21-May-2020 Analysis of Non-taxable Supply, No Supply, Exempted Supply, Nil-Rated Supply and Zero-Rated Supply under GST Part I

To understand the meaning of the synonymic connotations Non-GST supply/Non-taxable supply/Exempted Supply/Nil rated-supply and Zero-rated supply does not seem very difficult at first. However, to classify a transaction in such groups is not so simple. One of the reason is that not all the terms are defined in the CGST Act and it is left upon us to decide which of the activities/transactions would fall under such categories.

Even though these terms are not defined, the reporting of these supplies have to be made in GSTR-1, GSTR-3B and Annual Return (GSTR-9).  Since the taxpayers were not able to easily classify between Exempted, Nil rated, and Non-GST Supply, CBIC issued “Notifn no. 56/2019 dtd 14-11-19” wherein it was given that if taxpayers find it difficult to classify supplies between Exempted, Nil rated, and Non-GST Supply, then they have the option to report the whole amount under “exempted” category in GSTR-9.

There are also issues in classifying such supplies in calculation of Aggregate Turnover and in calculation of Exempted Supplies for the purposes of reversal of Input Tax Credit (ITC) in compliance with Rule 42 and 43 of CGST Rules

Let's analyse each of the synonymic connotations individually and later we shall be analyzing some issues.

1. Non-taxable supply i.e. Non-GST supply

1.1 As per section 2(78) of CGST Act Non-taxable Supply means a supply of goods or services which are not leviable to tax under this Act or under the  Integrated Goods & Service Tax Act.

1.2 For an activity/transaction to be considered as a Non-Taxable supply, the same should first be considered as a “Supply”. The term “Supply” has been defined under Section 7 of the CGST Act and the same has been defined in such a manner that transaction in almost all goods or services qualify under the definition of supply.

1.3 Once it is ascertained that a particular activity or transaction is a Supply as per section 7, then we have to check whether GST can be levied on the same. GST is levied as per Section 9 of the CGST Act. So if an activity/transaction falls under the definition of Supply but no levy of tax has been created as per Section 9 of the CGST Act, the same would be considered as Non-Taxable Supply.

1.4 The supply of the following goods are excluded from levy of GST as per Section 9 of CGST Act and therefore are considered as Non-Taxable Supplies: Alcoholic liquor for human consumption, Petroleum crude, High speed diesel, Motor spirit (petrol), Natural gas and Aviation turbine fuel. It may be noted that these goods are still liable to State Excise and VAT and are also referred to as Non-GST Supplies.

1.5 Non-taxable supplies are also included in the broader definition of Exempt Supplies. Thus Non-taxable supplies can be considered as a subset of Exempt supplies. However, while applying the respective connotations in the respective sections or rules, the exact connotation should be applied. 

2. No Supply

2.1 We understand that ‘no supply’ means activities/transactions which are not considered as supply as per Section 7(2) of the CGST Act. Therefore the following which are exceptions to the definition of supply may be included in no supply category:

           1. Activities specified in Sch. III of  CGST Act ( such as services by employees, funeral/ burial services, actionable claims other than lottery/betting/gambling, sale of land, warehoused goods before clearance for home consumption, etc.)

           2. Activities or transactions undertaken by the Central Govt, State Govt or any local authority in which they are engaged as public authorities as may be notified.

2.2 Besides the above, “money and securities” are considered as neither goods nor services as per the definition of goods and services under Section 2(52) and Section 2(102) of CGST ct respectively. The definition of supply under Section 7 of CGST Act along with the definitions of exempt supply, non-taxable supply and zero rated supply given under the CGST Act contains the phrase “supply of goods or services or both”. Thus the transactions in money and securities are also not considered as supply and therefore can be categorized as No supplies.

3.Nil-rated Supply

3.1 Nil-rated supply has not been defined under the Act. However the same is generally understood that supply of those goods or services which attract a “Nil” rate of tax are Nil-rated Supply. Currently CBIC has issued list of services on which “Nil Rate” is chargeable in Notifn no. 12/2017 dated 28-06-17. Hence the Services with Nil rate of tax can be categorized as Nil-rated supplies. Nil-rated supplies are also included in the broader definition of Exempt Supplies. Thus Nil-rated supplies can be considered as a subset of Exempt supplies.

4.Exempt Supply

4.1Exempt Supply has been defined as per Section 2(47) of the CGST Act as “supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply”

4.2 The following are covered under the definition of exempt supply:

            1.Supply which attracts Nil rate of tax or has been exempted from tax via Notification of Government under section 11 of CGST Act or Section 6 of IGST Act.  (Currently Notifn. No. 02/2017 CT-R, dtd 28-06-17 and Notifn. No. 12/2017 CT-R dtd 28-06-17 are the notifications exempting the goods and services. (Multiple notifications have been later issued amending the aforesaid notifications to exempt additional goods or services)

            2.Non-taxable supply (Section 2(78) of the CGST Act)

5. Zero-Rated Supply

5.1 In general parlance “Zero” and “Nil” are understood to be the same and are used interchangeably. This is the reason why many consider “Zero-Rated Supply” and “Nil-Rated Supply” to mean the same thing. However, under the GST law, the terms have separate meanings and therefore cannot be understood to mean the same.

5.2 As per Section 16 of IGST Act, Zero-Rated Supply means any of the following supplies of goods or services or both, namely:-

            1.Export of goods or services or both

            2.Supply of goods or services or both to a SEZ developer or a SEZ unit

Therefore supplies made by a person as an export (either goods or services) or supply to an SEZ qualifies for Zero-Rated Supplies.

6. Summary

6.1 The following table provides a summary of the classification of Non-Taxable Supply, No Supply, Nil Rated Supply, Exempt Supply and Zero Rated Supply. The table is not an exhaustive list of all the possible types of transactions, but is only an illustrative list of some of the transactions.

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