Under the pre-GST indirect tax system, India followed multiple taxable events. Excise Duty was levied on manufacture, VAT/CST on sale of goods, and Service Tax on the provision of services. This fragmented structure often resulted in double taxation and a cascading effect of taxes.
With the introduction of the Goods and Services Tax (GST), all these taxes were merged into one unified system. GST introduced a single taxable event known as “Supply.”
If there is no supply, there is no GST.
For commerce students, CA/CS aspirants, and accounting professionals, understanding Section 7 of the CGST Act, 2017 is the first and most important step in learning GST.
1. What Constitutes a “Supply” under GST?
As per Section 7(1)(a) of the CGST Act, a transaction is treated as a supply if it satisfies the following three essential conditions (pillars):
(i) Supply of Goods or Services
The transaction must involve:
- Goods – Movable property such as books, laptops, furniture, etc.
- Services – Anything other than goods, money, and securities (e.g., teaching, consultancy, transport).
(ii) Consideration
Normally, there must be a consideration, meaning payment in:
- Money
- Kind
- Exchange or barter
Example: Selling goods for cash, exchanging goods for services, or adjusting dues are all treated as valid consideration under GST.
(iii) In the Course or Furtherance of Business
The supply must be related to business activities such as:
- Trade or commerce
- Profession or vocation
- Manufacturing or service activities
Personal transactions (such as selling old household goods) are generally not treated as supply, unless specifically covered under GST law.
2. Supply Without Consideration – Schedule I
As a general rule, no consideration means no GST. However, Schedule I of the CGST Act specifies certain transactions that are treated as supply even if no consideration is involved.
Important Cases Covered under Schedule I
(i) Permanent Transfer of Business Assets
If input tax credit (ITC) has already been claimed on a business asset and it is later transferred or disposed of free of cost, such transfer is treated as a taxable supply.
(ii) Supply Between Related or Distinct Persons
Examples include:
- Stock transfer between branches registered in different states
- Supply between head office and branch
- Transactions between related persons made in the course of business
(iii) Principal and Agent Transactions
Supply of goods between a principal and an agent (or vice versa) made in the course of business is treated as supply under GST.
3. Composite Supply vs Mixed Supply
In practical business situations, goods and services are often supplied together. GST classifies such bundled supplies into Composite Supply and Mixed Supply.
A. Composite Supply
A composite supply consists of:
- Two or more taxable supplies
- Naturally bundled and supplied together
- One main supply called the Principal Supply
Example:
- Laptop supplied with charger and warranty
- Hotel accommodation with breakfast
Tax Treatment: GST rate applicable to the principal supply is applied to the entire bundle.
B. Mixed Supply
A mixed supply consists of:
- Two or more independent goods or services
- Not naturally bundled
- Supplied together for a single price
Example:
- Gift hamper containing canned juice, chocolates, and dry fruits
Tax Treatment: The entire bundle is taxed at the highest GST rate applicable to any item in the package.
4. Why Is the Concept of “Supply” Important?
Identifying a supply is the starting point of GST compliance. It directly impacts:
- Time of Supply – Determines when GST liability arises
- Place of Supply – Determines whether IGST or CGST + SGST is applicable
- Value of Supply – Determines the amount on which GST is calculated
Without identifying a supply, GST cannot be levied.
Summary for Commerce Students
Think of “Supply” as the gateway to GST. Before calculating tax or filing returns, always ask:
- Is it a supply of goods or services?
- Is there consideration or does it fall under Schedule I?
- Is it in the course or furtherance of business?
If the answer is YES, GST applies.
Mastering the concept of supply makes GST law logical, structured, and easy to understand for exams and real-life practice.