Scope of Supply – Section 7 of the CGST Act

The Goods and Services Tax (GST) framework in India is built upon a fundamental concept—the definition of “supply.” Section 7 of the Central Goods and Services Tax (CGST) Act, 2017, lays out the scope of supply, ensuring clarity on taxable transactions. Understanding this section is crucial for businesses, tax professionals, and legal entities to ensure compliance and efficient tax planning.

What Constitutes a Supply Under GST?

According to Section 7(1) of the CGST Act, “supply” includes:

1. Forms of Supply (Section 7(1)(a))

The definition of supply is broad and encompasses all possible forms of transfer of goods and services. These include:

• Sale: Transfer of ownership for a price.

• Transfer: Change of possession or rights.

• Barter & Exchange: Goods/services exchanged without cash consideration.

• License: Permitting the use of goods/services.

• Rental & Lease: Temporary transfer of goods/services for a fee.

• Disposal: Relinquishing goods/services with monetary gain.

These transactions, when executed for consideration (payment), qualify as supply if they are conducted in the course or furtherance of business.

2. Transactions Between Entities & Their Members (Section 7(1)(aa))

An amendment clarified that transactions between an entity (except an individual) and its members or constituents are deemed as distinct supplies, ensuring taxation under GST. This means:

• Clubs, associations, or societies providing services to their members are liable to GST.

• Payments made between an entity and its members, even if not considered separate under other laws, are deemed supplies under GST.

3. Import of Services (Section 7(1)(b))

The import of services qualifies as supply when it is:

• Done for consideration, and

• It may or may not be for business purposes.

4. Supply Without Consideration (Section 7(1)(c))

Certain activities are considered “supply” even when no consideration is involved, as per Schedule I of the CGST Act. These include:

• Permanent transfer of business assets.

• Supply between related entities or distinct persons.

• Transactions between principal and agent.

• Import of services by a business from a related person.

Exclusions from Supply (Section 7(2))

Certain activities do not qualify as supply under GST:

1. Schedule III Transactions (Section 7(2)(a))

These are specifically excluded from the definition of supply and include:

• Services by an employee to an employer in the course of employment.

• Functions performed by government entities.

• Transactions related to sale of land or completed buildings.

2. Government-Notified Activities (Section 7(2)(b))

Certain public services provided by the Central Government, State Government, or local authorities are excluded from GST based on recommendations from the GST Council.

Supply Classification by Government (Section 7(3))

The Government has the power to determine whether a transaction is a supply of goods or services through notifications. This ensures uniform taxation and legal clarity for businesses operating across sectors.

Conclusion

Understanding the scope of supply under Section 7 of the CGST Act is essential for businesses to determine their tax liabilities. With the inclusion of various forms of supply, the treatment of transactions between members and entities, and the exclusions under Schedule III, the law ensures comprehensive coverage of all economic activities under GST. Staying updated with government notifications and GST Council recommendations is crucial for compliance and efficient tax planning.