GST Section 7: Scope of Supply Explained with Examples, Tables & Key Provisions by AUBSP

Section 7 of the CGST Act, 2017 defines the scope of “supply” under GST, encompassing all forms of transactions involving goods or services such as sale, transfer, barter, exchange, lease, and even import of services, whether for consideration or not in specific cases. It includes activities between entities and their members, and categorizes supplies as either goods or services based on Schedules I, II, and III.

Certain activities by governments and notified bodies are excluded from GST. This comprehensive explanation by AUBSP helps businesses and professionals understand which transactions are taxable and ensures compliance with GST laws.

Understanding GST Section 7: Scope of Supply – Explained by AUBSP

The concept of “supply” lies at the very core of the Goods and Services Tax (GST) regime in India. To levy and collect GST, identifying what constitutes a “supply” is crucial. Section 7 of the Central Goods and Services Tax (CGST) Act, 2017 defines the scope of supply, encompassing various types of transactions.

In this article, AUBSP provides you with a clear, professional, and comprehensive explanation of Section 7, making it easier to understand the legal framework and practical implications.

What is “Supply” Under GST?

According to Section 7(1) of the CGST Act, the term “supply” includes a wide range of activities involving goods, services, or both. These activities are taxable under GST if they occur for consideration and in the course or furtherance of business.

Let’s break this down with the help of sub-sections and clauses under Section 7.

Section 7(1): Inclusive Definition of Supply

Clause (a): All Forms of Supply

This is the primary clause under Section 7(1), and it states:

“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.”

Examples of Activities Considered as Supply:

• Selling a product to a customer
• Leasing out office space
• Bartering services
• Exchanging goods with another entity

The key takeaway here, as explained by AUBSP, is that the presence of consideration and business intent makes these activities taxable under GST.

Clause (aa): Supplies to and from Members or Constituents

This clause was inserted to clear ambiguity around transactions within clubs, associations, and similar bodies:

“The activities or transactions, by a person (other than an individual), to its members or constituents or vice versa, for consideration, shall be deemed as supply.”

Clarification via Explanation:

Even though such bodies and their members may seem like one entity under other laws, they are treated as separate persons under GST.

This means that:

• A club providing services to its members is making a taxable supply.
• Contributions or fees from members are subject to GST.

Clause (b): Import of Services

Services imported for a consideration are included in the scope of supply, regardless of whether they are for business purposes.

This broadens the tax net significantly, ensuring imported services are taxable even in personal contexts.

Clause (c): Activities Without Consideration (Schedule I)

Certain activities are treated as supply even without consideration, if they fall under Schedule I of the CGST Act.

Examples from Schedule I:

• Supply of goods between related persons
• Permanent transfer of business assets
• Services provided by an employer to an employee beyond ₹50,000 per year

Clause (d): [Omitted]

This clause was omitted by the CGST (Amendment) Act, 2018. Earlier, it linked supply classification to Schedule II.

Section 7(1A): Classification as Goods or Services

This provision states that if an activity is a supply under Section 7(1), then it should be classified as either a supply of goods or supply of services as per Schedule II.

This ensures proper tax treatment and clarity in tax rates, place of supply, and invoicing.

Section 7(2): Activities Neither Supply of Goods Nor Services

Clause (a): Schedule III Activities

Activities listed in Schedule III are not treated as supply at all, meaning they are outside the scope of GST.

Examples from Schedule III:

• Services by an employee to employer in the course of employment
• Functions performed by MPs, MLAs, or local authorities
• Sale of land and completed buildings

Clause (b): Public Authority Activities

Any activity by:

• Central Government
• State Government
• Local Authorities

… performed in their role as public authorities, and notified by the government, is also outside GST.

Section 7(3): Government Notifications on Supply Classification

This sub-section gives the Government the power to notify, on GST Council recommendations, whether a specific transaction is to be treated as:

• A supply of goods (not services), or
• A supply of services (not goods)

This flexibility ensures smooth tax administration in evolving commercial scenarios.

Important Dates Table for Section 7

Conclusion by AUBSP

Understanding Section 7 of the CGST Act is essential for anyone involved in business, accounting, or taxation. It clearly defines what transactions fall within the GST framework and helps in determining tax liability accurately.

As discussed, AUBSP emphasizes that whether you are a business owner, consultant, or student of GST, being familiar with the scope of supply under Section 7 is non-negotiable. By knowing what counts as supply, you can avoid unintended non-compliance and ensure smooth GST operations.

For more detailed insights on other sections of GST law and practical guides, stay connected with AUBSP.com

FAQs on GST Section 7: Scope of Supply

What is the scope of supply under GST Section 7?
The scope of supply under Section 7 includes all forms of supply of goods or services such as sale, transfer, barter, exchange, lease, import of services, and certain specified activities made without consideration.

What does “supply” mean in GST?
In GST, “supply” refers to any transaction involving goods or services for a consideration and in the course or furtherance of business, including imports and certain activities without consideration.

Are gifts and free samples considered supply under GST?
Yes, if they fall under Schedule I (such as between related persons), they can be treated as supply even without consideration.

Is GST applicable on imports of services for personal use?
Yes, import of services for consideration is considered a supply under Section 7, even if it is not for business purposes.

What is the significance of Clause (aa) in Section 7?
Clause (aa) clarifies that supplies between a person and its members or constituents are considered taxable supplies under GST, even if they appear as internal transactions.

Are transactions between a club and its members taxable under GST?
Yes, as per Clause (aa) and its explanation, such transactions are treated as supplies and are taxable under GST.

Do employee services to an employer fall under the scope of supply?
No, services by an employee to the employer in the course of employment are listed in Schedule III and are not considered a supply.

What are the key schedules relevant to Section 7 of CGST Act?
Schedule I (activities treated as supply without consideration), Schedule II (classification of supply), and Schedule III (activities not considered supply).

Can a transaction be supply without any payment involved?
Yes, if it is listed in Schedule I, such as transfers between related persons or branches, it is considered a supply even without consideration.

What does Section 7(1A) deal with?
Section 7(1A) clarifies that supplies identified in Section 7(1) must be classified as either a supply of goods or supply of services according to Schedule II.

Are donations or charity services taxable under GST?
Generally, voluntary donations are not considered supply. However, if a benefit is provided in return, it could be deemed a supply and taxed accordingly.

Is GST applicable on sale of land or buildings?
No, sale of land and sale of completed buildings are listed in Schedule III and are not treated as supply under GST.

Does GST apply to activities by government departments?
Activities by the government or local authorities acting as public authorities are excluded from supply if notified under Section 7(2)(b).

Who has the authority to classify a transaction as supply of goods or services?
The government, on the recommendation of the GST Council, can classify transactions as either supply of goods or supply of services under Section 7(3).

What is Schedule II used for in GST?
Schedule II is used to determine whether a particular supply is to be treated as a supply of goods or a supply of services.

Can a lease agreement be considered a supply?
Yes, leasing of goods or property is treated as a supply of services under Schedule II.

Are intra-branch transactions taxable under GST?
Yes, if made between branches in different states or under different GST registrations, they are considered supplies under Schedule I.

What is the role of AUBSP in explaining GST Section 7?
AUBSP simplifies complex GST provisions like Section 7 by offering in-depth analysis, real-world examples, and guidance for taxpayers and professionals.

Does GST apply to bartering of goods or services?
Yes, barter transactions are explicitly included in the scope of supply and are taxable under GST.

Are legal rulings or court judgments considered while defining supply?
No, as per the explanation to Clause (aa), GST law overrides any conflicting judgment, law, or interpretation regarding members and associations.

Can the definition of supply under GST change over time?
Yes, the government can notify changes or specify new inclusions/exclusions under Section 7 based on GST Council recommendations.