Sec 7 Scope of Supply under GST Act 2017

Date 12-08-2021by Puneet Pandey


Contents of Topic

1) Understanding Expression 'Supply'

2) Schedule I of CGST Act 2017

3) Schedule II of CGST Act 2017

4) Schedule III of CGST Act 2017


Understanding Expression 'Supply'

The taxable event in GST is supply of goods or services or both. Various taxable events like manufacture, sale, rendering of service, purchase, entry into a territory of State etc. have been done away with in favour of just one event i.e. supply. The constitution defines “goods and services tax” as any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption.

The term, “supply” has been inclusively defined in the Act. The meaning and scope of supply under GST can be understood in terms of following six parameters, which can be adopted to characterize a transaction as supply :

All forms of supply including any sale, transfer, barter, exchange, license, rental, lease or disposal of goods or services or both

The transaction is in the course or furtherance of business

The transaction is for a consideration

Import of services whether or not in the course or furtherance of business

The transactions as specified in Schedule I even without consideration

The transactions as specified in Schedule II

Further Schedule III to the CGST Act, 2017 spells out activities which shall be treated as neither supply of goods nor supply of services – in other words, outside the scope of GST.

Note: Subject to the above provisions, the Government may, on the recommendations of the GST Council, specify, by notification, the transactions that are to be treated as –
A supply of goods and not as a supply of services; or
A supply of services and not as a supply of goods



Schedule I of CGST Act 2017

As per the Section 7(c) of GST Act, there are activities which are considered as supply for the purpose of this Act even without 'Consideration'.
The Schedule I list out the activities which are considered as supply without consideration.

1. Permanent transfer or disposal :
When the business assets are transferred permanently or disposed and input tax credit was taken on such assets are considered as supply
Permanent transfer means that the goods are transferred with the intention that the same will not be received back, is considered as supply even without consideration. When a taxable person disposes any assets,
for example, Company ‘A’ disposes old machinery as scrap is considered as supply even without consideration.

2) Related or Distinct Persons :
Goods or services or both between related persons or distinct persons as specified in section 25 are considered as supply in the course or furtherance of business even without consideration

As per section 15(5) – the following persons are deemed to be ‘related persons’:

a) officers or directors of one another’s businesses
b) legally recognised partners in business
c) employer and employee
d) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them
e) one of them directly or indirectly controls the other
f) both of them are directly or indirectly controlled by a third person
g) together they directly or indirectly control a third person
h) they are members of the same family

Legal persons are also termed as related persons for this section. Also the persons who are associated in any business with each other by way of sole agent or sole distributor or sole concessionaire, however described are considered as related persons.

There is an exemption for the gifts, value of not exceeding fifty thousand rupees, in a financial year, by an employer to employee, which is not treated as supply without consideration.

As per section 25 (4) and (5) defines the following persons as distinct persons –
persons having more than one registration for the same PAN in one state/union territory or more than one state/union territory – such different registrations are considered distinct persons
persons having establishments in different state have to get registered in the respective states, such establishments are treated as distinct persons


3) Supplies between Principal and Agent :
supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of his principal
supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of his principal

4) Import of Services :
Services imported by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

5) Supplies between Principal and Agent :
supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of his principal
supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of his principal


Schedule II of CGST Act 2017

Since GST has brought both Goods and Services under single tax bracket, it is necessary to differentiate the activities either as goods or services to determine the taxability of the same. Schedule II has differentiated the goods and services as below :


Activities considered as Supply of Goods

1) Transfer of title in goods – Example : Sale of goods

2) Any transfer of title in goods under an agreement which stipulates that the goods shall pass at a future date upon payment of full consideration – Example : When an agreement is drafted for Sale of goods at future date

3) Transfer or disposal of any goods as assets of a business either with or without consideration – Example : Disposal of an asset as scrap either for consideration or not

4) Where any person is no longer a taxable person or ceases to be taxable person, the goods which form part of the assets of his business shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person,
unless –
The business is transferred as a going concern to another person or
The business is carried on by a personal representative who is deemed to be a taxable person
Example : Where B Co. ceases to be a taxable person and the goods as assets of the company will be deemed to be supplied unless the any of above two conditions is satisfied

5) Goods supplied by an unincorporated association or body of persons to any of its member for consideration either by immediate cash or deferred payment



Activities considered as Supply of Services

1) Transfer of right in goods or of undivided share in goods without transfer of title of such goods – Example : Renting of Machinery

2) Lease, tenancy, easement, licence to occupy land

3) Lease or letting out of any commercial, industrial building and also residential complex if it is let or lease out for commercial purpose, either wholly or partly

4) Job work service on principal’s goods

5) When the goods is held or used for the purpose of the business of a person, carrying on a business, is used for personal use or made available for other than business purpose, with or without consideration

6) Renting of immovable property

7) Construction of building, civil structure including a complex or building intended for sale to a buyer, except where the entire consideration is received after issuance of completion certificate or after its first occupation whichever is earlier – Example : Sale of building after completion of construction is not considered as supply of service. Whereas sale of building during construction is considered as supply of services.

8) Temporary transfer or permitting use of any intellectual property right – Example : Music rights

9) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software

10) Agreeing to the obligation to refrain from an act, to tolerate an act or situation or to do an act

11) Transfer of the right to use any goods for any purpose for immediate cash or deferred payment or other valuable consideration – whether or not for a specified period

12) Works contract services

13) Supply, by way of service, of food or any drink for human consumption other than alcoholic liquor for consideration


Schedule III of CGST Act 2017

There are transactions which are treated neither as supply of goods nor supply of services for determination of taxability. The same have been listed out in Schedule III of the CGST Act :

1. Services provided by an employee to his employer during his employment in the company

2. Services provided by any court or tribunal established by any law for the time being in force. The term ‘court’ includes District court, High court and Supreme court

3. Functions performed by the Members of Parliament, State Legislature, Panchayats, Municipalities and other local authorities

4. Duties performed by any person who holds any post as per the provisions of Constitution

5. Duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central, State Governments or Local authorities and who is not deemed as an employee before the commencement of this clause

6. All the services related to funeral, burial, crematorium or mortuary including transportation of the deceased

7. Sale of land and, sale of building provided that the sale is made only after the completion of construction of such building

8. Actionable claims, other than lottery, betting and gambling





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