This part will only cover the explanation of the inclusive meaning of the word “supply” under the GST Law. The remaining aspects will be discussed in subsequent parts.

  • With the introduction of GST Laws, there has been a paradigm shift in the Indirect Taxation structure in India. In the Pre-GST era that is prior to 01/07/2017, Indirect Taxes were under separate heads and with distinct identifiable taxable events. However the process of subsuming of taxes has led to existence of one single tax namely “The Goods and Services Tax” with a single identifiable taxable event called “Supply”. It sounds so simple that there is only a single taxable event, however on exploring the actual scope, one can understand that it may a single event, but has multiple dimensions covered under its gamut.
  • Taxable event means that particular instance or action which creates the incidence of tax. The levy of tax is on the happening of taxable event, thus for the levy of GST, there has to be an activity taking place called as “Supply”. The Supply may be of Goods or Services or both. So what all exactly falls in under the purview of the word Supply, here is an analysis.

 Section 7 of the CGST Act 2017,

  • 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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
    • (b )Import of services for a consideration whether or not in the course or furtherance of business; and
    • (c) The activities specified in Schedule I, made or agreed to be made without a consideration;
  • (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.
  • (2) Notwithstanding anything contained in sub-section (1),–– (a) activities or transactions specified in Schedule III; 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 notified 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 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.
  • Section 7 had undergone changes vide the CGST Amendment Act 2018, effective from 1/02/2019, the same have been envisaged in the text above.

 Analysis of the Legal Provision:

  • Part I: (Supply includes [a]……. furtherance of business): The meaning of the word “supply” given is by way of an inclusive definition.
  • As defined u/s 2(52) of the CGST Act 2017, Goods means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and Supply of goods or services or both by way of sale, transfer, barter, exchange, license, rental, lease or disposal Made or agreed to be made For a consideration (Exception Schedule I) In the course or furtherance of business things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.
  • As defined u/s 2(102) of the CGST Act 2017, Services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.
  • Sale and Transfer: The terms Sale and Transfer have not been defined under the CGST Act 2017.
    Referring to the provisions of Sale of Goods Act, Indian Contract Act and the meanings envisaged in the VAT/CST Laws, the term “sale of goods/transfer” can be understood as to a change in ownership of goods, whereby there is a transfer of risk and rewards in the goods. In this case the possession may or may not be transferred. Thus sale of goods amounts to “supply”.

    Eg: Goods lying in “A’s” warehouse, sold to “B”. “B” will however further sell such goods from “A’s” warehouse only. In such case, there is sale of goods, even the risk and reward gets transferred, and however, the possession of the goods does not change.

    In case of services, it is referred to as “provision of services” or “rendering of services”, thus the provision/rendering of services, makes the recipient endure the benefits of services against a consideration paid to the supplier of service. Such provision/rendering of service will amount to “supply”.

    Eg: A Chartered Accountant provides project feasibility study services to a Builder for a fees of Rs 1,00,000. In such case there would be a provision of professional services to the builder for a consideration. It will amount to supply of service.
  • Barter and Exchange: In the ancient days, when currency was yet to be recognized, barter system was used in order to facilitate trade. Thus this terminology has an economic history attached to it. Usually the barter use to take place between the commodities which were believed to have the equal values. This concept was only known in case of exchange of “Goods”, as “Service” market per-se did not exist then. However, as envisaged under the GST Law, the term Barter may also be in case of Services. Let us understand how the term “Barter” is relevant under the GST Law.

    Eg: A Chartered Accountant provides Audit services to an entity engaged in selling “Printing and Stationery”. In return he asks the client entity to supply all the printing and stationery required for his office, for the year. The Chartered Accountant does not charge any fees and so also his client does not charge anything for the supply of “Printing and Stationery”.

    In the given case, the Chartered Accountant would not charge fees, so also the supplier of “Printing and Stationery” will not charge anything for the supplies. Let us assume the value of service provided and the printing stationery received in return is Rs 50,000 per annum. In this case, there is a value creation of Rs 1,00,000 (50,000 by Chartered Accountant and Rs 50,000 by the supplier of Printing and Stationery). If the same is not tapped under the levy of GST, then it would lead to a loss of tax on total value created Rs 1,00,000. However now since Barter is a supply (taxable event), even though actually there is no give and take of the consideration amount, GST would be leviable on the entire transaction. Thus a potential revenue leakage on the front of tax collection for the government can be avoided.
  • Exchange: As far as exchange is concerned, it is also a concept similar to Barter. There is however a thin line of difference, in exchange the value of goods/services exchanged for, may not be assumed to be same or will not be of same value. In case of “Exchange” the difference in values of goods/services, is generally settled by way of monetary consideration.

    Eg: Mr X a TV shop owner is willing to buy stock of new TV’s worth Rs 40,000 each, from the manufacturer. The TV manufacturer offers to buy old unsold stock of TV’s in exchange of the new one. Mr X gives his old TV, which is valued at Rs 7,000 and settles the differential consideration for Rs 33,000. In this case, there is a value creation of Rs 40,000 by the manufacturer and there is a value creation of Rs 7000 by Mr X. However if the net consideration is given an effect, then GST will be levied only on Rs 33,000. Therefore in this case, the GST would be leviable on Rs 40,000 by the manufacturer and on Rs 7000 by Mr X.

    Thus, it can be understood that, in case of Barter and/or Exchange transactions, there is a possibility of huge tax revenue leakage. Thus it can be said that the same has been aptly brought under the taxation net.
  • License, Rental, Lease: Any transfer of right to use goods or right to use immovable properties is envisaged under the ambit of License, Rental or Lease. Specifically the common aspect is there is a transfer of rights to enjoy the possession of any goods or to enjoy the possession of immovable property for a consideration would be considered as a supply. Although the terms “License”, “Rental” and “Lease” sound interchangeable, there is minute difference amongst them.

    Eg: Leasing of a warehouse for 5 years.
    Eg: Renting of Plant and Machinery.
    Eg: Licensing agreement to use a copyright or trademark.

    In the above cases, under various instances the transactions amount’s to supply.

  • Dispoal: Any disposal of business asset, for a consideration. In such case the disposal may relate to any business assets. It may be inventory or a fixed asset. Disposal means removing the asset from the business books for any reason be it a sale, write off. However if the consideration (Exception under Schedule I) is absent, there would not be any supply. There are certain exceptions also under Section 17(5), where disposal by way of gift/samples leads to blocked credits (The same is discussed under the Input Tax credits section).


  • Disclaimer: The views provided above are on the basis of our understanding of the GST Laws, Rules and Regulations. The adjudicating or Judicial Authorities may or may not agree with the views expressed above