Section 7 defines the taxable event of GST. Tax is charged on a "supply", not on a sale or a manufacture, so what counts as a supply — and what does not — decides whether GST arises at all. The section works with three Schedules: I (supplies even without consideration), II (whether a supply is of goods or services) and III (activities that are not supplies).
Key points
- Under section 7(1)(a) of the CGST Act, 2017, "supply" includes all forms of supply of goods or services — sale, transfer, barter, exchange, licence, rental, lease or disposal — made for a consideration in the course or furtherance of business.
- Section 7(1)(aa), inserted by the Finance Act, 2021 with retrospective effect from 01.07.2017, treats supplies by a club or association to its members as supplies; in Indian Medical Association v Union of India (2025) the Kerala High Court declared it, and section 2(17)(e), unconstitutional. The Union's appeal is pending in the Supreme Court.
- Imports of services for consideration are supplies even if not in the course of business (section 7(1)(b)); the activities in Schedule I are supplies even without consideration (section 7(1)(c)).
- The activities in Schedule III — including employee services, sale of land and completed buildings, most actionable claims, high-sea sales and merchanting trade — are neither supplies of goods nor of services (section 7(2)(a)).
- Functions of governments and local authorities entrusted to Panchayats and Municipalities under Articles 243G and 243W are notified as not a supply (Notification 14/2017-Central Tax (Rate)).
The provisions
7(1)What is a supply
Statutory text
(1) For the purposes of this Act, the expression - "supply" includes-
(a) 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 by a person in the course or furtherance of business;
1[(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]
(b) import of services for a consideration whether or not in the course or furtherance of business; 2[and]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; 3[****]
(d) 4[****].
*Enforced w.e.f. 1st July 2017.
1. Inserted w.e.f. 01st July, 2017 by s. 108 of The Finance Act, 2021 (No. 13 of 2021) - Brought into force on 01st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021.
2. Inserted w.e.f 01st July, 2017 by s. 3 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force on 01st February, 2019.
3. Omitted - "and" w.e.f 01st July, 2017 by s. 3 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force on 01st February, 2019.
4. Omitted "(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II." w.e.f. 01st July, 2017 by s. 3 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force on 01st February, 2019.
Cases on this provision
State of West Bengal v Calcutta Club Ltd
(2019) 19 SCC 107 · 03.10.2019 · Supreme Court, 3 Judges (R.F. Nariman, Surya Kant, V. Ramasubramanian JJ.)
- Facts
- The State sought sales tax on food and drink supplied by incorporated members' clubs to their members, and the Centre sought service tax on the clubs' services to members, arguing that incorporation and the 46th Amendment had ended the doctrine of mutuality.
- Held
- The doctrine of mutuality survives: a members' club, incorporated or not, is not a person distinct from its members, so supplies by it to them are neither sales nor taxable services under the pre-GST law.
- Here
- The decision Parliament sought to reverse for GST by inserting clause (aa) and its Explanation.
Indian Medical Association, Kerala State Branch v Union of India
2025:KER:30517 · April 2025 · Kerala High Court, Division Bench (A.K. Jayasankaran Nambiar, Easwaran S. JJ.)
- Facts
- The association collected subscriptions and fees from its member doctors for mutual benefit schemes and challenged GST on them. The single judge upheld section 7(1)(aa) but held it could not apply retrospectively, and the matter went in appeal to a Division Bench.
- Held
- Sections 2(17)(e) and 7(1)(aa), with the Explanation, and the corresponding Kerala SGST provisions, are unconstitutional. A "supply" under Article 366(12A) and Article 246A needs two distinct persons; Parliament cannot deem a body and its members to be separate so as to tax what is, constitutionally, a transaction with oneself. The doctrine of mutuality recognised in Calcutta Club continues to apply.
- Here
- For associations and clubs within the Kerala High Court's jurisdiction, supplies to members are not taxable under clause (aa). The Union of India has appealed (SLP (C) 18349–18350/2025); the Supreme Court's decision will settle the position nationally.
7(1A), 7(3)Goods or services — Schedule II and notifications
Statutory text
5[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]
(3) Subject to the provisions of 6[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as -
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.
5. Inserted w.e.f. 01st July, 2017 by s. 3 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force on 01st February, 2019.
6. Substituted for - "sub-sections (1) and (2)" w.e.f. 01st July, 2017 by s.3 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force on 01st February, 2019.
What it means
Once something is a supply, sub-section (1A) sends it to Schedule II to decide whether it is a supply of goods or of services — for example, transfer of title in goods is a supply of goods; renting of immovable property, works contracts and supply of food in a restaurant are supplies of services. The classification matters for time of supply, place of supply and rate.
Sub-section (3) lets the Government notify a transaction as a supply of goods only, or of services only, subject to sub-sections (1), (1A) and (2). Section 8 deals separately with bundles of supplies.
7(2)Not a supply
Statutory text
(2) Notwithstanding anything contained in sub-section (1),-
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.
What it means
- (a) Schedule III — services by an employee to the employer in the course of employment; services of courts and tribunals; functions of MPs, MLAs and members of local bodies and holders of constitutional posts; funeral and burial services; sale of land and, subject to Schedule II, of completed buildings; actionable claims other than specified actionable claims; merchanting trade (goods moved between two places outside India without entering India); sale of warehoused goods before clearance for home consumption, and high-sea sales (from 01.02.2019); and, from 01.07.2017 by the Finance Act, 2025, supply of warehoused goods in an SEZ or free trade warehousing zone before clearance for export or to the domestic tariff area.
- (b) Government as public authority — activities of the Central or a State Government or a local authority as public authorities, to the extent notified. Notification 14/2017-Central Tax (Rate) notifies services in relation to functions entrusted to Panchayats under Article 243G and Municipalities under Article 243W.
- Notification 14/2017-Central Tax (Rate), 28.06.2017
Statutory text as published on the CBIC tax information portal, as on 03.10.2026; the numbered notes record each amendment. Official source
Common questions
- What is a supply under GST?
- Under section 7 of the CGST Act: any form of supply of goods or services for consideration in the course or furtherance of business; imports of services for consideration; the activities in Schedule I even without consideration — but not the activities in Schedule III.
- Is GST payable on club or association fees from members?
- Section 7(1)(aa) makes such supplies taxable from 01.07.2017, but the Kerala High Court struck it down in Indian Medical Association v Union of India (2025); the Union's appeal is pending before the Supreme Court.
- Are gifts by an employer to employees taxable?
- Gifts up to Rs. 50,000 per employee in a financial year are not a supply under the proviso to Schedule I, paragraph 2.
- Is the sale of land or a completed building subject to GST?
- No. Schedule III, paragraph 5 treats it as neither goods nor services; a building sold before the completion certificate is a construction service under Schedule II.
Commentary and case notes checked against the judgments and CBIC sources on 04.10.2026.
What it means