The Meaning and Scope of Supply – Section 7
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GST
The Meaning and Scope of Supply (Section 7)
Section 7(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;
(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. [Clause (aa) inserted vide Finance Act, 2021, w.r.e.f 1st July 2017]
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 cons
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ration and production activities on behalf of the JV.
On the other hand, in example B, the operating member uses its own machinery and is therefore providing 'service' within the scope of supply of CGST Act, 2017. This is because in this scenario, the operating member is recovering the cost appropriated towards machinery and services from the other JV members in their participating interest ratio.
(b) import of services for a consideration whether or not in the course or furtherance of business is considered as supply, even if the transaction does not involve consideration, it still falls under the scope of supply.
(c) the activities specified in Schedule I, made or agreed to be made without a consideration. Some examples are permanent transfer/disposal of business assets where ITC is availed on such assets, supply of goods/services/both between related persons etc.
Commentary : Supply is an important event determining the taxability of all transactio
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se agreed to be 'made' signifies that tax is not only payable on supply, that has already been made, but would also be payable in respect to a supply that has been agreed to be made. Hence, even advances received prior to supply is taxable even if the same is in 2 connection to a supply agreed to be made.
Important Notification & Clarification
• Clarification on Supply of goods or services in respect of warranty replacement of parts and repair services during warranty period, whether it is supply or not and that is liable to pay GST or not. [ Circular No. 195/07/2023-GST dated 17.07.2023 ]
• The original equipment manufacturers /suppliers offer warranty for the goods / services supplied by them. During the warranty period, replacement goods /services are supplied to customers free of charge and as such no separate consideration is charged and received at the time of replacement.
• In respect of GST liability as we
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ch a situation, the salvage becomes the property of Insurance Company after settling the claim for the full amount and the insurance company is obligated to deal with the same or dispose of the same. In such cases, the outward GST liability on disposal/sale of the salvage is to be discharged by the insurance companies.
• In case where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as deductibles from the claim amount, the salvage remains the property of insured and insurance companies are not liable to discharge GST liability on the same.
• In such Situation where the insurance claim is settled on full claim amount, without deduction of value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer.
• Clarificatio
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n Medical Association, Kerala Versus Union Of India 2025 (4) TMI 872 – Kerala High Court ]
Section 7(1A) – Deemed supply
Inserted by Finance Act, 2018 w.e..f. 1.7.2017 where certain activities or transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
• Following services are treated as deemed supply:
• Barter system.
• Permanent transfer or disposal of business assets.
• Supply of goods/services between related person or distinct person as defined in section 25.
• Principal supply of goods to his agents.
• Agents supplying goods to his principal.
• Import of services either from related person or any establishment outside India.
Section 7(2) – No supply
• Activities or transactions specified in Schedule III shall be treated neither
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upply of service.
• Clarification on GST on license fee charged by the States for grant of Liquor licences to vendors. [ Circular No. 121/40/2019-GST dated 11.10.2019 ]
• Case law
• IN RE: M/S. TIRUPPUR CITY MUNICIPAL CORPORATION (2021 (6) TMI 562 – Authority For Advance Ruling, Tamilnadu)
• The activity (1) Fee from Parks; (2) Market fee-daily; (3) Market fee-weekly; or Fish – Fee weekly (4) Fees for bays in bus-stand; (7) Slaughter house fees; (8) Fees on pay & use toilets; (9) – Cycle stand, Scooter, auto stand in the bus-stand are activities etc. in relation to functions entrusted under Article 243G and Article 243W of the Constitution and are treated as neither supply of goods nor services when provided by the applicant as 'Public authority' as per Notification No. 14/2017-C.T.(Rate) dated 28th June 2017 as amended time to time.
• Howsoever In respect of activity Locker Rent in the bus-stand
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