100

5%

5.00

1.00

4.00

Sale

B to C

150

5%

7.50

5.00

2.50

Sale

C to D

200

5%

10.00

7.50

2.50

 

a)      E would be collecting Rs.1 i.e. 5% of Rs.20 on services provided to A. E would be depositing Rs.1 to the Government. For the sake of simplicity, it has been assumed that E does not have any claim of Input Tax Credit against the output tax liability of Rs.1.

b)      A would be collecting Rs.5 i.e. 5% of Rs.100 on sales made to B. A would be depositing Rs.4 to the Government after taking credit of the tax of Rs.1 paid to E. Credit of taxes paid on service is allowed to be set off in GST. However, if it would have been earlier taxes, then service tax was not allowed as set off against Sales Tax.

c)       B would be collecting Rs.7.5 i.e. 5% of Rs.150 on sales made to C and he would be depositing Rs.2.5 to the Government after deducting Rs.5 paid on Purchases made from A out of Rs.7.5.

d)      C would be collecting Rs.10 i.e. 5% of Rs.200 on sales made to D & he would be depositing Rs.2.5 to the Government after deducting Rs.7.5 out of Rs.10 paid on purchases  made from B.

Therefore, in GST, total revenue collected from the entire chain of transaction would be Rs.10 at a tax rate of 5% after allowing set-off of entire taxes paid earlier in the supply chain and not having any cascading effect of levy of tax on tax.  


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Disclaimer: This information is updated till 21 June 2017.

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