Supply Under GST: Complete Guide to Section 7, Section 8, Schedule I, II & III with Examples

Introduction

Under the Goods and Services Tax (GST) regime, Supply is the taxable event on which GST is levied. Unlike the earlier indirect tax system where different taxes were levied on manufacture, sale, or provision of services, GST is charged whenever a supply takes place.

Therefore, understanding the concept of supply is essential because GST liability arises only when a transaction qualifies as a supply under the GST law.

The provisions relating to supply are primarily covered under:

• Section 7 – Meaning and Scope of Supply
• Section 8 – Composite Supply and Mixed Supply
• Schedule I – Supplies without consideration
• Schedule II – Classification as Goods or Services
• Schedule III – Activities treated as Neither Supply of Goods nor Services

What is Supply Under GST?

Under the GST regime, Supply is the taxable event on which GST is levied. Section 7 of the CGST Act defines supply and forms the foundation of the entire GST framework. In simple terms, GST becomes applicable only when a transaction qualifies as a supply under the law.

Supply includes all forms of transactions involving goods or services, such as:

• Sale
• Transfer
• Exchange
• Barter
• Lease
• Rental
• License
• Disposal

These activities are treated as supply when they are made or agreed to be made for a consideration and in the course or furtherance of business. 

Essential Conditions for Supply

For a transaction to qualify as a supply under GST, the following conditions should generally be satisfied:

1. There must be an activity involving goods or services.
2. The activity should be carried out for consideration (monetary or non-monetary).
3. The activity should be in the course or furtherance of business.

Example

ABC Ltd. sells furniture worth ₹1,00,000 to XYZ Ltd.

In this transaction:

• There is a sale of goods.
• Consideration of ₹1,00,000 is received.
• The transaction is undertaken in the course of business.

Therefore, all the conditions of supply are satisfied, and the transaction qualifies as a Supply under GST. Consequently, GST will be applicable on the sale value as per the applicable GST rate. 

Important Note

The concept of supply is the backbone of GST because no GST can be levied unless a transaction falls within the scope of supply as defined under Section 7 of the CGST Act.

Conditions for a Transaction to Become Supply Under GST

For a transaction to be treated as a Supply under Section 7 of the CGST Act, it must generally satisfy three essential conditions. These conditions help determine whether GST is applicable on a particular transaction.

1. There Must Be an Activity

The first requirement is the existence of an activity involving goods or services. GST law covers various forms of transactions, including:

• Sale
• Transfer
• Exchange
• Barter
• Renting
• Leasing
• Licensing
• Disposal

If none of these activities take place, the transaction cannot be regarded as a supply. 

2. The Activity Must Be in the Course or Furtherance of Business

The activity should be undertaken as part of a business or in connection with business operations. Transactions carried out for business purposes are generally covered under GST.

Example:
A trader sells goods from his shop to customers as part of his regular business operations. Since the transaction is related to business activities, this condition is satisfied.

3. Consideration Must Exist

Generally, a supply must be made for consideration. Consideration may be:

• Monetary Consideration – Payment made in money.
• Non-Monetary Consideration – Payment made in kind, goods, services, or any other valuable benefit.

It is important to note that certain transactions specified in Schedule I are treated as supply even without consideration. 

Practical Example

A manufacturer exchanges an old machine for a new machine and pays the price difference to the supplier.

In this case:

• There is an exchange/barter activity.
• The transaction is undertaken for business purposes.
• Consideration exists in the form of the old machine and additional monetary payment.

Therefore, all the conditions of supply are satisfied, and the transaction qualifies as a Supply under GST, making it liable to GST as per the applicable provisions.

Conclusion

A transaction generally becomes a supply when there is an identifiable activity, the activity is connected with business, and consideration is involved. Understanding these conditions is crucial because GST can be levied only when a transaction falls within the scope of supply under Section 7 of the CGST Act.

Import of Services as Supply Under GST

Under GST law, import of services is generally treated as a supply when a service is received from a supplier located outside India and consideration is paid for such service. The provisions ensure that services imported into India are taxed in a manner similar to services supplied within India.

An import of service qualifies as a supply when:

• The supplier of service is located outside India.
• The recipient of service is located in India.
• Consideration is paid or payable for the service.

In such cases, GST is payable by the recipient under the Reverse Charge Mechanism (RCM). 

Example

An Indian company hires a software consultant based in the United States for developing and maintaining its business software. The US consultant charges consultancy fees, which are paid by the Indian company.

In this transaction:

• The supplier is located outside India.
• The recipient is located in India.
• Consideration is paid for the service.
• The service is used for business purposes.

Therefore, the transaction qualifies as an Import of Service and is treated as a Supply under GST. The Indian company, being the recipient of the service, is required to pay GST under the Reverse Charge Mechanism (RCM).

Important Note

Import of services is specifically included within the scope of supply under GST. Even though the service provider is located outside India, GST liability arises in India through the Reverse Charge Mechanism, ensuring tax neutrality between domestic and imported services.

Transactions Between Club and Members Under GST

The GST law specifically provides that transactions between a club, association, society, or any similar body and its members shall be treated as a supply when made for a consideration. The club and its members are deemed to be separate persons for GST purposes, and therefore any goods or services supplied between them become taxable.

Prior to GST, there were disputes regarding the principle of mutuality, where clubs and members were considered the same entity. However, GST law has clarified that a club and its members are distinct persons, making such transactions liable to GST.

Conditions for Taxability

A transaction between a club and its members will be treated as a supply when:

• There is a supply of goods or services by the club to its members or vice versa.
• Consideration is charged for such supply.
• The transaction falls within the scope of GST provisions.

Example

A recreational club charges its members an annual membership fee of ₹20,000 for providing various facilities such as access to the club premises, sports facilities, and recreational services.

In this case:

• The club is providing services to its members.
• Consideration is received in the form of membership fees.
• The club and its members are treated as separate persons under GST.

Therefore, the annual membership fee of ₹20,000 is considered a Supply under GST, and GST will be applicable on the amount charged. 

Important Note

Any amount collected by a club, association, society, resident welfare association (RWA), or similar organization from its members towards membership fees, subscriptions, or services is generally treated as a taxable supply under GST, subject to applicable exemptions and threshold limits.

Schedule I – Supply Without Consideration Under GST

Generally, a transaction is treated as a supply only when consideration is involved. However, Schedule I of the CGST Act specifies certain transactions that are deemed to be supplies even when no consideration is charged. These transactions are taxable because of their nature and business relevance. 

 

1. Permanent Transfer or Disposal of Business Assets

The permanent transfer or disposal of business assets is treated as a supply when Input Tax Credit (ITC) has been availed on such assets.

Key Condition

• ITC must have been claimed on the asset.
• The asset is permanently transferred or disposed of without consideration.

Example

A company donates an old machine to a charitable institution. The company had claimed ITC when the machine was purchased.

Although no consideration is received for the transfer, the transaction is deemed to be a supply under Schedule I, and GST is applicable.

 

2. Transactions Between Related Persons or Distinct Persons

Supplies made between related persons or distinct persons in the course or furtherance of business are treated as supplies even when made free of cost.

Related Persons Include

• Brother
• Sister
• Spouse
• Employer and Employee
• Holding and Subsidiary Companies
• Persons having substantial interest in each other's business

Distinct Persons Include

Different GST registrations obtained under the same PAN, such as:

• Head Office and Branch Office
• Branch-to-Branch Transfers
• Multiple State Registrations

Example

The Head Office of a company located in Mumbai sends goods free of cost to its Delhi branch, which has a separate GST registration.

Even though no consideration is charged, GST is applicable because both registrations are treated as distinct persons under GST law.

Employee Gift Exception

Gifts provided by an employer to an employee are not treated as supply if the value does not exceed ₹50,000 per employee in a financial year.

For gifts exceeding ₹50,000, GST provisions may apply.

 

3. Principal–Agent Transactions

Supply of goods between a principal and an agent is treated as a supply even when no consideration is involved, provided the agent undertakes the supply or receipt of goods on behalf of the principal.

Example

A manufacturer sends goods to his commission agent for sale to customers without charging any amount at the time of transfer.

Even though the movement of goods is free of cost, it is regarded as a supply under Schedule I and GST implications arise accordingly.

 

4. Import of Services from Related Persons

Import of services by a person in India from a related person or from any of his establishments located outside India for business purposes is treated as a supply, even when no consideration is paid.

Key Conditions

• Supplier is a related person or overseas establishment.
• Recipient is located in India.
• Service is used for business purposes.
• No consideration is required.

Example

An overseas parent company provides management consultancy and strategic support services free of cost to its Indian subsidiary.

Although no fee is charged, the transaction is deemed to be a supply under Schedule I because the service is received from a related person for business purposes. GST may therefore be payable under the applicable provisions. 

Conclusion

Schedule I plays a crucial role in preventing tax leakage by treating certain transactions as taxable supplies even in the absence of consideration. Permanent transfer of business assets, supplies between related or distinct persons, principal-agent transactions, and import of services from related persons are all covered under this schedule. Businesses must carefully evaluate such transactions to ensure proper GST compliance and avoid potential disputes with tax authorities.

Schedule II – Supply of Goods or Supply of Services

Once a transaction qualifies as a Supply under Section 7 of the CGST Act, it becomes necessary to determine whether the transaction is a Supply of Goods or a Supply of Services. Schedule II of the CGST Act provides specific rules for such classification. This distinction is important because the place of supply provisions, time of supply provisions, and compliance requirements may differ for goods and services.

 

Movable Property Transactions

Schedule II prescribes the GST treatment for various transactions involving movable property as follows:

Transaction	GST Treatment
Sale of Goods	Supply of Goods
Hire Purchase Transaction	Supply of Goods
Transfer of Right to Use Goods	Supply of Services
Permanent Transfer of Business Assets	Supply of Goods
Closure of Business Assets	Supply of Goods

 

Example

A car dealer sells a motor car to a customer. Since ownership of the car is transferred, the transaction is treated as a Supply of Goods.

On the other hand, if a company grants another business the right to use machinery for a specified period in return for a fee, the transaction is treated as a Supply of Services because only the right to use is transferred and not the ownership.

 

Immovable Property Transactions

Schedule II also classifies transactions relating to land and buildings.

Transaction	GST Treatment
Renting of Building	Supply of Services
Leasing of Land	Supply of Services
Sale of Under-Construction Property	Supply of Services
Sale of Completed Building	Not a Supply

Example

Renting a commercial office building to a tenant is considered a Supply of Services and attracts GST.

However, the sale of a completed residential house after obtaining the completion certificate is not treated as a supply and therefore falls outside the scope of GST.

 

Intellectual Property Rights (IPR)

The GST treatment of Intellectual Property Rights depends upon whether the transfer is temporary or permanent.

Temporary Transfer of IPR

A temporary transfer or permission to use an intellectual property right is treated as a Supply of Services.

Permanent Transfer of IPR

A permanent transfer of ownership in an intellectual property right is treated as a Supply of Goods.

Example

Granting software usage rights to a customer for three years is considered a temporary transfer and therefore a Supply of Services.

However, selling complete ownership rights in a patent or trademark is regarded as a Supply of Goods.

 

Job Work Under GST

Any treatment or process carried out on goods belonging to another registered person is treated as a Supply of Services.

Example

A garment manufacturer sends fabric to a job worker for cutting and stitching.

The stitching and processing activities performed by the job worker are classified as Job Work Services and are treated as a Supply of Services under GST.

 

Business Assets and GST

Schedule II contains specific provisions regarding business assets.

Permanent Transfer of Business Assets

Permanent transfer or disposal of business assets is treated as a Supply of Goods.

Temporary Transfer for Non-Business Purposes

Temporary transfer or use of business assets for non-business purposes is treated as a Supply of Services.

Business Closure

Upon closure of a business, business assets are deemed to be supplied and may attract GST liability.

Example

A business closes its operations and the owner retains machinery and equipment for personal use. Such assets may be deemed to have been supplied, and GST provisions may become applicable depending on the circumstances. 

 

Supply of Food and Catering Services

Schedule II specifically treats the supply of food and beverages for human consumption as a Supply of Services.

Examples

• Restaurant Services
• Catering Services
• Food supplied in banquet halls
• Outdoor catering arrangements
• Supply of meals along with service elements

In these cases, the dominant nature of the transaction is considered to be a service, and GST is levied accordingly. 

Conclusion

Schedule II plays a vital role in GST by classifying various transactions as either Supply of Goods or Supply of Services. Transactions involving movable property, immovable property, intellectual property rights, job work, business assets, and food services are specifically covered under this schedule. Proper classification ensures accurate GST treatment, correct tax rates, and smooth compliance with GST provisions.

Schedule III – Activities Which Are Neither Supply of Goods nor Supply of Services

Schedule III of the CGST Act specifies certain activities and transactions that are treated as neither a supply of goods nor a supply of services. Since these activities do not qualify as a supply, they fall completely outside the scope of GST and no GST is payable on them.

 

1. Services by an Employee to Employer

Services provided by an employee to the employer in the course of employment are not treated as a supply under GST.

Example

An employee receives a monthly salary of ₹50,000 from his employer for performing his job responsibilities.

Since the services are rendered in the course of employment, the salary received is not subject to GST. However, TDS under the Income-tax Act may still apply wherever relevant.

 

2. Services by Courts and Tribunals

Services provided by courts and tribunals established under any law are outside the ambit of GST.

Example

Fees paid in connection with proceedings before a court or tribunal are not liable to GST because such services are specifically covered under Schedule III.

 

3. Activities of Constitutional Functionaries

Functions performed by persons holding constitutional or public offices are not treated as supply.

These include activities performed by:

• President of India
• Prime Minister
• Chief Minister
• Ministers
• Members of Parliament (MPs)
• Members of Legislative Assembly (MLAs)
• Members of Legislative Council (MLCs)
• Members of Municipalities and other similar constitutional bodies

Since these duties are performed in an official capacity, they are outside the scope of GST.

 

4. Sale of Land and Completed Buildings

The sale of land and completed buildings is specifically excluded from the definition of supply.

Example

A builder sells a residential apartment after obtaining the completion certificate from the competent authority.

Since the property is completed, the sale is not treated as a supply under GST and therefore no GST is payable. However, stamp duty and registration charges may still be applicable under state laws.

Note: Sale of an under-construction property is treated differently and may attract GST as a supply of service.

 

5. Mortuary Services

Services relating to deceased persons are not treated as supply.

These include:

• Mortuary services
• Preservation of dead bodies
• Transportation of deceased persons
• Funeral-related services covered under Schedule III

Example

An ambulance service transporting a deceased person from a hospital to a cremation ground is not liable to GST under Schedule III provisions.

 

6. Non-Taxable Territory to Non-Taxable Territory Transactions

Supply of goods from one non-taxable territory to another non-taxable territory without the goods entering India is not regarded as supply.

Example

A trader located in Singapore purchases goods from a supplier in China and directly sells them to a customer in Dubai without the goods entering India.

Since the movement of goods takes place entirely outside India, the transaction is not treated as a supply under GST. 

 

7. Actionable Claims

Actionable claims are generally outside the scope of GST except for specified actionable claims.

Taxable Actionable Claims

The following specified actionable claims are taxable under GST:

• Betting
• Gambling
• Lottery
• Online Money Gaming
• Horse Racing
• Casino Activities

Non-Taxable Actionable Claims

All other actionable claims remain outside GST.

Example

A lottery ticket purchased by a customer attracts GST because lottery is a specified actionable claim.

However, most other actionable claims, such as unsecured debts or certain legal claims, are not treated as supplies under GST. 

Conclusion

Schedule III plays a significant role in identifying activities that are completely outside the scope of GST. Services by employees, courts and tribunals, constitutional authorities, sale of land and completed buildings, mortuary services, transactions between non-taxable territories, and most actionable claims are not regarded as supplies. Understanding these exclusions helps taxpayers correctly determine GST liability and avoid unnecessary compliance burdens.

Composite Supply and Mixed Supply Under Section 8 of GST

Section 8 of the CGST Act provides the tax treatment for Composite Supply and Mixed Supply. These provisions help determine the applicable GST rate when multiple goods or services are supplied together in a single transaction. The classification is important because the GST liability depends on whether the supply is composite or mixed.

 

Composite Supply Under Section 8

A Composite Supply refers to a supply consisting of two or more taxable supplies of goods or services, or both, which are naturally bundled and supplied together in the ordinary course of business. One of these supplies is identified as the Principal Supply.

In a composite supply, the entire transaction is taxed according to the GST rate applicable to the principal supply. 

Essential Features of Composite Supply

• Two or more supplies are involved.
• The supplies are naturally bundled.
• They are supplied together in the normal course of business.
• One supply is the principal supply.
• GST is charged based on the principal supply.

Example

A dealer sells an air conditioner along with installation services for a single price.

Components of the supply:

• Air Conditioner (Principal Supply)
• Installation Service (Ancillary Supply)

Since installation is naturally associated with the sale of the air conditioner, the transaction qualifies as a Composite Supply.

Therefore, the entire transaction will be treated as a Supply of Goods, and GST will be charged at the rate applicable to the air conditioner.

Additional Examples of Composite Supply

• Sale of machinery along with mandatory installation.
• Transportation of goods along with insurance.
• Hotel accommodation including complimentary breakfast.
• Supply of goods with packing and delivery charges.

In all these cases, the supplies are naturally bundled and taxed according to the principal supply.

 

Mixed Supply Under Section 8

A Mixed Supply consists of two or more individual supplies of goods or services, or both, made together for a single price, where such supplies are not naturally bundled and can be supplied separately.

Since there is no principal supply in a mixed supply, the entire transaction is taxed at the GST rate applicable to the item attracting the highest rate of tax. 

Essential Features of Mixed Supply

• Multiple independent supplies are involved.
• Supplies are not naturally bundled.
• Supplies can be sold separately.
• A single consolidated price is charged.
• GST is levied at the highest applicable rate among all supplies.

Example

A gift hamper is sold for a single price and contains:

• Chocolates
• Perfume
• Dry Fruits

These items are independent products and are not naturally bundled in the ordinary course of business.

Therefore, the package qualifies as a Mixed Supply.

If perfume attracts the highest GST rate among the items, the entire value of the gift hamper will be taxed at the GST rate applicable to perfume.

Additional Examples of Mixed Supply

• Diwali gift packs containing sweets, dry fruits, and decorative items.
• Festival hampers containing chocolates, perfumes, and toys.
• Promotional packages combining unrelated products for a single price.

In such cases, GST is charged at the highest rate applicable to any item included in the package.

 

Difference Between Composite Supply and Mixed Supply

Particulars	Composite Supply	Mixed Supply
Nature of Supplies	Naturally bundled	Not naturally bundled
Principal Supply	Identifiable	Not identifiable
Tax Rate	Rate of principal supply	Highest GST rate among supplies
Ordinary Course of Business	Yes	No
Example	AC with installation	Gift hamper containing unrelated items

 

Conclusion

Section 8 ensures proper taxation of bundled supplies by distinguishing between Composite Supply and Mixed Supply. A composite supply is taxed according to the principal supply because the supplies are naturally bundled, whereas a mixed supply is taxed at the highest GST rate because the supplies are independent and merely sold together for a single price. Correct classification is essential for determining the appropriate GST liability and ensuring compliance with GST provisions.

Important GST Clarifications

To remove practical difficulties and ensure uniform implementation of GST provisions, various clarifications have been issued regarding the classification and taxability of certain transactions. Some important clarifications relating to printing contracts, retreading of tyres, holding of shares, and food supplied in cinema halls are discussed below.

 

1. Printing Contracts

The GST treatment of printing contracts depends upon the nature of the principal supply involved in the transaction.

Supply of Service

Where the customer provides the content, design, logo, or other material for printing and the printer uses his own paper and printing resources, the principal supply is printing service.

Example

A company provides the content of its annual report to a printing press. The printer uses his own paper, ink, machinery, and labour to print the reports.

In this case, the principal supply is the printing activity. Therefore, the transaction is treated as a Supply of Service under GST.

 

Supply of Goods

Where printed products such as cartons, boxes, envelopes, letterheads, tissues, or packaging materials are supplied as finished goods, the principal supply is the product itself.

Example

A manufacturer supplies printed cartons bearing the customer's logo and brand name.

Since the finished cartons are the primary object of the transaction, the supply is treated as a Supply of Goods under GST.

 

2. Retreading of Tyres

The GST treatment depends on the ownership of the tyre being retreaded.

Supply of Service

When a customer provides an old tyre and the supplier performs the retreading process using rubber and labour, the principal supply is the retreading activity.

Example

A transport company sends its used truck tyres to a retreading unit for refurbishment.

Since the customer's tyre is merely being processed, the transaction is treated as a Supply of Service.

 

Supply of Goods

If the supplier sells a fully retreaded tyre that belongs to him, the transaction is regarded as a sale of goods.

Example

A tyre dealer sells retreaded tyres from his own inventory to customers.

Since ownership of the tyre is transferred, the transaction is classified as a Supply of Goods.

 

3. Holding of Shares

The purchase, sale, or holding of shares and securities is neither a supply of goods nor a supply of services under GST law.

Shares are treated as securities, and securities are specifically excluded from the scope of supply.

Example

A holding company purchases shares of its subsidiary company or sells shares in another company.

The transaction involves securities and therefore does not constitute a supply under GST. Consequently, no GST is applicable on the purchase, sale, or mere holding of shares.

 

4. Food and Beverages in Cinema Halls

The GST treatment of food and beverages supplied in cinema halls depends upon whether the food is sold separately or bundled with the cinema exhibition service.

Separate Sale of Food and Beverages

When food items are sold independently of the movie ticket, they are treated as restaurant services.

Example

A customer purchases popcorn and a soft drink separately from the food counter inside a cinema hall.

The supply of food and beverages is treated as a Restaurant Service, and GST is charged accordingly.

 

Food Bundled with Cinema Ticket

When food and beverages are supplied together with a cinema ticket for a single consolidated price and the conditions of composite supply are satisfied, the transaction is treated as a composite supply.

Example

A multiplex offers a package comprising:

• Movie Ticket
• Popcorn
• Soft Drink

for a single combined price.

If the package qualifies as a composite supply, the entire transaction will be taxed according to the GST rate applicable to the Cinema Exhibition Service, which becomes the principal supply. 

Important Note

These GST clarifications provide guidance for determining whether a transaction should be classified as a supply of goods, a supply of services, or remain outside the scope of GST. Printing contracts, retreading of tyres, transactions involving shares, and food supplied in cinema halls often create classification issues. A proper understanding of the principal supply concept and the relevant GST provisions ensures accurate tax treatment and compliance with the law.

Conclusion

The concept of Supply forms the foundation of GST. Before GST can be levied, it must first be determined whether a transaction qualifies as a supply under Section 7. Once identified as a supply, Schedule II helps classify it as goods or services, while Schedule III identifies transactions that are completely outside the scope of GST. Additionally, Section 8 provides rules for composite and mixed supplies. A clear understanding of these provisions helps taxpayers ensure proper GST compliance, avoid disputes, and accurately determine tax liability.