GST Supply Analysis: What Section 7 and Schedules I, II, III
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Definition of “Supply” under Section 7
Section 7(1) defines “supply” to include the following:
- All forms of supply of goods or services (or both), such as sale, transfer, barter, exchange, licence, rental, lease, or disposal made or agreed to be made for a consideration in the course or furtherance of business.
- Activities or transactions by a non-individual to its members or constituents (or vice-versa) for consideration, treating them as separate persons for GST purposes.
- Import of services for a consideration, whether or not in the course or furtherance of business.
- Activities specified in Schedule I made or agreed to be made without consideration.
- Treatment of such activities as supply of goods or services per Schedule II.
Key Elements of “Supply”
- Consideration: Any monetary value or benefit received in respect of the supply, excluding government subsidies .
- Business Nexus: The transaction must be in the course or furtherance of business, though certain deemed supplies under Schedule I apply even without business motive .
- Taxable Territory: Supply must occur within India’s territory, subject to place-of-supply rules under IGST provisions .
Section 7(2): Exclusions from “Supply”
Notwithstanding Section 7(1), Section 7(2) excludes:
- Activities or transactions specified in Schedule III (e.g., services by employees to employers, functions by public authorities)
- Activities undertaken by the Central or State Governments, Union Territories, or local authorities in their capacity as public authorities, as notified by the Government upon GST Council recommendation
Schedule I: Deemed “Supply” Even Without Consideration
Schedule I lists transactions deemed to be “supply” despite lacking
consideration:
- Permanent disposal of business assets on which input tax credit was availed .
- Supply of goods or services between related or distinct persons (Section 25) in the course or furtherance of business, subject to an exemption for gifts up to ₹50,000 per financial year by employers to employees .
- Supply of goods by a principal to agent and vice versa where the agent supplies or receives goods on behalf of the principal.
- Import of services by a taxable person from a related person or any of its establishments outside India in the course or furtherance of business .
Schedule II: Classification as Supply of Goods or Services
Schedule II treats specified activities as either supply of goods or
supply of services:
- Transfer:
- Transfer of
title in goods → Supply of goods .
- Transfer of
right in goods without title → Supply of services .
- Forward sale
contracts where title passes later → Supply of goods .
- Land &
Building:
- Lease,
tenancy, easement, license to occupy land → Supply of services .
- Lease or letting
of buildings (commercial/residential) → Supply of services .
- Treatment or
Process: Treatment of another’s goods → Supply of services .
- Transfer of
Business Assets:
- Disposal of
business assets → Supply of goods .
- Private use of
business goods → Supply of services .
- Deemed supply
upon cessation of business, barring going-concern transfers .
- Supply of
Services:
- Renting of
immovable property; construction services; IP licensing; IT software
development; forbearance or obligation transfers; right to use goods →
Supply of services .
- Composite &
Mixed Supplies:
- works
contracts → Composite supply of services .
- supply of food
or drink with services → Composite supply of services .
- Supply of Goods:
- Supply by
unincorporated associations to members → Supply of goods .
Schedule III: Activities Neither Supply of Goods Nor Services
Schedule III lists transactions outside GST’s definition of “supply”:
- Services by an employee to employer in relation to employment .
- Services by any court or tribunal under law .
- Functions of MPs, MLAs, Panchayat/Municipality members; constitutional office-holders; non-employee board members of government bodies .
- Funeral, burial, crematorium, mortuary services including transportation of the deceased .
- Sale of land (and sale of building subject to Schedule II) .
- Actionable claims other than lottery, betting, or gambling .
Practical Implications and Compliance Considerations
Taxpayers must meticulously map their transactions against Section 7 and
the three Schedules to ascertain GST liability and input tax credit entitlement
. Misclassification can lead to under- or over-payment of tax, interest, and
penalties, as well as denial of input tax credit. Regular updates via CBIC
notifications and GST Council decisions should be monitored to capture any
amendments affecting the scope of “supply.”
Conclusion
The determination of “supply” under GST is the foundational step in deciding taxability of transactions; Section 7, along with Schedules I, II, and III, provides a detailed framework to classify and exclude activities for GST purposes. A robust understanding and accurate application of these provisions ensure compliance, efficient tax planning, and maximization of input tax credits under the GST regime.
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