Section 7 of CGST Act - Scope of Supply
Section 7 of the Central Goods and Services Tax Act, 2017 defines the statutory scope of "supply", the central concept for determining whether an activity or transaction enters the GST framework.
Updated: 15 September 2026
Meaning of "supply" under Section 7
In practical terms, section 7 asks two questions. First, does the activity or transaction constitute a "supply" under section 7(1), including the specified cases that do not require consideration? Second, if it is a supply, does Schedule II classify it as a supply of goods or a supply of services? Section 7(2) separately excludes specified activities and transactions by treating them as neither supply of goods nor supply of services.
Section 7 - Statutory framework
Section 7(1). For the purposes of the CGST Act, "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;
(aa) 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. For this purpose, the person and its members or constituents are deemed to be separate persons and the supply of activities or transactions between them is 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; and
(c) activities specified in Schedule I, made or agreed to be made without a consideration.
Section 7(1A) - Role of Schedule II
Where an activity or transaction constitutes a supply under section 7(1), section 7(1A) provides that it shall be treated either as a supply of goods or as a supply of services as referred to in Schedule II of the CGST Act. Schedule II therefore operates as a classification provision after the threshold question of supply is satisfied.
Section 7(2) - Activities treated as neither goods nor services
Notwithstanding section 7(1), activities or transactions specified in Schedule III, and notified activities or transactions undertaken by the Central Government, a State Government or a local authority when acting as public authorities, are treated neither as a supply of goods nor a supply of services.
Section 7(3) - Power to classify transactions
Subject to section 7(1) and section 7(2), the Government may, on the recommendations of the GST Council, notify transactions that are to be treated as a supply of goods and not services, or as a supply of services and not goods.
How Section 7 works
| Provision | Function |
|---|---|
| Section 7(1)(a) | Covers supplies for consideration made in the course or furtherance of business. |
| Section 7(1)(aa) | Deems specified member/entity transactions for consideration to be supplies between separate persons. |
| Section 7(1)(b) | Covers import of services for consideration even when not connected with business. |
| Section 7(1)(c) + Schedule I | Brings specified activities within supply even without consideration. |
| Section 7(1A) + Schedule II | Classifies an activity that is already a supply as goods or services. |
| Section 7(2) + Schedule III | Excludes specified activities by treating them as neither goods nor services. |
| Section 7(3) | Allows notified classification of transactions as goods or services on GST Council recommendations. |
Schedule I - Supply without consideration
Schedule I identifies specified transactions that may be treated as supply even when no consideration is charged. Important categories include permanent transfer or disposal of business assets where input tax credit has been availed, certain supplies between related persons or distinct persons in the course or furtherance of business, specified principal-agent supplies of goods, and import of services by a taxable person from a related person or an establishment outside India in the course or furtherance of business.
Schedule II - Supply of goods or supply of services
Schedule II contains classification rules for matters such as transfer of title or rights in goods, land and building transactions, treatment or process applied to another person's goods, transfer of business assets, specified supplies of services, works contracts and restaurant-type composite supplies. It should be read with section 7(1A): an activity must first constitute a supply before Schedule II classifies it as goods or services.
Schedule III - Neither supply of goods nor supply of services
Schedule III contains activities or transactions outside supply for GST purposes, subject to the wording and conditions of the Schedule. Examples include services by an employee to the employer in the course of employment, services by courts or tribunals, specified constitutional/public functions, funeral and related services, sale of land and qualifying sale of completed buildings, and specified transactions involving goods outside India or before home-consumption clearance.
The Schedule has also been amended in relation to actionable claims. The current text excludes actionable claims other than "specified actionable claims", reflecting the changes effective from 1 October 2023.
Important definitions connected with Section 7
Goods: Section 2(52) broadly covers every kind of movable property other than money and securities, while including specified items such as actionable claims and things attached to land agreed to be severed before or under a contract of supply.
Services: Section 2(102) broadly means anything other than goods, money and securities, subject to the statutory inclusions concerning activities relating to the use or conversion of money for a separate consideration and facilitating or arranging transactions in securities.
Consideration: Section 2(31) covers payment in money or otherwise, and the monetary value of an act or forbearance, when made in respect of, in response to, or for the inducement of a supply, subject to the statutory exclusions and proviso.
Business: Section 2(17) is an inclusive definition and extends beyond conventional trade or commerce to the activities specifically listed in that provision.
Practical test for determining supply
For a transaction under the CGST Act, identify the supplier and recipient, determine whether goods, services or both are involved, check consideration and business nexus where required, test the special inclusions in section 7(1), then examine Schedule I. If the activity is a supply, use Schedule II where relevant for goods/services classification. Finally, check section 7(2), Schedule III and any applicable notification before concluding that the transaction is taxable. Tax liability may still depend on other provisions, including exemption, place of supply, time of supply, value and rate.
Related CGST Act provisions
Section 2 - Definitions | Section 8 - Composite and mixed supplies | Section 9 - Levy and collection | Section 15 - Value of taxable supply | Section 16 - Input tax credit