Scope Of Supply In GST: Key Insights

The “Scope of Supply in GST” is the heart of the Goods and Services Tax (GST) regime in India, defined under Section 7 of the CGST Act, 2017. It determines which transactions attract GST by broadly covering different forms of supply of goods or services—sale, transfer, barter, exchange, licence, rental, lease, or disposal—made for consideration in the course or furtherance of business.

Even without consideration, certain transactions (listed in Schedule I) such as branch transfers, supplies between related/distinct persons, and import of services from overseas related entities treated as supply.

Schedule II clarifies whether a transaction is supply of goods or services (e.g., works contracts and leasing are services), while Schedule III excludes specific activities like employee services, sale of land, and completed buildings from the tax net.

This inclusive yet precise definition ensures almost every business transaction falls within the GST ambit, enabling seamless input tax credit while preventing revenue leakage.

What Is Supply In GST?

In GST, the word “Supply” is the most important term because GST is chargeable only when there is a “supply”. It is the taxable event (just like “sale” was the taxable event under old VAT or excise laws).

As per Section 7 of the CGST Act, 2017, a transaction will be called “supply” if it falls in any one of the following four situations:

1. Normal Business Supply (with payment) Any sale, transfer, barter, exchange, license, rental, lease, or disposal of goods or services done for money (consideration) and in the course or furtherance of business. Example: You sell goods to a customer, rent out a shop, or provide consulting services – all these are supply because money is receivable in business.
2. Supply Without Money (still taxable) Even if no money is payable, certain transactions treatable as supply (Schedule I). Common examples:
   • Stock transfer from head office in one state to branch in another state
   • Free goods/services given to sister/related company
   • Services received free from a foreign branch/sister company These are taxable because GST law wants to stop leakage of input tax credit.

Importance Of Understanding The Scope Of Supply In GST

Understanding the scope of supply (Section 7 + Schedules I, II & III) is absolutely critical for every taxpayer, professional, and business in India.  The Scope Of Supply In GST is crucial for your brand value. Here’s why it matters so much:

1. Decides Whether The GST Is Payable Or Not

GST is levied only when there is a “supply”. If a transaction falls outside the scope of supply (e.g., salary, sale of land, gift to unrelated person), no GST applies at all — even if money involvement is there.

2. Prevents Costly Mistakes & Penalties

Wrongly treating a transaction as “non-supply” (when it is actually a supply) or vice-versa leads to short/non-payment of tax, interest @18%, and heavy penalties (up to 100% or more).

3. Correct Availment Of Input Tax Credit

ITC is available only on inputs usable for taxable/outward supplies. If you wrongly treat a transaction as supply, you may block or reverse ITC unnecessarily (or vice-versa).

4. Determines Place Of Supply & Type Of GST

Whether a transaction is intra-State (CGST+SGST) or inter-State (IGST) depends on whether it is a supply and its nature (goods or services). Wrong classification can lead to payment of wrong tax.

5. Impacts Valuation Tax Rates

Many valuation rules (e.g., open market value for related-person transactions) apply only when it is a supply without consideration (Schedule I).

6. Critical For Compliance In Tax Transactions

• Stock transfers, branch transfers
• Free samples, gifts, CSR expenses
• Works contracts, composite/mixed supplies
• Liquidatable damages, penalties, advances. All these are correctly there only if you know the scope of supply.

7. Foundation For Litigation & Advance Rulings

Most GST disputes and AAR cases (e.g., Safari Retreats, CMS Info Systems) revolve around “whether there is a supply or not”.

Characteristics Of Taxable Supply

For any transaction to be callable as a Taxable Supply and attract GST (CGST + SGST or IGST), it must satisfy ALL the following six essential characteristics at the same time. If even one is missing, the transaction will either be non-taxable, exempt, or completely outside GST.

1. Supply Of Goods Or Service Or Both

There must be a supply of “goods” (as defined u/s 2(52)) or “services” (as defined u/s 2(102)) or both. Money, securities, and items listing in Schedule III are not goods/services.

2. The Transaction Must Fall within the Scope of Supply (Section 7 of CGST Act)

The transaction must qualify as “supply” under:

• Section 7(1)(a) — normal supply for consideration in course/furtherance of business, or
• The Section 7(1)(b) read with Schedule I — specified activities even without consideration (branch transfer, supply to related/distinct persons, etc.), or
• Section 7(1)(c) read with Schedule II — activities treated as supply of goods or services (works contract, leasing, etc.).

3. Made For Consideration

In normal cases there must be consideration (money or non-monetary).

4. Made For The Course Of Furtherance Of Business

The supply must be connecting with the business of the supplier. Purely personal or non-business transactions (e.g., gift by an individual to his friend, personal car sold by proprietor) are not taxable. The term “business” is very widely defined u/s 2(17) and includes profession, vocation, and even adventure in the nature of trade.

5. Made By A Taxable Person

The supplier must be a “taxable person” as defined u/s 2(107) — i.e., a person who is registered or liable to be registered under GST.

Important: In Schedule I cases (e.g., inter-state branch transfer), even if turnover is below threshold, the transaction is still taxable and the person becomes liable to register.

6. The Transaction Must Not Be There In Schedule III

Schedule III contains activities that are treatable as neither a supply of goods nor a supply of services. Common examples:

• Services by employee to employer in the course of employment
• Services by court/tribunal
• Duties performed by MP/MLA, etc.
• Sale of land and sale of completed building (after completion/occupancy certificate)
• Actionable claims (except lottery, betting, gambling)
• Funeral services, etc. If a transaction falls in Schedule III, no GST applies even if all other five conditions are satisfied.

Types Of Supply Under GST

GST classifies “supply” into various types based on different criteria. Understanding these types is essential because each type has different rules for tax rate, place of supply, ITC eligibility, invoicing, and compliance.

1. Based On Taxability

• Taxable Supply: Normal supplies that attract GST at 5%, 12%, 18%, or 28%. Example: Mobile phone sale, restaurant food, professional fees.
• Zero-Rated Supply: Tax rate is 0%, but ITC is fully allowed (best for exporters). Includes: – Export of goods/services – Supply to SEZ units/developers – Deemed exports (rare)
• Nil-Rated Supply: Certain items are specifically listed as 0% in the rate schedule (e.g., fresh milk, salt, non-branded atta, fresh fruits, cereals, judicial stamp paper). ITC is NOT allowed.
• Exempt Supply: Supplies exempted through notifications (e.g., educational services by government schools, clinical establishment services, public transport, agricultural services). No ITC allowed.
• Non-Taxable Supply: Completely outside GST scope (Schedule III) — e.g., salary to employees, sale of land, sale of completed building, services by court/tribunal.

2. Based On Consideration

• Supply with Consideration: Normal business transactions where money or money’s worth is received.
• Supply without Consideration (Deemed Supply): Schedule I transactions — taxable even if free:
• Permanent transfer of business assets (where ITC was taken)
• Supply between related/distinct persons in business (e.g., HO to branch)
• Principal–agent supply
• Import of services from related person/foreign branch

3. Based On Nature Of Supply

• Supply of Goods: Defined in Schedule II (e.g., transfer of title in goods).
• Supply of Services: Anything that is not goods (residual definition).
• Composite Supply: Naturally bundled supplies where one is principal supply (taxed at the rate of principal item). Example: Laptop + pre-installed software + bag (principal is laptop → 18%).
• Mixed Supply: Two or more individual supplies for a single price, not naturally bundled → taxed at highest rate. Example: Gift hamper containing chocolate (18%), dry fruits (5%), and diary (12%) → whole hamper taxed at 18%.

4. Based On Location

• Intra-State Supply: Supplier and place of supply in same state → CGST + SGST.
• Inter-State Supply: Supplier and place of supply in different states → IGST.
• Import of Goods/Services: Treated as inter-State → IGST + customs duty (if goods).
• Export of Goods/Services: Treated as inter-State but zero-rated.
• Supply to/from SEZ: Treated as inter-State and zero-rated.

5. Based On Continuity

• Continuous Supply of Goods: Supply over a period with successive payments/statements (e.g., water supply, electricity, gas).
• Continuous Supply of Services: Services provided continuously or recurrently with payment linked to time (e.g., mobile/internet bills, annual maintenance contracts, leasing).

6. Based On Reverse Charge Special Cases

• Reverse Charge Supply (RCM): Recipient pays GST instead of supplier (e.g., GTA services, advocate fees, sponsorship, goods transport agency).
• Supply through E-commerce: Tax Collection at Source (TCS) by operator (1% under Section 52).
• Voucher Supply: Single-purpose voucher = goods/services at the time of issue; multi-purpose voucher = when redeemed.

Place Of Supply Under GST

The Place of Supply (POS) is the single most important concept after “supply” because it decides:

• Whether the supply is Intra-State (CGST + SGST/UTGST) or Inter-State (IGST)
• Which state gets the tax revenue
• Correct tax type and rate on the invoice

POS provisions are contained in Chapter V of the IGST Act, 2017 (Sections 10 to 13).

A. Place of Supply of GOODS (Sections 10 & 11)

• Goods involving movement (sale, stock transfer, etc.) → POS = Place where movement of goods terminates for delivery to the recipient (i.e., buyer’s/branch’s location).
• Goods supplied without movement (sold from shop/warehouse, recipient takes delivery himself) → POS = Location of the goods at the time of delivery to recipient.
• Bill-to-Ship-to transactions (A instructs B to deliver goods to C) → POS = Ship-to party’s address (C’s location).
• Goods supplied on board a conveyance (train, vessel, aircraft, bus) → POS = Location at which goods are taken on board.
• Goods requiring installation or assembly at site (machinery, lift, plant) → POS = Place of installation/assembly.
• Supply to SEZ or Export of goods → POS = Location of SEZ or destination outside India → zero-rated.

B. Place of Supply of SERVICES (Sections 12 & 13)

Section 12 – When both supplier and recipient are in India

Section 13 – When either supplier or recipient is outside India

1. Default / General Rule (when no specific rule applies)

• If recipient is registered → Location of recipient (state of GSTIN)
• If recipient is unregistered → Location of recipient (if address on record exists); otherwise → Location of supplier

2. Services directly linked to Immovable Property

(construction, architect, interior decorator, hotel accommodation, rent, etc.)

→ POS = Location of the immovable property

(Even if recipient is in another state, tax goes to property state)

3. Training, Events, Seminars, Exhibitions, Performances

→ POS = Place where the event/training is actually held

4. Restaurant, Catering, Beauty Treatment, Health & Fitness Services

→ POS = Place where the service is physically performed. 

5. Passenger Transportation Services

→ POS = Place where the passenger embarks on the conveyance for a continuous journey

6. Services supplied on board a conveyance (flight, cruise)

→ POS = First scheduled point of departure of that conveyance

7. Telecommunication Services (mobile, internet, DTH)

→ POS =

• Pre-paid → Place where payment is receivable / voucher saleable.
• Post-paid → Billing address of recipient on record
• Fixed line → Place of installation

Time Of Supply

Time of Supply (TOS) is the point when GST becomes payable and liability is created. It decides when you have to pay tax, raise invoice, and report in GSTR-1 & GSTR-3B. It is also called the “point of taxation”.

GST has separate rules for goods and services, but the principle is the same: tax is payable on the EARLIEST of the following dates.

1. Time Of Supply Of Goods

The liability arises on the earliest of these four dates:

1. Date of Invoice (or the last date by which invoice should have been issued u/s 31)
2.  Payment Date (date when payment is entered in books of supplier OR credited to supplier’s bank account — whichever is earlier)
3. Date of Removal (only if invoice is not issued at the time of removal) (applicable when goods have to be moved before delivery)
4. When goods are made available Date to the recipient (when no movement is involved)

2. Time Of Supply Of Services

Liability arises on the earliest of these three dates:

1.  Invoice  Date (if invoice is issued within 30 days (45 days for banks/insurers) from date of provision of service)
2. Date of Provision of Service (if invoice is not issued within the prescribed time)
3. Payment  Date (entry in books OR bank credit — whichever is earlier)

Special Cases

• Reverse Charge (RCM) → Date of service receipt OR date of payment OR 61st day from supplier’s invoice — whichever is earliest.
• Voucher (single-purpose) → Date of issue; multi-purpose → date of redemption.
• Interest/Late fee for delay in payment → Date when such amount is receivable.

3. Time Of Supply Of Special Situation

When there is change in rate of tax (Rate Change cases):

4. Practical Examples

FAQ( Frequently Asked Questions)

1. What is the single most important section for “supply” in GST?

Section 7 of the CGST Act, 2017 read with Schedules I, II & III.

2. Is free gift to customers a supply?

No, if given to unrelated persons and not covered under Schedule I. Yes, if given to related persons or distinct persons (different GSTIN) in course of business.

3. Is stock/branch transfer taxable under GST?

Yes. Inter-state stock transfer to branch (different GSTIN) is taxable under Schedule I, Para 2 (even without consideration).

4. Is salary to employees taxable?

No. Services by employee to employer in course of employment are in Schedule III → neither goods nor services.

5. Is sale of land or completed building taxable?

No. Both are listed in Schedule III → completely outside GST.

Final Takeaway

Hence, these are some of the crucial facts regarding scope of supply in GST. You must get through the details of the same while meeting your requirements with complete ease. Additionally, you must get through the process to meet your goals with ease.

You can share your comments and views in our comment box. This will help us to know your take on this matter. Here, proper planning holds the key. Try to develop the best solution that can make things work perfectly well in your way.

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