Supply under GST (Section 7): CA Inter Notes

Under GST, tax is charged on supply. Not on manufacture, not on sale, not on the provision of a service, but on supply. So every GST question, whether a one-mark MCQ or a ten-mark computation, quietly begins with the same question: is this a supply at all? Section 7 of the CGST Act answers it, with three Schedules attached. This post walks through each part, with the examples ICAI likes and the situations you will meet at work.

Section 7 at a glance

Provision	What it says
7(1)(a)	All forms of supply of goods or services, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made or agreed to be made for a consideration by a person in the course or furtherance of business
7(1)(aa)	Activities or transactions between a person (other than an individual) and its members or constituents, for cash, deferred payment or other valuable consideration
7(1)(b)	Import of services for a consideration, whether or not in the course or furtherance of business
7(1)(c)	Activities in Schedule I, even when made without consideration
7(1A)	Schedule II decides whether a supply is of goods or of services
7(2)	Activities in Schedule III, and notified activities of Government or local authorities as public authorities, are neither a supply of goods nor of services
7(3)	The Government can notify transactions to be treated as goods or as services

The three tests of section 7(1)(a)

Most transactions you will meet are tested under clause (a). It has three conditions, and all three must be met.

1. Supply of goods or services, in any form. Sale is the obvious case, but transfer, barter, exchange, licence, rental, lease and disposal are all covered. Money and securities are neither goods nor services, so dealing in money alone is not a supply.
2. For a consideration. Consideration can be in money or in kind, and it can come from the recipient or from any other person. A donation with no benefit in return is not consideration; a “donation” that buys an advertisement is.
3. In the course or furtherance of business. “Business” under section 2(17) is very wide. It covers trade, commerce, manufacture, a profession or vocation, whether or not for profit and whatever the volume or frequency. It also covers transactions incidental to the business, such as selling old assets.

Clubs and associations: section 7(1)(aa)

Clause (aa) makes transactions between a person (other than an individual) and its members or constituents a supply, in either direction, when there is consideration. It was inserted to settle the “mutuality” argument that a club and its members are one and the same. A club charging members for facilities is therefore making a supply.

Import of services: section 7(1)(b)

Import of services for a consideration is a supply even when it is not in the course or furtherance of business. The business test does not apply here. Whether tax is actually payable, and by whom, depends on the charging and exemption provisions you will study in the next chapters.

Schedule I: a supply even without consideration

Normally, no consideration means no supply. Schedule I lists four situations that are supplies anyway.

Para	What it covers
1	Permanent transfer or disposal of business assets where input tax credit has been availed on them
2	Supply of goods or services between related persons, or between distinct persons under section 25, in the course or furtherance of business. Gifts by an employer to an employee up to ₹50,000 in value in a financial year are not a supply
3	Supply of goods by a principal to an agent who supplies them on the principal’s behalf, or by an agent to a principal when the agent receives goods on the principal’s behalf
4	Import of services from a related person, or from the person’s own establishment outside India, in the course or furtherance of business

Schedule II: goods or services?

Once something is a supply, Schedule II decides whether it is a supply of goods or of services. The main entries:

• Transfer: transfer of title in goods is a supply of goods. Transfer of a right in goods without title, such as leasing a machine, is a supply of services. Transfer of title at a future date on full payment, such as hire purchase, is a supply of goods.
• Land and building: a lease, tenancy, easement or licence to occupy land, and letting out a building for business, are supplies of services.
• Treatment or process applied to another person’s goods, such as job work, is a supply of services.
• Business assets: goods transferred out of the business are a supply of goods. Business goods put to private use are a supply of services. Goods still held when a person ceases to be a taxable person are deemed supplied, unless the business is transferred as a going concern.
• Services by declaration: renting of immovable property; construction of a complex or building for sale, unless the entire consideration is received after the completion certificate or first occupation; temporary transfer of intellectual property; development or customisation of IT software; agreeing to refrain from an act, tolerate an act or do an act; transfer of the right to use goods.
• Composite supplies treated as services: works contracts, and the supply of food or drink (other than alcoholic liquor) as part of a service, such as a restaurant.

Schedule III: not a supply at all

Schedule III lists activities that are neither a supply of goods nor a supply of services. GST simply does not reach them.

1. Services by an employee to the employer in the course of employment. Salary is outside GST.
2. Services by any court or tribunal.
3. Functions of MPs, MLAs and members of local bodies; duties of constitutional post-holders; and duties of chairpersons, members or directors of government bodies who are not employees.
4. Funeral, burial, crematorium or mortuary services, including transport of the deceased.
5. Sale of land and, subject to the construction entry in Schedule II, sale of building.
6. Actionable claims, other than specified actionable claims such as lottery, betting, gambling, horse racing, casinos and online money gaming.
7. Supply of goods from one place outside India to another without the goods entering India.
8. Sale of warehoused goods before clearance for home consumption, and high-sea sales by endorsing title documents before clearance.
9. Apportionment of co-insurance premium by the lead insurer to a co-insurer, where the lead insurer pays tax on the full premium.
10. Services by an insurer to a reinsurer where ceding or reinsurance commission is deducted, and the reinsurer pays tax on the gross premium.

ICAI covers entries 7 and 8 in detail at the CA Final level.

Composite and mixed supply in one paragraph

When several items are supplied together for one price, section 8 decides the rate. If the items are naturally bundled, such as a machine sold with freight, installation and warranty, it is a composite supply taxed at the rate of the principal supply. If they are not naturally bundled but sold for one price, such as a festival gift box of sweets, dry fruits and a steel container, it is a mixed supply taxed at the highest rate among the items.

Exam lens

Always end a supply question with a clear conclusion and its legal basis, for example: “This is a supply between distinct persons under Schedule I, Para 2, read with section 7(1)(c); GST is payable even though no consideration is charged.” Students lose marks by explaining the law correctly and never saying whether the transaction is a supply.

Supply is where every GST computation starts. The next two questions are usually whether the buyer can take input tax credit, covered in blocked credits under section 17(5), and whether the supplier has to register at all, covered in the GST registration limit explainer. To see where supply sits among the 15 chapters, use the CA Inter GST syllabus and 12-week plan. You can read the Act and rules themselves on the CBIC GST website.

Frequently asked questions

Is stock transfer a supply under GST?

Yes, when goods move between establishments with different GSTINs, such as a factory in one State and a depot in another. They are distinct persons, so Schedule I, Para 2 makes the transfer a supply even without consideration. Movement within the same GSTIN is not a supply.

Is a gift to an employee taxable under GST?

Gifts by an employer to an employee up to ₹50,000 in value in a financial year are not treated as a supply. Gifts beyond that limit fall under Schedule I, Para 2, since an employer and employee are related persons.

Is salary a supply under GST?

No. Services by an employee to the employer in the course of employment are in Schedule III, so salary is outside GST.

What is the difference between Schedule II and Schedule III?

Schedule II applies to transactions that are already supplies and decides whether they are supplies of goods or of services. Schedule III lists activities that are not supplies at all.

Is import of services without consideration a supply?

Generally no, because section 7(1)(b) needs consideration. The exception is Schedule I, Para 4: import of services from a related person or from your own establishment outside India, in the course of business, is a supply even without consideration.

Related reading

• CA Inter GST syllabus and 12-week study plan for May 2027
• Blocked credits under section 17(5): full list
• GST registration limit: ₹10 lakh, ₹20 lakh or ₹40 lakh?