Interpretation of ‘supply’: An emerging legal battle

By L Badri Narayanan and Tushar Aggarwal, Lakshmikumaran & Sridharan

The recently launched goods and services tax (GST) is having teething trouble and has opened a Pandora’s box of legal issues to be addressed, by taxpayers and the revenue department, as well as tax practitioners.

L Badri NarayananPartnerLakshmikumaran & Sridharan
L Badri Narayanan
Lakshmikumaran & Sridharan

The event which triggers tax liability under GST is supply, but the nature and scope of “supply” as used in the definition of GST under article 366(12A) of the Constitution (One Hundred and First Amendment) Act, 2016, is yet to be interpreted and laid down by the judiciary.

There are divergent views on whether “supply” as used in the constitution can encompass transactions such as penalties imposed on a supplier for the late supply of material, amounts payable by a contractor for delay in the completion of work, amounts received or retained on the cancellation of a service contract, charges paid by a customer for not purchasing a specified minimum quantity, payments for failure to give sufficient notice as agreed in an employment contract, and many more such transactions where no “positive activity” is done by the “supplier”.

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L Badri Narayanan is a partner and Tushar Aggarwal is a joint partner at Lakshmikumaran & Sridharan.

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