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CMA Intermediate · Direct and Indirect Taxation · Concept of Supply including Composite and Mixed Supplies

Under Section 7 of the CGST Act, 2017, which of the following is correct about how a transaction that is a supply is classified and about transactions excluded from supply?

Activities that are supply under Section 7(1) are classified as goods or services as per Schedule II, while Schedule III activities are treated neither as supply of goods nor of services. Sub-section (3) notification power is subject to sub-section (2), so it cannot override Schedule III.

  1. AActivities in Schedule III may be treated as supply of services if the Government so notifies under sub-section (3)
  2. BWhere activities constitute a supply under sub-section (1), they are treated as supply of goods or services as referred to in Schedule II, while Schedule III activities are neitherCorrect
  3. CSchedule II decides whether a transaction is a supply at all, and Schedule III decides its classification
  4. DActivities of the Central Government as a public authority are always supply of services

Explanation

Section 7(1A) says activities that are supply under sub-section (1) are treated as supply of goods or services per Schedule II. Section 7(2) says Schedule III activities are neither supply of goods nor services, notwithstanding sub-section (1). Sub-section (3) is subject to sub-section (2), so it cannot override Schedule III.

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