Section 7 – Scope of supply
Section 7 of CGST Act, 2017 – Scope of Supply
Updated on: February 2026
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 7
Section 7(1):
For the purposes of this Act, the expression “supply” includes:
- 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
- In the course or furtherance of business
Section 7(1)(b):
Import of services for a consideration whether or not in the course or
furtherance of business.
Section 7(1)(c):
Activities specified in Schedule I, made or agreed to be made
without a consideration.
Section 7(2):
Activities specified in Schedule III or notified by Government
shall be treated neither as supply of goods nor supply of services.
Section 7(3):
The Government may, on the recommendations of the Council,
specify transactions to be treated as supply of goods or supply of services.
2. What is the Meaning of “Supply”?
Supply is the taxable event under GST. If an activity does not qualify as “supply” under Section 7, GST cannot be levied.
Thus, Section 7 is the foundation of GST levy.
3. Essential Ingredients of Supply (Section 7(1)(a))
For an activity to qualify as supply, the following conditions must be satisfied:
- There must be goods or services or both
- There must be consideration
- It must be in the course or furtherance of business
If any of the above elements is missing, the activity may fall outside GST.
4. Supply Without Consideration – Schedule I
Certain activities are treated as supply even without consideration, if they fall under Schedule I, such as:
- Permanent transfer of business assets where ITC has been availed
- Supply between related persons or distinct persons
- Supply by principal to agent or vice versa
This deeming fiction is very important in departmental audits.
5. Activities Neither Supply of Goods nor Services – Schedule III
Schedule III excludes certain activities from GST, such as:
- Services by an employee to employer in course of employment
- Sale of land and completed building
- Actionable claims other than lottery, betting and gambling
If an activity falls under Schedule III, GST is not applicable at all.
6. Import of Services – Special Treatment
Import of services is treated as supply even if not in course or furtherance of business, provided consideration is involved.
This is relevant for:
- Personal imports of services
- Online subscriptions
- Foreign consultancy services
7. Section 7 Read with Relevant CGST Rules
Section 7 must be read together with the following CGST Rules:
- Rule 27 – Value of supply where consideration is not wholly in money
- Rule 28 – Value of supply between related persons or distinct persons
- Rule 29 – Value of supply through agent
- Rule 30 – Value based on cost
- Rule 31 – Residual method for valuation
These rules help determine the taxable value once an activity qualifies as supply under Section 7.
8. Litigation Aspects of Section 7
Most GST disputes originate from Section 7, especially on:
- Whether an activity is supply or not
- Whether it is goods or services
- Whether consideration exists
Courts have repeatedly held that GST cannot be levied unless the transaction qualifies as supply.
9. Related Provisions
- Section 2 – Definitions
- Section 8 – Composite and Mixed Supply
- Section 9 – Levy and Collection of Tax
10. Professional Tip
Always first test a transaction on the touchstone of Section 7. If it does not qualify as “supply”, the question of valuation, rate or ITC does not arise at all.
Disclaimer: This article is for educational and professional reference only. Readers are advised to consult a tax professional before taking any action.
Section 7 – Scope of supply
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