Section 7 Scope of Supply under Goods and Services Tax Act, 2017

Section 7 Scope of Supply under Goods and Services Tax Act, 2017

Bare Act

* Section 7. Scope of supply.-

(1) For the purposes of this Act, the expression - "supply" includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

1[(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation .-For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;]

(b) import of services for a consideration whether or not in the course or furtherance of business; 2[and]

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

5[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]

(2) Notwithstanding anything contained in sub-section (1),-

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, 

shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of 6[sub-sections (1), (1A) and (2)], the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as -

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.

Explaination of the above section

1. The term "supply" refers to various ways in which goods or services are provided. It includes actions like selling, transferring, exchanging, licensing, renting, or disposing of goods or services for a payment, done by a person in the course of their business.

2. It also includes activities or transactions between a person and its members or constituents, where they exchange things of value. This is treated as if the person and its members or constituents are separate individuals, and the supply is considered to be from one person to another.

3. Importing services, whether or not it is for business purposes, is also considered as a supply.

4. Some activities specified in Schedule I are considered as supply, even if they are done without receiving any payment.

5. In certain cases, activities or transactions can be treated as either a supply of goods or a supply of services, as mentioned in Schedule II.

6. However, there are certain activities or transactions listed in Schedule III that are not treated as supply, and they are neither considered as a supply of goods nor a supply of services. Additionally, activities or transactions carried out by the Central Government, State Government, or any local authority as public authorities may also be exempt from being considered as supply.

7. The Government has the authority to specify, through notifications based on the recommendations of the Council, which transactions should be treated as a supply of goods or a supply of services.

Please note that this explanation provides a simplified understanding of the text and should not be considered as a legal interpretation. For precise details and legal advice, it is recommended to refer to the official CGST Act or consult a legal professional.

Examples

1. Forms of Supply:

(a) Sale: A company selling a product to a customer.

Example: A retail store selling a smartphone to a customer for a specified price.

(b) Transfer: An individual transferring ownership of a property to another person.

Example: John transferring the ownership of his car to Mary.

(c) Barter: Two individuals exchanging goods without involving money.

Example: Sarah exchanging her bicycle with Tom's skateboard.

(d) License: Granting permission to use intellectual property or certain rights.

Example: A software company licensing its software to a customer for a fee.

(e) Rental: A landlord renting out a property to a tenant.

Example: An apartment owner renting out their apartment to a tenant for a monthly rental fee.

(f) Lease: Leasing equipment or assets for a specified period.

Example: A company leasing heavy machinery to another company for a fixed term.

(g) Disposal: Getting rid of assets or goods.

Example: A business disposing of old office furniture by selling it to a second-hand furniture store.

(aa) Activities or transactions between a person and its members or constituents:

Example: A club charging membership fees to its members for access to facilities and services.

(b) Import of Services:

Example: A consulting firm in India paying for marketing services provided by a digital marketing agency based in the United States.

(c) Activities specified in Schedule I made without a consideration:

Example: A father providing a service to his son, such as tutoring, without charging any fees.

(1A) Classification as Supply of Goods or Supply of Services:

Example: A construction company building a residential complex. The construction work would be treated as a supply of services, while the sale of the completed apartments would be treated as a supply of goods.

Activities or Transactions Not Considered Supply:

(a) Activities specified in Schedule III:

Example: A person transferring ownership of personal goods as a result of death or inheritance.

(b) Activities or transactions undertaken by the Central Government, State Government, or local authorities as public authorities:

Example: Services provided by a government-run hospital or a public school.

These examples are simplified and intended to provide a general understanding of the concepts. The actual interpretation and application of the provisions may vary based on specific circumstances and the full context of the Act.