Taxation · Supply under GST

Schedule II GST: Supply of Goods or Services (CA Intermediate)

Updated 4 October 2026 · Fact-checked

Schedule II of the CGST Act, 2017 tells you whether a supply is a supply of goods or a supply of services. It lists transactions such as transfer of title, leasing, construction, works contract and composite supplies. Find the matching entry, apply its rule, and state the conclusion with the reason.

Understand Schedule II: Supply of Goods or Services

GST applies to a supply. But rate, place of supply and time of supply depend on whether the supply is of goods or services. Some transactions are not obvious. A works contract could be goods or services. Schedule II removes the doubt. It says: treat this transaction as goods, or treat it as services.

The Schedule has six paragraphs. Para 1 covers transfer (of title in goods, of right in goods, and title under an agreement such as hire purchase in Para 1(c)). Para 2 covers land and building. Para 3 covers treatment or process on another person's goods. Para 4 covers transfer of business assets. It has three limbs: Para 4(a) transfer or disposal of business goods (supply of goods), Para 4(b) private or non-business use of business goods (supply of services), and Para 4(c) goods held when a person ceases to be a taxable person (deemed supply of goods, unless the business is transferred as a going concern or is carried on by a personal representative). Para 5 covers supply of services (renting of immovable property in Para 5(a), construction in Para 5(b), temporary transfer of IPR, IT software, agreeing to refrain from an act, and similar). Para 6 covers composite supplies: a works contract in Para 6(a), and supply of food or drink as part of a service (restaurant and catering) in Para 6(b).

The key idea is that the label follows the legal nature of the transaction, not what you call it. Outright transfer of title in goods is a supply of goods. Transfer of right to use goods without transfer of title is a supply of services. A works contract as defined in Section 2(119), which is a contract on immovable property, is a supply of services, even if goods are used in it. A similar contract on movable property is not a works contract under GST; it is classified as a composite or mixed supply.

The Schedule works with Section 7 of the CGST Act. Section 7 decides whether something is a supply. Schedule II then classifies it as goods or services. Schedule I (supply without consideration) and Schedule III (neither goods nor services) are separate and are studied separately. Section 8 separately decides how a composite supply or mixed supply is taxed, by reference to the principal supply. It is not part of Schedule II.

Learn the Schedule as a table of trigger words. See the trigger, recall the label.

Key rules to remember

Para 1(a): Transfer of title in goods: Transfer of title in goods = supply of goods; Outright sale or transfer of ownership.
Para 1(b): Right to use without title: Transfer of right in goods without transfer of title = supply of services; Example: renting a machine where ownership stays with the owner.
Para 1(c): Title under agreement: Transfer of title in goods under an agreement which stipulates that property will pass at a future date upon payment of full consideration = supply of goods; Covers hire purchase. Treated as supply of goods.
Para 2: Land and building: Para 2(a): lease, tenancy, easement, licence to occupy land = supply of services. Para 2(b): lease or letting out of a building, including a commercial, industrial or residential complex, for business or commerce, either wholly or partly = supply of services; The building limb needs the letting to be for business or commerce. Renting of immovable property is also listed in Para 5(a). Sale of land is not covered here; sale of land is in Schedule III (neither goods nor services).
Para 3: Treatment or process: Treatment or process applied to another person's goods = supply of services; Job work is the common example.
Para 4(a): Transfer or disposal of business assets: Goods forming part of business assets, transferred or disposed of by or under the directions of the person carrying on the business so that they no longer form part of those assets, whether or not for consideration = supply of goods; Applies even if no consideration is received.
Para 4(b): Private or non-business use of business goods: Goods held or used for the business, put to private or non-business use by the owner or permitted by him, whether or not for consideration = supply of services; Do not mix this with Para 4(a). Disposal is goods; private use is services.
Para 4(c): Cessation of taxable person's business: Where a person ceases to be a taxable person, goods forming part of the assets of his business are deemed to be supplied by him in the course or furtherance of business immediately before he ceases = supply of goods; Exceptions: the business is transferred as a going concern to another person, or the business is carried on by a personal representative who is deemed to be a taxable person.
Para 5(b): Construction of a building for sale: Construction of a complex, building, civil structure or part of it, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of the completion certificate, where required, by the competent authority, or after its first occupation, whichever is earlier = supply of services; Other limbs of Para 5 are also supply of services: renting of immovable property (Para 5(a)), temporary transfer or permitting use of IPR (Para 5(c)), development, design, programming, customisation, adaptation, upgradation, enhancement of IT software (Para 5(d)), and agreeing to refrain from an act or to tolerate an act (Para 5(e)).
Para 6(a): Works contract: Works contract (as defined in Section 2(119)) = supply of services; It is a contract for building, construction, fabrication, erection, installation, repair, etc. of immovable property, where goods are transferred in the execution of the contract.
Para 6(b): Supply of food or drink as part of a service: Supply (by way of or as part of any service) of goods, being food or any other article for human consumption or any drink, for cash, deferred payment or other consideration = supply of services; Applies to restaurant, outdoor catering and similar supplies.

How to solve Schedule II: Supply of Goods or Services questions

Use the same method for any classification question on Schedule II.

1Read the facts and identify what is actually being transferred: ownership of goods, right to use, a building, a process, or a bundle.
2Check Section 7 first: is there a supply in the course or furtherance of business, for consideration? If not, check Schedule I.
3Check Schedule III. Sale of land, a completed building after completion certificate (where required, by the competent authority) or first occupation, and similar items are neither goods nor services.
4Match the facts to the paragraph of Schedule II. Ask: is title passing? Is only right to use passing? Is it land or building? Is it a process on someone else's goods? Is it construction or a works contract?
5Write the label: supply of goods or supply of services, with the paragraph reason.
6If the transaction has both goods and services, check whether it is a composite supply or mixed supply under Section 8, and name the principal supply.
7State the conclusion and the consequence, such as the applicable place of supply or time of supply rules.

Quickest way: Trigger-word method for MCQs and short answers

When to use it: Use it when time is short, especially for 1 or 2 mark MCQs and 2-4 mark written parts.

Underline the trigger: title, right to use, lease, construction, works contract, job work, restaurant, personal use, closure of business.
Title passes = goods. Right to use only = services. Works contract = services. Job work = services. Restaurant or catering = services. Hire purchase = goods. Goods held on cessation of a taxable person's business = deemed supply of goods.
Check for the exceptions: sale of land or a building sold after completion certificate is Schedule III, so not a supply of goods or services.
In the written answer, use the three-line format: Provision (the paragraph of Schedule II), Facts (what happened), Conclusion (goods or services). This earns step marks even if you slip on the final label.
In MCQs, eliminate options that call a works contract goods or call a lease of building goods. These are common wrong options.

Common mistakes in Schedule II: Supply of Goods or Services

Calling a works contract a supply of goods because goods are used in it.
Students look at the material component and ignore the legal definition.
Fix: Remember: a works contract under Section 2(119), which is a contract on immovable property, is a supply of services under Schedule II. Goods used in it do not change the label.
Treating renting of machinery as a supply of goods.
The word 'machinery' makes you think of goods.
Fix: Ask if title passes. If only right to use passes, it is a supply of services.
Treating hire purchase as services because the buyer pays in instalments.
Instalments look like rent.
Fix: Under an agreement where property passes on full payment at a future date, the transfer is a supply of goods.
Applying Schedule II to a sale of land.
Students see 'land and building' and assume all land transactions are services.
Fix: Lease or licence to occupy land is services. Outright sale of land is covered by Schedule III, so it is neither goods nor services.
Ignoring the completion-certificate exception for construction.
Students memorise 'construction is services' without the condition.
Fix: Construction for sale (Para 5(b)) is services, except where the entire consideration is received after the completion certificate, where required, by the competent authority, or after first occupation, whichever is earlier. In that case, it falls under Schedule III.
Treating job work as a supply of goods.
The job worker returns goods, so it looks like a goods transaction.
Fix: Job work is treatment or process on another person's goods. It is a supply of services.
Forgetting Para 4(c) and ignoring stock and assets left when a business closes.
Students remember only disposal (4(a)) and private use (4(b)).
Fix: When a person ceases to be a taxable person, goods forming part of business assets are deemed supplied as goods immediately before cessation. The exceptions are a transfer of the business as a going concern and a business carried on by a personal representative.

Worked examples

Example 1

M/s Alpha Ltd. gives a CNC machine to Beta Ltd. on monthly rent of ₹50,000 for 3 years. Ownership stays with Alpha. Alpha also sells another machine outright to Gamma Ltd. for ₹8,00,000. Classify both transactions under GST.

Show the solution

Check Section 7: both are supplies by a business for consideration.
Transaction 1: the machine is given to Beta for rent. Only the right to use is transferred; title remains with Alpha.
Schedule II, Para 1(b): transfer of right to use goods without transfer of title is a supply of services.
Transaction 2: the machine is sold outright to Gamma. Title passes.
Schedule II, Para 1(a): transfer of title in goods is a supply of goods.

Answer: The renting of the machine to Beta is a supply of services. The outright sale to Gamma is a supply of goods.

Example 2

Builder Ravi constructs a residential complex and sells flats to buyers. Buyer X books a flat and pays 30% during construction and 70% after the completion certificate is issued. Buyer Y pays the entire price only after the completion certificate is issued. Classify each sale under GST.

Show the solution

Check Schedule II, Para 5(b): construction of a complex or building intended for sale is a supply of services, except where the entire consideration is received after the completion certificate (where required, by the competent authority) or first occupation, whichever is earlier.
Buyer X: part of the consideration (30%) was received before the completion certificate. The exception does not apply, as the entire consideration was not received after it.
So X's transaction is a supply of services.
Buyer Y: the entire consideration is received after the completion certificate. The exception applies.
Such a sale is not a supply of services under Schedule II. It falls under Schedule III (Entry 5) as a sale of building after completion certificate, so it is neither a supply of goods nor a supply of services.

Answer: The sale to X is a supply of services. The sale to Y is neither a supply of goods nor of services (Schedule III, Entry 5), so no GST is leviable on that sale. Input tax credit attributable to such a sale must be reversed under Section 17(2) and (3), because the value of exempt supplies for ITC purposes includes such a sale of a building.

Exam tips

Learn Schedule II as a trigger-word list. Most MCQs test one trigger and one label.
Always check the exceptions: completion certificate for construction, and Schedule III for land sale.
Remember all three limbs of Para 4: disposal (goods), private use (services) and cessation of a taxable person's business (deemed supply of goods).
In written answers, quote the paragraph, apply the facts, and give a clear conclusion in three lines.
Expect scenario questions where a works contract, a lease and a composite supply appear together. Classify each transaction separately.
MCQs carry no negative marking, so attempt every one. Eliminate the options that violate the title versus right-to-use rule.

Practice questions from Supply under GST

Schedule II: Supply of Goods or Services in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Schedule II: Supply of Goods or Services: frequently asked questions

Is a works contract a supply of goods or services under GST?

A works contract as defined in Section 2(119) is a supply of services under Schedule II. This holds even if goods are used and transferred in executing the contract. The definition covers only contracts on immovable property. A similar contract on movable property is not a works contract and is classified as a composite or mixed supply.

Is construction of a building a supply of service under GST?

Construction of a building intended for sale is a supply of services under Para 5(b). The exception is where the entire consideration is received after the completion certificate, where required, by the competent authority, or after first occupation, whichever is earlier. Then it falls under Schedule III.

What is the difference between Schedule I, II and III?

Schedule I lists activities treated as supply even without consideration. Schedule II classifies a supply as goods or services. Schedule III lists activities that are neither goods nor services.

Is leasing of goods a supply of goods or services?

It depends on title. If only the right to use goods is transferred, it is a supply of services. If title passes, as in hire purchase where property passes on full payment, it is a supply of goods.