Supply: the Event GST Taxes

The first question most people ask about a transaction is what rate it attracts. The question that comes before it, and decides more disputes, is whether there has been a supply at all.

The answer is less obvious than it looks. A business that moves stock from its Pune factory to its own depot in Bengaluru has sold nothing to anyone, yet it has made a supply. A person who sells a plot of land has plainly sold something, yet there is no supply. GST does not tax sales, or receipts, or profits. It taxes supply, and the Act defines that term in a way that is wider than a sale in some places and narrower in others.

This guide covers section 7 of the CGST Act, which defines supply, and the three Schedules attached to it.

Why supply and not sale

The taxes GST replaced each attached to a different event. Excise attached to manufacture, VAT to the sale of goods, and service tax to the provision of a service. Each event had its own body of case law on where it began and ended, and many disputes were about which of them a transaction was.

GST needed one event that covered all of them. “Supply” is that event. Section 9, the charging section, levies central tax “on all intra-State supplies of goods or services or both”. The tax does not depend on whether anything was manufactured, sold or rendered. It depends on whether there was a supply, and section 7 says what that is.

The definition is inclusive

Section 7(1) does not say what supply means. It says what supply includes:

“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;

Four elements in clause (a) carry the weight.

All forms. Sale, transfer, barter, exchange, licence, rental, lease and disposal are examples, not a closed list. A barter is as much a supply as a sale for cash.

Made or agreed to be made. An agreement to supply is already within the definition. This matters when consideration is received before anything is delivered.

For a consideration. Consideration is defined in section 2(31). It includes any payment “whether in money or otherwise”, and the monetary value of any act or forbearance, made “in respect of, in response to, or for the inducement of” the supply, “whether by the recipient or by any other person”. Two exclusions follow. A subsidy given by the Central or a State Government is not consideration. A deposit is not consideration “unless the supplier applies such deposit as consideration for the said supply”.

In the course or furtherance of business. Business is defined in section 2(17), and widely. It includes any trade, commerce, manufacture, profession, vocation, adventure or wager “whether or not it is for a pecuniary benefit”. It also includes anything incidental or ancillary to that, and a transaction in the nature of trade “whether or not there is volume, frequency, continuity or regularity of such transaction”. A single transaction can therefore be business. So can the purchase or sale of capital goods “in connection with commencement or closure of business”.

The width of “business” is the point. Section 7(1)(a) excludes a purely private transaction, such as an individual selling their own car. It does not exclude much else.

Three further limbs

Section 7(1) adds three categories that clause (a) would not reach on its own.

Clubs and associations. Clause (aa) treats as supply the activities of a person, other than an individual, “to its members or constituents or vice-versa”, for cash or other consideration. The Explanation deems the person and its members to be “two separate persons”, notwithstanding “any judgment, decree or order of any Court”. It was inserted by the Finance Act, 2021, with effect from 1 July 2017, and brought into force on 1 January 2022. The override is deliberate. It displaces the old argument that a club cannot supply to its own members because a person cannot supply to itself.

Import of services. Clause (b) makes import of services for a consideration a supply “whether or not in the course or furtherance of business”. An import of services needs no business purpose to be a supply. Whether tax is then payable, and by whom, are separate questions.

Schedule I. Clause © brings in the activities in Schedule I “made or agreed to be made without a consideration”.

Schedule I: supply without consideration

Schedule I is short, and each entry closes a gap that would otherwise let value pass untaxed.

1. Permanent transfer or disposal of business assets, where input tax credit has been availed on them. Credit was taken when the asset came in, so tax is due when it goes out, even for nothing.
2. Supply between related persons, or between distinct persons, when made in the course or furtherance of business. A proviso excludes gifts by an employer to an employee “not exceeding fifty thousand rupees in value in a financial year”.
3. Supply of goods by a principal to an agent, where the agent undertakes to supply them on the principal’s behalf, and by an agent to a principal, where 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.

Entry 2 explains the Pune–Bengaluru example. Section 25(4) provides that a person with registrations in more than one State “shall, in respect of each such registration, be treated as distinct persons”. Each registration is, for GST, a separate person. A transfer between them is a supply under Schedule I even when nothing is charged, and it carries tax like any other.

Schedule II: goods or services

Section 7(1A) sends every supply to Schedule II, which decides whether it is a supply of goods or a supply of services. The distinction is not academic. Time of supply, place of supply and, often, the rate differ between the two.

Some of the entries settle questions that were contested for decades under the old taxes:

• A transfer of title in goods is a supply of goods. A transfer of a right in goods, without the title, is a supply of services. So is a “transfer of the right to use any goods for any purpose”.
• Any treatment or process applied to another person’s goods is a supply of services. This is how job work is classified.
• Renting of immovable property is a supply of services.
• Works contract, as defined in section 2(119), is a supply of services.
• Supply of food or drink “by way of or as part of any service”, which covers restaurant supply, is a supply of services.
• Agreeing to an obligation “to refrain from an act, or to tolerate an act or a situation, or to do an act” is a supply of services.

The construction entry repays careful reading, because it decides the tax on most property bought off-plan. Paragraph 5(b) treats construction of a building “intended for sale to a buyer” as a supply of services:

except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

The test is the timing of the entire consideration. A flat paid for wholly after the completion certificate, or after first occupation if that came first, is not a supply of construction services. A flat on which any part of the price was paid before that point remains one.

Schedule III: neither goods nor services

Section 7(2) operates “notwithstanding anything contained in sub-section (1)”. Anything in Schedule III is outside GST even if every element of clause (a) is present. The entries include:

• services by an employee to the employer “in the course of or in relation to his employment”
• services by any court or tribunal
• the functions of members of Parliament, State legislatures, panchayats and municipalities, and of holders of certain constitutional and statutory posts
• funeral, burial, crematorium and mortuary services
• sale of land and, subject to paragraph 5(b) of Schedule II, sale of building
• actionable claims, other than specified actionable claims
• supply of goods from one place outside India to another “without such goods entering into India”
• supply of warehoused goods before clearance for home consumption, and sale of goods by endorsement of documents of title after dispatch from the foreign port but before clearance for home consumption
• apportionment of co-insurance premium by a lead insurer, and ceding or reinsurance commission, each subject to a condition that tax is paid on the gross premium

Three of these entries have been added to or redated since 2017, and the dates matter for older periods.

Paragraphs 7 and 8(a) and (b), covering merchanting trade, bonded-warehouse sales and high-sea sales, were inserted in 2019. The Finance Act, 2023 then gave them effect from 1 July 2017.

The exclusion for actionable claims now turns on specified actionable claim, defined in section 2(102A) as the claim involved in betting, casinos, gambling, horse racing, lottery or online money gaming. That wording took effect from 1 October 2023. Every other actionable claim remains outside GST.

Paragraph 8(aa), covering goods warehoused in a Special Economic Zone or a Free Trade Warehousing Zone and supplied before clearance for export or to the Domestic Tariff Area, was inserted by section 133 of the Finance Act, 2025. That section came into force on 1 October 2025, but it deems the clause “to have been inserted with effect from the 1st day of July, 2017”. The exclusion therefore covers every period of GST. Section 134 adds that no refund is to be made of tax already collected that would not have been collected had the clause been in force throughout. CBIC’s footnote to Schedule III records only the 2025 date.

Section 7(2)(b) adds a second exclusion. Activities of the Central or a State Government or a local authority “in which they are engaged as public authorities” are outside GST, but only where notified.

When one transaction is two supplies

Many supplies bundle several things: goods delivered with transport and insurance, a hotel room with breakfast, a gift box of chocolates and a toy. Section 8 decides how such a bundle is taxed, and it depends on which of two definitions the bundle meets.

A composite supply, under section 2(30), consists of supplies “naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply”. It is taxed as a supply of the principal supply. The statutory illustration is goods packed and transported with insurance: the goods are the principal supply, and the packing, transport and insurance take their treatment.

A mixed supply, under section 2(74), is two or more supplies “made in conjunction with each other by a taxable person for a single price” that are not a composite supply. It is taxed as a supply of whichever element “attracts the highest rate of tax”.

The difference lies in whether the bundle is natural. If buyers in the ordinary course would expect the elements together, and one is plainly the main thing, the supply is composite. If the elements have been put together by choice and sold for one price, it is mixed, and the whole bundle bears the highest rate among them.

Supply is necessary, not sufficient

Establishing a supply does not settle that tax is payable. Section 9(1) excludes alcoholic liquor for human consumption from the levy altogether. Section 9(2) defers tax on petroleum crude, diesel, petrol, natural gas and aviation turbine fuel until a date the Government notifies. Supplies may be exempt by notification. And under sections 9(3) and 9(4), the person who pays may be the recipient rather than the supplier, under reverse charge.

Each of those questions presupposes a supply. Section 7 is where the analysis starts.

Working through a transaction

The sequence the Act imposes is:

1. Is there a supply under section 7(1)(a)? That requires consideration, a person, and a connection with business in the wide sense of section 2(17).
2. If not, is it caught by clause (aa), (b) or ©: a club or association supplying to its members, an import of services, or a Schedule I activity without consideration?
3. Is it taken out again by Schedule III, or by a notification under section 7(2)(b)?
4. If it is a supply, Schedule II decides whether it is of goods or of services.
5. If several things are supplied together, section 8 decides whether the bundle is composite or mixed, and so which treatment applies.
6. Only then does the rate, the exemption or the reverse charge come into question.

The next guide takes the first consequence of having a supply: its place of supply, which decides whether it bears CGST and SGST or IGST.