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CA Final · Indirect Tax Laws · Supply under GST

The Government, on the Council's recommendation, issues a notification under Section 7(3) of the CGST Act, 2017 treating a particular transaction as a supply of services and not of goods. A trader contends that the same power lets the Government also notify as a taxable supply an activity falling in Schedule III. Which statement is correct?

The contention fails. The Section 7(3) power to classify transactions as goods or services is subject to sub-sections (1), (1A) and (2), and sub-section (2) puts Schedule III activities outside supply, so the notification cannot make them taxable supplies.

  1. AThe contention is valid, because Section 7(3) overrides all other provisions of Section 7
  2. BThe contention is valid, but only for activities in Schedule III involving goods
  3. CThe contention fails, because the Section 7(3) power is subject to sub-sections (1), (1A) and (2), and Schedule III activities fall under sub-section (2)Correct
  4. DThe contention fails, because Section 7(3) allows only a notification treating a supply as goods

Explanation

Section 7(3) is expressed to be subject to sub-sections (1), (1A) and (2). Sub-section (2)(a) says Schedule III activities are neither a supply of goods nor of services, so the power under (3) cannot override this. It also covers both treatments, supply of goods and not services, or services and not goods, so the last option is wrong.

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