Supply under GST
AI-assisted · review in progress · last updated 25 July 2026 · jump to quick revision
In 30 seconds
- Supply is THE taxable event under GST — it replaces manufacture, sale, service, purchase and entry into territory as the trigger for tax.
- Section 7's 3-parameter test (GCB): Goods/services form + Consideration + course/furtherance of Business — with Schedule I overriding 'no consideration' and 7(1)(b) import of services overriding 'no business nexus'.
- Schedule I deems 4 supplies without consideration (BAD-I); Schedule II only classifies an established supply as goods or services; Schedule III is the negative list.
- Section 8: composite supply (naturally bundled, one principal supply) is taxed at the principal supply's rate; mixed supply (single price, not bundled) at the highest rate — always test composite first.
- Schedule III always wins — 'notwithstanding sub-section (1)' — so it is the final filter in every supply-determination question.
Based on GST law as on 30.04.2025 (May 2026 exams onwards). Section numbers are CGST Act unless stated.
How the chapter fits together
Under GST the taxable event is “supply” — it replaces the old triggers of manufacture, sale, service, purchase and entry into territory. Section 7 gives supply a 3-parameter test (GCB mnemonic): Goods/services form + Consideration + course/furtherance of Business. Every supply question then walks one pipeline:
- 7(1)(a) supply for consideration in course/furtherance of business →
- 7(1)(aa) entity ↔ its members/constituents for consideration →
- 7(1)(b) import of services for consideration →
- 7(1)(c) + Schedule I deemed supply without consideration →
- 7(1A) + Schedule II classify as goods or services →
- 7(2) + Schedule III non-supply negative list → 7(3) Govt reclassification power.
The flowchart filter comes last, always: even if all 3 parameters are met, check Schedule III / 7(2)(b) — if the transaction is covered there, it is not a supply. The negative list overrides everything.
Scope of supply — Section 7
Section 7(1)(a) lists the forms of supply — sale, transfer, barter, exchange, licence, rental, lease, disposal — but the words “includes”/“such as” make the list inclusive, NOT exhaustive.
Section 7(1)(aa) taxes supplies between a person (other than an individual) and its members or constituents for consideration. Its non-obstante Explanation deems them two separate persons, overriding the doctrine of mutuality (it overrules the Calcutta Club case).
Section 7(1)(b) — import of services for consideration — is the only exception to the business condition: taxable even if for personal use.
| Provision | Covers | Crux |
|---|---|---|
| 7(1)(a) | Supply for consideration + business | Illustrative forms (sale/transfer/barter/exchange/licence/rental/lease/disposal); inclusive — “includes”, “such as” |
| 7(1)(aa) | Entity ↔ members/constituents | For consideration; non-obstante Explanation deems 2 persons; overrides mutuality doctrine |
| 7(1)(b) | Import of services | Consideration required; business nexus NOT required — sole exception to business condition |
| 7(1)(c) | Deemed supply without consideration | Only if in Schedule I (4 paras only) |
| 7(1A) | Classify as goods/services | Schedule II — applies only after supply is established under 7(1) |
| 7(2)(a) | Non-supply — Schedule III | Negative list; “notwithstanding sub-section (1)” — overrides 7(1) entirely |
| 7(2)(b) | Non-supply — Govt notified | Central/State Govt or local authority as public authorities, notified activities |
| 7(3) | Govt reclassification power | Notify a transaction as goods-not-service or vice versa; subject to (1), (1A), (2) |
Notified non-supplies under 7(2)(b): functions of a Panchayat (Art 243G) and Municipality (Art 243W), and the grant of alcoholic liquor licence by a State Government (fee-based). This carve-out has no precedent value for other licences — mining rights, spectrum and the like are taxable, with RCM applying.
Key definitions
Goods [Sec 2(52)]
Movable property excluding money and securities; including actionable claims, growing crops, grass, and things attached to land agreed to be severed. Trap: actionable claim = goods; land-attached items are goods only if severed before/under the supply contract.
Services [Sec 2(102)]
Anything other than goods, money and securities — including a money conversion activity with separate consideration and facilitating securities transactions. Mere money conversion without separate consideration is not a service.
Consideration [Sec 2(31)]
Payment (in money or otherwise) or the monetary value of an act/forbearance — by the recipient or a third party; excludes Government subsidy. A deposit is not consideration unless applied as such, and a donation needs quid pro quo.
Specified actionable claim [Sec 2(102A)]
Betting, casinos, gambling, horse racing, lottery, and online money gaming. Only these actionable claims are supply — all others fall in Schedule III Para 6 as non-supply.
The rest of the definitions sheet, with the trap column examiners draw MCQs from:
| Term | Crisp meaning | Trap / keyword |
|---|---|---|
| Principal [2(88)] | Person on whose behalf an agent carries on supply/receipt business | Not to be confused with “principal supply” [2(90)] |
| Principal supply [2(90)] | Predominant element of a composite supply; others ancillary | Not “Principal” [2(88)] |
| Competent authority [2(29)] | Notified by Govt | Sch II Para 5(b) has extended meaning (architect/CE/surveyor) |
| Family [2(49)] | Spouse + children (always) + parents/grandparents/siblings ONLY IF wholly/mainly dependent | Non-dependent sibling/parent ≠ family (Raman/Shriniti trap) |
| Government [2(53)] | Central Govt only | State laws define separately |
| Local authority [2(69)] | Panchayat, Municipality, Municipal Committee/Zilla Parishad/District Board, Cantonment Board, Regional/District Council (6th Sch), Dev Board (Art 371/371J), Regional Council (Art 371A) | 7 limbs (a)–(g) |
| Actionable claim [2(1) + TP Act s.3] | Claim to unsecured debt / beneficial interest in movable property not in possession | Only “specified” ones taxable; rest = Sch III Para 6 non-supply |
| Manufacture [2(72)] | New product — distinct name + character + use (ALL 3) | — |
| Money [2(75)] | Legal tender, cheque, DD, PPI etc. used to settle an obligation | Excludes currency held for numismatic value; PPIs = money |
| Taxable supply [2(108)] | Supply leviable to tax | — |
| Supplier [2(105)] | Person supplying + agent acting on his behalf; platform owner = deemed supplier for specified actionable claims | — |
| Recipient [2(93)] | 3 limbs: consideration payer / goods receiver (no consideration) / service receiver (no consideration) | Includes agent of recipient |
| Person [2(84)] | 12 categories: individual, HUF, company, firm, LLP, AOP/BOI, corporation, foreign body corporate, co-op society, local authority, Govt, society, trust, artificial juridical person | — |
| Works contract [2(119)] | Contract for building/construction etc. of IMMOVABLE property involving transfer of property in goods | Immovable property ONLY |
| Exempt supply [2(47)] | Nil-rated / wholly exempt (s.11 CGST / s.6 IGST); includes non-taxable supply | — |
| Related persons (Expl. to s.15) | Officers/directors of each other, legal partners, employer–employee, ≥25% shareholding control, control relationships, family, sole agent/distributor/concessionaire | Basis for Sch I Para 2 |
| Distinct persons [s.25(4)/(5)] | Separate GST registrations (same/different State) of the same PAN | Basis for Sch I Para 2; branch-transfer trap |
Schedule I — supply without consideration
Only 4 paras — don’t invent a fifth. Mnemonic: BAD-I — Business asset permanent transfer (ITC availed), Agent–Principal goods, Distinct/related persons, Import of service from a related person.
| Para | Deemed supply | Carve-out / condition |
|---|---|---|
| 1 | Permanent transfer of business assets | Only if ITC availed; ITC blocked or eligible-but-not-availed = no supply |
| 2 | Supply between related/distinct persons, in course/furtherance of business | Employer→employee gifts ≤ ₹50,000 per FY excluded; above ₹50,000 = supply |
| 3 | Principal–Agent supply of goods | GOODS only (not services); invoice-name test — invoice in agent’s own name = covered; in principal’s name = not covered |
| 4 | Import of service from related person / other establishment | Without consideration, but business nexus required |
Contrast the two import routes: 7(1)(b) has consideration present, needs no business nexus, and is always supply; Schedule I Para 4 has no consideration but needs a related person AND business nexus.
Distinct persons trap: stock transfer between the same PAN with separate registrations (even in the same State) = supply; the same PAN under a single registration (different places of business under one GSTIN) = not supply.
Principal–Agent (goods only): the invoicing test alone decides Para 3 — agent invoices in his own name = covered; in the principal’s name = not covered; disclosure of the principal’s name is immaterial. Knock-on effect for a DCA: if he is a Para 3 agent, his interest on delayed payment is included in the value of goods (s.15(2)(d)); if not, the interest is an independent exempt service supply.
Schedule II and Schedule III
Schedule II does not create supply — it only classifies an already-established supply as goods or services. One-line mnemonic: “Title moves = Goods; only use moves = Services.”
| Para | Transaction | Classification |
|---|---|---|
| 1 | Transfer | Title = Goods; right without title = Services; hire purchase / sale-or-return = Goods |
| 2 | Land & building | Lease/tenancy/easement/letting = Services |
| 3 | Treatment/process | On another’s goods (job work) = Services |
| 4 | Business assets | Private use = Services; disposal (no longer a business asset) = Goods; cessation = Goods — exceptions: (i) going concern, (ii) business carried on by personal representative deemed taxable person |
| 5(a)–(f) | Various services | Renting; construction (except post-CC/first occupation); temporary IPR transfer; IT software; tolerate/refrain/do; right to use goods — all = Services |
| 6 | Composite deemed | Works contract + restaurant/food service = Services, legislatively fixed — no natural-bundling test needed |
Schedule III is the negative list — 10 paras, of which 7 and 8 are out of the Inter syllabus:
| Para | Non-supply | Watch for |
|---|---|---|
| 1 | Employee → employer services | In course of employment |
| 2 | Court/Tribunal services | Incl. District/High/Supreme Court |
| 3 | Constitutional-post duties | MP/MLA/Panchayat/Municipality members, President/VP/PM/Governors/CJI/Speaker/CEC/CAG/UPSC Chairman/AG |
| 4 | Funeral/burial/crematorium/mortuary | Includes transport of the deceased |
| 5 | Sale of land; sale of building | Except Sch II 5(b): under-construction with part-consideration before completion certificate / first occupation IS taxable |
| 6 | Actionable claims | Only non-specified ones; specified claims = supply |
| 7–8 | Non-taxable territory / warehoused goods | Out of Inter syllabus |
| 9 | Co-insurance premium apportionment | Condition: lead insurer pays full tax on the entire premium |
| 10 | Reinsurance ceding commission | Condition: reinsurer pays full tax on the gross premium |
Composite, mixed and the special cases
Composite supply [Sec 2(30)]
Two or more taxable supplies, naturally bundled in the ordinary course of business, with one principal supply — taxed at the principal supply’s rate [Sec 8(a)]. Works contract and restaurant service are deemed composite supplies of service by Sch II Para 6, no bundling test needed.
Mixed supply [Sec 2(74)]
Two or more individual supplies made in conjunction for a single price, which is NOT a composite supply — taxed at the highest rate among the constituents [Sec 8(b)]. Rule out composite FIRST; mixed is the residual category.
- Decision order: ALWAYS test composite (naturally bundled?) first; only if that fails, test mixed (single price?).
- Neither: if items are shown/priced separately on the invoice (even if paid via a single cheque), it is neither composite nor mixed — tax each supply individually (the Dumdum Electronics fact pattern).
- Vouchers: the transaction in the voucher itself is never a supply — a PPI is “money”, a non-PPI voucher is a non-specified actionable claim (Sch III Para 6). The underlying goods/services on redemption ARE taxable; breakage (unredeemed value) is not; P2P voucher trading (DSA commission) is not taxable, but Principal–Agent commission IS a taxable service.
- Donations (Circular 116/35/2019): not a supply if all 3 conditions hold — (i) to a charitable organisation, (ii) has the character of a gift/donation, (iii) philanthropic purpose with no commercial gain or advertisement (mere name display ≠ advertisement).
- Employer–employee: perquisites under the employment contract are not “gifts” — they have a separate non-supply basis.
The three numbers/dates this chapter turns on:
| Trigger | Rule | Where |
|---|---|---|
| ₹50,000 per FY | Employer→employee gift threshold — at or below = non-supply, above = supply | Sch I Para 2 proviso |
| ≥25% shareholding / voting stock | Third person controlling both → “related persons” | Explanation to Section 15 |
| Completion certificate / first occupation (earlier) | Any part-consideration before = taxable service on full value; entire consideration after = sale of building, non-supply | Sch II Para 5(b) / Sch III Para 5 |
- Testing mixed supply before composite — composite is tested first, mixed is the residual; and separately itemised prices make it neither (tax each supply on its own).
- Confusing Principal [2(88)] (person in an agency relationship) with principal supply [2(90)] (predominant element of a composite supply) — a classic MCQ trap.
- Treating the two service-import routes as one — 7(1)(b) needs consideration but no business nexus; Sch I Para 4 needs no consideration but a related person AND business nexus.
- Tagging hire purchase / sale-or-return as services because of instalment payments — both are Goods (title passes eventually).
- Mixing up the two employer–employee directions: employee→employer services are always non-supply; employer→employee gifts are non-supply only up to ₹50,000 per FY.
- Missing the distinct-persons trap — same PAN with separate registrations = supply on stock transfer, but multiple places of business under one GSTIN = not a supply.
- Ignoring the invoice-name test for agents — Sch I Para 3 applies only when the agent invoices in his own name; disclosing the principal’s name changes nothing.
- Extending the liquor-licence carve-out to mining rights or spectrum — those have no precedent cover and ARE taxable, usually under RCM.
Quick revision cards
3-parameter test for supply?
The 4 paras of Schedule I (BAD-I)?
Only exception to the business condition?
Composite vs mixed in one line?
Schedule II Para 6 deems what?
Which actionable claims are taxable?
Employer→employee gift rule?
When is construction taxable?
Vouchers in one line?
Schedule II goods vs services mnemonic?
Liquor licence by State Govt?
Why does Schedule III always win?