The Central Goods and Services Tax Act, 2017
Chapter-III Levy and Collection of Tax
Section 7: Scope of supply.
7. (1) For the purposes of this Act, the expression “supply” includesC1–
(a) all forms of supplyC2 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 withoutC11 a consideration; 3[***]
(d) 4[***]
2[(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.]C3
(2) Notwithstanding anything contained in sub-section (1),-
(a) activities or transactions specified in Schedule III;C3 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 notifiedn1 C4 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 5[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.
References
Enforcement:
Enforced w.e.f. July 01, 2017 [Notification No. G.S.R. 658(E) dated 28.06.2017].
Amendments:
1. Inserted by Finance Act, 2021, w.e.f. 01.07.2017 and shall always be deemed to have been inserted w.e.f. 01.07.2017, [the Finance Act, 2021 enforced w.e.f. 01.01.2022 vide Notification No. 39/2021–Central Tax dated 21.12.2021].
2. Inserted by Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 01.07.2017 and shall always be deemed to have been inserted, [the Amendment Act, 2018 enforced w.e.f. 01.02.2019 vide Notification No. 2/2019–Central Tax dated 29.01.2019].
3. Omitted by Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 01.07.2017 and shall always be deemed to have been omitted, [the Amendment Act, 2018 enforced w.e.f. 01.02.2019 vide Notification No. 2/2019–Central Tax dated 29.01.2019], the word “and”.
4. Omitted by Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 01.07.2017 and shall always be deemed to have been omitted, [the Amendment Act, 2018 enforced w.e.f. 01.02.2019 vide Notification No. 2/2019–Central Tax dated 29.01.2019], the clause:
“(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.”
5. Substituted by Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 01.07.2017 [the Amendment Act, 2018 enforced w.e.f. 01.02.2019 vide Notification No. 2/2019–Central Tax dated 29.01.2019], for the words “sub-sections (1) and (2)”.
Notifications:
n1. Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G or to a Municipality under article 243W shall be treated neither as a supply of goods nor a supply of service.[Notification No. 14/2017-Central Tax (Rate) dated 28th June, 2017]. Service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called undertaken by the State Governments in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of service.[Notification No. 25/2019-Central Tax (Rate) dated 30th September, 2019]
Circulars:
C1. The law with regard to levy of GST on service supplied by member of an unincorporated joint venture (JV) to the JV or to other members of the JV, or by JV to the members, essentially remains the same as it was under service tax law. Thus, it is clarified that the clarification given vide Board Circular No. 179/5/2014-ST dated 24.09.2014 in the context of service tax is applicable for the purpose of levy of GST also. It is reiterated that the question whether cash calls are taxable or not will entirely depend on the facts and circumstances of each case. ‘Cash calls’ are raised by an operating member of the joint venture on other members in proportion to their participating interests in the joint venture(unincorporated) to meet the expenditure on the operations to be carried out as per the approved work programme and budget. [Circular No. 35/9/2018-GST dated 05.03.2018]
C2. Samples which are supplied free of cost, without any consideration, do not qualify as ‘supply’ under GST, except where the activity falls within the ambit of Schedule I of the CGST Act.[Circular No. 92/11/2019-GST dated 07.03.2019]
C3. The activity of transfer of tenancy right against consideration in the form of tenancy premium is a supply of service liable to GST. It is a form of lease or renting of property and such activity is specifically declared to be a service in para 2 of Schedule II i.e. any lease, tenancy, easement, licence to occupy land is a supply of services. The transfer of tenancy rights cannot be treated as sale of land or building declared as neither a supply of goods nor of services in para 5 of Schedule III to CGST Act, 2017. Thus a consideration for the said activity shall attract levy of GST.[Circular No.44/18/2018-CGST dated 02.05.2018]
C4. The inter-state movement of goods like movement of various modes of conveyance, between distinct persons as specified in section 25(4) of the Central Goods and Services Tax Act, 2017, including the ones specified at (i) to (viii) of para 3 of the Circular, may not be treated as supply and consequently IGST will not be payable on such supply. [Circular No. 1/1/2017-IGST dated 07.07.2017]. The circular 1/1/2017-IGST shall mutatis mutandis apply to inter-state movement of such goods, and except in cases where movement of such goods is for further supply of the same goods, such inter-state movement shall be treated ‘neither as a supply of goods or supply of service,’ and consequently no IGST would be applicable on such movements.[Circular No. 21/21/2017-GST dated 22.11.2017]
C5. Whether moulds and dies owned by Original Equipment Manufacturers (OEM) that are sent free of cost (FOC) to a component manufacturer is leviable to tax and whether OEMs are required to reverse input tax credit in this case?, refer Circular No. 47/21/2018-GST dated 08.06.2018.
C6. Scope of Principal-agent relationship in the context of Schedule I of the CGST Act. [Circular No. 57/31/2018-GST dated 04.09.2018]. For del-credere agent (DCA), refer Circular No. 73/47/2018-GST dated 05.11.2018.
C7. The activity of sending / taking the goods out of India for exhibition or on consignment basis for export promotion, except when such activity satisfy the tests laid down in Schedule I of the CGST Act (specified goods), do not constitute supply as the said activity does not fall within the scope of section 7 of the CGST Act as there is no consideration at that point in time. Since such activity is not a supply, the same cannot be considered as ‘Zero rated supply’ as per the provisions contained in section 16 of the IGST Act. [Circular No. 108/27/2019-GST dated 18.07.2019]
C8. Supply of Securities: Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 are not covered in the definition of goods under section 2(52) and services under section 2(102) of the CGST Act. Therefore, a transaction in securities which involves disposal of securities is not a supply in GST and hence not taxable. The explanation added to Section 2(102) is only clarificatory in nature and does not have any bearing on the taxability of the services under discussion (lending of securities) in past since 01.07.2017 but relates to facilitating or arranging transactions in securities. The activity of lending of securities is not a transaction in securities as it does not involve disposal of securities. The lending fee charged from the borrowers of securities has the character of consideration and this activity is taxable in GST since 01.07.2017. The activities of the intermediaries facilitating lending and borrowing of securities for commission or fee are also taxable separately.[Circular No. 119/38/2019-GST dated 11.10.2019]
C9. Director’s Remuneration: Remuneration paid to Independent Directors, or those directors, by whatever name called, who are not employees of the company, is taxable. The part of Director’s remuneration which are declared as ‘Salaries’ in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017. The part of employee Director’s remuneration which is declared separately other than ‘salaries’ in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable.[Circular No. 140/10/2020-GST dated 10.06.2020]
C10. The activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST. [Circular No. 196/08/2023-GST dated 17.07.2023]
C11. Director’s Personal Guarantee: The activity of providing personal guarantee by the Director to the banks/ financial institutions for securing credit facilities for their companies is to be treated as a supply of service, even when made without consideration. However, as per RBI, no consideration can be paid to the director by the company. Hence, the open market value of the said transaction/supply may be treated as zero. In such a scenario, no tax is payable on such supply of service by the director to the company. In cases where the director, who had provided the guarantee, is no longer connected with the management but continuance of his guarantee, the taxable value of such supply of service shall be the remuneration/ consideration provided to such a person/ guarantor by the company, directly or indirectly.[Circular No. 204/16/2023-GST dated 27.10.2023]