Indirect Tax Laws and Practice · Supply under GST

Meaning and Scope of Supply under Section 7 CGST

Updated 10 October 2026 · Fact-checked

Supply under GST is the taxable event. Section 7(1) of the CGST Act covers all forms of supply of goods or services, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made for consideration in the course or furtherance of business. It also covers imports of services for consideration, and the activities listed in Schedule I even without consideration.

Understand Meaning and Scope of Supply under Section 7

GST is not charged on manufacture, sale or provision of service as separate events. It is charged on supply. If an activity is not a supply, there is no GST on it. So every GST question starts with one test: is this a supply?

Section 7(1) defines supply in an inclusive way. It includes all forms of supply of goods or services such as sale, transfer, barter, exchange, licence, rental, lease or disposal. Because the list is inclusive, other forms of supply can also qualify. Do not treat the list as closed.

The general rule has three parts: (1) there is a supply of goods or services, (2) it is made for a consideration, and (3) it is made in the course or furtherance of business. Consideration means payment in money or otherwise. A deposit given in respect of the supply of goods or services is consideration only if it is applied as consideration for the supply. A refundable deposit is not consideration. Consideration can also be a payment made by someone other than the recipient. Business has a wide meaning in the Act and includes trade, commerce, manufacture and profession, whether or not for profit.

There are two exceptions to the need for consideration and business. First, Section 7(1)(b) brings in the import of services for consideration, whether or not in the course or furtherance of business. Second, Section 7(1)(c) brings in the activities in Schedule I, which are treated as supply even if made without consideration. Schedule II decides whether an activity is a supply of goods or of services.

Section 7(1) is expressly subject to Section 7(2), so you check Section 7(2) first. Under Section 7(2)(a), the activities listed in Schedule III are neither a supply of goods nor a supply of services, so they are not supplies. An example is services by an employee to the employer in the course of employment. Under Section 7(2)(b), the activities of the Central Government, a State Government or a local authority as public authorities, which are notified on the Council's recommendation, are also not supplies. Section 7(2) therefore takes these activities out of supply, even when consideration and business are present. Only if the activity is not excluded do you move on to Section 7(1) and Schedule I. Classification of a supply as goods or services under Schedule II is the last step, used once you know there is a supply.

The difference between supply with and without consideration is therefore simple. With consideration, you need the business link (except for import of services). Without consideration, the activity is a supply only if Schedule I covers it, such as permanent transfer or disposal of business assets on which input tax credit was availed, or, under Schedule I Entry 2, supply between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business. Distinct persons under Section 25 are establishments of the same person in different States/UTs, or separately registered establishments of the same person in the same State. Do not confuse them with related persons.

Key rules to remember

General test of supply: Supply = supply of goods or services + consideration + in the course or furtherance of business; All three elements must be present, unless the case falls under import of services or Schedule I.
Import of services: Import of services for consideration = supply, whether or not in the course or furtherance of business; Section 7(1)(b). The business condition is dropped, but consideration is still needed.
Schedule I activities: Schedule I activities = supply even without consideration; Section 7(1)(c). Examples: permanent transfer or disposal of business assets with ITC availed, and (Entry 2) supplies between related persons or between distinct persons as specified in Section 25, made in the course or furtherance of business.
Forms of supply: Sale, transfer, barter, exchange, licence, rental, lease, disposal; Inclusive list. Other forms can also be supply.
Consideration: Consideration = payment in money or otherwise; It may come from the recipient or from any other person. A deposit is consideration only if applied as consideration for the supply; a refundable deposit is not consideration.
Order of analysis: Section 7(2) exclusions (Schedule III and notified government activities = not a supply) → Section 7(1) with Schedule I → Schedule II; Section 7(1) is subject to Section 7(2), so check the exclusions first. Schedule III activities and the government activities notified under Section 7(2)(b) are not supplies even if consideration and business are present. For everything else, apply Section 7(1) and Schedule I. Use Schedule II last, only to classify the supply as goods or services.

How to solve Meaning and Scope of Supply under Section 7 questions

Use this method for any question that asks whether a transaction is a supply under GST.

1Identify the transaction and the parties. Note whether it involves goods, services or both.
2Check Section 7(2) first. Activities in Schedule III, for example services by an employee to the employer in the course of employment, and the government activities notified under Section 7(2)(b), are not supplies, even if consideration and business seem to be present. If one applies, stop here.
3Check the form: sale, transfer, barter, exchange, licence, rental, lease, disposal or any similar act.
4Check for consideration. Look for money, goods, services, deposits applied as consideration, or payment by a third party.
5Check the business link: was it done in the course or furtherance of business by the person? Import of services for consideration needs no business link.
6If there is no consideration, test it against Schedule I: permanent transfer or disposal of business assets on which ITC was availed; supplies between related persons or between distinct persons as specified in Section 25, in the course or furtherance of business; supply of goods between principal and agent, where the agent undertakes to supply or receive such goods on behalf of the principal; and import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business, without consideration.
7Once you know it is a supply, use Schedule II to say whether it is a supply of goods or of services.
8Write a clear conclusion: supply or not, and the reason in one line.

Quickest way: Three-question filter

When to use it: Use it for MCQs and for short case scenarios where you have about two minutes.

Ask: is it excluded by Schedule III or Section 7(2)? If yes, it is not a supply. If no, go to question 2.
Ask: is there consideration? If yes, go to question 3. If no, check only whether Schedule I applies.
Ask: is it in the course or furtherance of business? If no, it is not a supply, except for import of services for consideration. If yes, it is a supply.

Common mistakes in Meaning and Scope of Supply under Section 7

Saying that no consideration means no supply.
Students remember the general rule and forget Schedule I.
Fix: When consideration is absent, always check Schedule I. Permanent transfer or disposal of business assets on which ITC was availed, supplies between related persons or distinct persons as specified in Section 25 in the course or furtherance of business, and similar items can still be supply.
Treating the list of forms of supply as closed.
The list looks like a set of fixed items.
Fix: Remember it is inclusive. If an activity is a supply of goods or services for consideration in business, it qualifies even if it is not named.
Applying the business test to import of services.
Students apply the general rule to every case.
Fix: Import of services for consideration is a supply whether or not it is in the course or furtherance of business.
Ignoring exclusions in Schedule III and Section 7(2).
Students stop once consideration and business are found.
Fix: Section 7(1) is subject to Section 7(2), so run the exclusion check first. Employee services in the course of employment are an example of a non-supply.
Confusing the role of Schedule II with Schedule I.
Both schedules deal with what is treated as supply.
Fix: Schedule I adds activities without consideration. Schedule II only classifies a supply as goods or services.
Treating consideration as only cash received from the buyer.
Everyday meaning of payment is narrow.
Fix: Consideration includes non-monetary payment and payment by a third party. A barter is a supply with consideration.

Worked examples

Example 1

Sharma Traders, a registered trader in Jaipur, sells goods to a customer for ₹50,000. Separately, its proprietor gifts a personal wristwatch, bought from his own savings, to his friend. Examine whether each is a supply under Section 7.

Show the solution

Sale of goods for ₹50,000: sale is a listed form of supply, there is consideration, and it is made by a trader in the course of business. All three elements are met, so it is a supply.
Gift of the wristwatch: there is no consideration.
Check Schedule I: it covers activities such as permanent transfer of business assets and related-person supplies in the course of business. The watch is a personal item, not a business asset, and the gift is not in the course or furtherance of business.
So Schedule I does not apply, and the gift fails the business test.

Answer: The sale for ₹50,000 is a supply. The gift of the personal wristwatch is not a supply.

Example 2

Bharat Motors Ltd. in Pune, a registered company, permanently transfers a machine from its factory to the personal use of a director, without charging any amount. Input tax credit was availed on the machine when it was purchased. Is this a supply?

Show the solution

There is no consideration, so the general rule in Section 7(1)(a) is not met.
Check Schedule I: permanent transfer or disposal of business assets is treated as supply even without consideration, if input tax credit has been availed on those assets.
Here the machine is a business asset, the transfer is permanent, and ITC was availed on it. The condition is satisfied.
Check exclusions in Schedule III and Section 7(2): none applies to this transfer.
The transfer is therefore a supply of goods under Schedule I, and it is liable to GST.

Answer: Yes. It is a supply of goods under Schedule I, even though there is no consideration, because ITC was availed on the business asset that is permanently transferred.

Exam tips

In case scenarios, underline every payment, gift and inter-party transfer. Each one needs the three-question filter.
For MCQs, watch for the phrases without consideration and whether or not in the course of business. They usually point to Schedule I or import of services.
In descriptive answers, structure your reply as: rule, application, conclusion. A clear conclusion earns marks.
Do not quote a section or schedule item number unless you are sure. Describe the rule in words instead.
Link the answer to the next step if asked: after deciding supply, say whether goods or services under Schedule II.

Practice questions from Supply under GST

Meaning and Scope of Supply under Section 7 in other exams

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

Meaning and Scope of Supply under Section 7: frequently asked questions

What is the scope of supply under Section 7 of the CGST Act?

It covers all forms of supply of goods or services made for consideration in the course or furtherance of business. It also covers import of services for consideration and the Schedule I activities without consideration. Activities in Schedule III and Section 7(2) are outside its scope.

What is the difference between supply with and without consideration under GST?

A supply with consideration must also be in the course or furtherance of business, except for import of services. A supply without consideration is taxable only if it falls under Schedule I, such as a permanent transfer of business assets on which ITC was availed.

Is the list of forms of supply in Section 7 exhaustive?

No. The definition is inclusive. Sale, transfer, barter, exchange, licence, rental, lease and disposal are examples, and other forms can also be supply if the other conditions are met.

Does consideration have to be in money?

No. Consideration can be in money or otherwise. A barter or exchange of goods or services is therefore a supply, and a payment by a third party can also be consideration.