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SECTION 7 – SCOPE OF SUPPLY

(Section 7 of the Central Goods and Services Tax Act, 2017)

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1. BARE PROVISION (SECTION 7 – FULL STRUCTURE SIMPLIFIED)

Section 7(1)

Supply includes:

(a)

All forms of supply of goods or services such as
sale, transfer, barter, exchange, license, rental, lease or disposal
made for consideration in the course or furtherance of business

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(b)

Import of services for consideration whether or not in the course or furtherance of business

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(c)

Activities specified in Schedule I made without consideration

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(d)

Activities treated as supply of goods or supply of services as per Schedule II

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Section 7(1A)

Activities specified in Schedule II shall be treated either as supply of goods or supply of services.

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Section 7(2)

Notwithstanding Section 7(1), the following are not supply:

(a)

Activities specified in Schedule III

(b)

Activities undertaken by Government as public authority (as notified)

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Section 7(3)

Government may specify transactions to be treated as
supply of goods or supply of services

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2. DETAILED EXPLANATION IN EASY LANGUAGE

Section 7 is the most important section in GST because GST is charged only when there is a “supply”.

It explains
what is supply
what is not supply
and classification of supply

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Section 7(1)(a) – Main Clause

If goods or services are provided for money in business, it is supply.

Example

A shop selling clothes to customers
A company providing consultancy services

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Section 7(1)(b) – Import of Services

Even if service is used personally, GST applies.

Example

A person takes online coaching from a foreign teacher and pays fees

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Section 7(1)(c) – Supply Without Consideration

Some transactions are taxable even without payment.

Example

Transfer of goods between branches of same company
Free samples given to dealers

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Section 7(1)(d) and 7(1A) – Schedule II

This helps classify whether a transaction is goods or services.

Example

Renting a house is treated as service
Sale of goods is treated as goods

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Section 7(2) – Not a Supply

Some activities are not treated as supply.

Example

Services by employee to employer
Functions of government like police services

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Section 7(3) – Government Power

Government can decide classification of supply.

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3. IMPORTANT SCHEDULES LINKED WITH SECTION 7

Schedule I – Supply Without Consideration

Examples
Transfer between branches
Supply to related persons
Import of services from related person

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Schedule II – Goods or Services

Examples
Sale of goods
Lease treated as service

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Schedule III – Not Supply

Examples
Services by employee
Sale of land
Funeral services

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4. PROBLEM-BASED QUESTIONS (VERY IMPORTANT)

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Problem 1

A company transfers goods from Delhi branch to Mumbai branch without payment. Is it supply?

Answer

Yes
Under Section 7(1)(c) and Schedule I, it is supply even without consideration.

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Problem 2

A person buys online software service from USA for personal use. Is it supply?

Answer

Yes
Under Section 7(1)(b), import of services is supply even if not for business.

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Problem 3

Employer pays salary to employee. Is it supply?

Answer

No
Under Schedule III, services by employee to employer are not supply.

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Problem 4

A shopkeeper gives free samples to customers. Is it taxable?

Answer

Yes
It is supply under Schedule I.

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Problem 5

Government provides police protection. Is it supply?

Answer

No
It is not supply under Section 7(2).

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5. IMPORTANT CASE LAWS (DETAILED)

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1. Commissioner of Central Tax v. Safari Retreats Pvt. Ltd.

Facts

Company constructed a shopping mall and rented it out.

Issue

Whether input tax credit is allowed and whether activity is supply.

Judgment

Court allowed ITC and recognized business use.

Easy Understanding

Activities connected to business are treated as supply under GST.

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2. Mohit Minerals Pvt. Ltd. v. Union of India

Relevance to Section 7

Court discussed concept of supply and levy together.

Easy Understanding

GST must be applied only when valid supply exists.

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3. Bharat Sanchar Nigam Ltd. v. Union of India

Relevance

Helps understand difference between goods and services.

Easy Understanding

Important for classification under Schedule II.

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6. PRACTICAL COMBINED EXAMPLE

A company manufactures goods and transfers them to its branch without payment.

Step 1
Check Section 7 → It is supply

Step 2
Check Schedule I → Supply without consideration

Step 3
GST is applicable

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7. CONCLUSION

Section 7 defines the scope of supply and is the foundation of GST law. It determines when GST is applicable and when it is not.

It includes supply with consideration, supply without consideration, import of services, and excludes certain activities.

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EXAM TIP

Always write:

Section 7(1)(a) normal supply
Section 7(1)(b) import
Section 7(1)(c) without consideration
Section 7(2) not supply
Schedules I, II, III

Add 2 problems and 1 case law for high marks.