GST supply meaning Scope of Supply in GST: A Complete Guide to Section 7 of CGST Act

GST Section 7: Understanding the Scope of Supply under GST

       Introduction

The Goods and Services Tax (GST), introduced in July 2017, has changed India’s indirect taxation system by creating a unified, destination-based tax. To understand GST properly, one must know what is considered a “supply” under GST law, because supply is the very foundation on which GST is levied.

This is where Section 7 of the CGST Act, 2017 comes into play. Section 7 defines the Scope of Supply, i.e., what transactions are treated as supply of goods or services and are liable to GST.

In this blog, we’ll break down GST Section 7 in simple words, explore its provisions, examples, exceptions, importance for businesses, and address frequently asked questions.

 

What is Section 7 of the CGST Act?

Section 7 of the Central Goods and Services Tax (CGST) Act, 2017 defines the term “Supply”, which is the taxable event under GST.

In simple terms:

• Supply includes all forms of transactions where goods or services are provided for consideration (payment), in the course of business.
• Some activities are treated as supply even without consideration (like transactions between related parties).
• Certain transactions are considered supply by way of deeming provisions, even if they don’t look like supply in a traditional sense.

Without supply, GST cannot be levied. Hence, Section 7 forms the backbone of GST law.

 

Key Provisions of Section 7

Section 7 has several subsections explaining what is covered under the scope of supply:

1. Section 7(1): Supply Includes

Supply includes all forms of:

1. Sale – Transfer of ownership of goods for a price.
2. Transfer – Giving goods/services to another person (with or without ownership transfer).
3. Barter or Exchange – Goods or services exchanged without money. Example: Trading wheat for rice.
4. License – Allowing someone to use property, goods, or services legally. Example: Software license.
5. Rental – Renting out goods or property.
6. Lease – Granting rights to use goods or property over a period.
7. Disposal – Disposing of business assets, such as selling old machinery.

👉 All of the above qualify as supply when they are for consideration (payment) and in the course of business.

 

2. Section 7(1A): Classification of Goods or Services

The government has the power to decide whether a particular activity is considered as:

• Supply of goods, or
• Supply of services

This classification helps in applying the correct tax rate and compliance rules.

 

3. Section 7(2): Activities Excluded from Supply

Certain activities are not treated as supply under GST. These are mentioned in Schedule III of the CGST Act.

Examples:

• Services by an employee to an employer.
• Sale of land and completed buildings.
• Funeral services.
• Actionable claims (other than lottery, betting, and gambling).

This ensures that only taxable transactions come under GST.

 

4. Section 7(3): Government’s Power

The Government, on the recommendation of the GST Council, may notify specific activities as supply of goods or services.

This allows flexibility to adapt to changing business models and economic needs.

 

Schedule I: Supply Without Consideration

Section 7 also refers to Schedule I of the CGST Act, which covers activities treated as supply even without payment/consideration.

Examples include:

1. Permanent transfer of business assets (like giving machinery for free).
2. Supply between related persons or between distinct persons (e.g., transfer between head office and branch in another state).
3. Supply of goods between principal and agent.
4. Import of services from a related person or from a business outside India (for business purposes).

 

Schedule II: Supply of Goods or Services

Schedule II helps clarify whether a particular activity is to be treated as supply of goods or services.

Examples:

• Renting of immovable property → Supply of services.
• Works contract → Supply of services.
• Transfer of business assets → Supply of goods.

 

Schedule III: Activities Not Treated as Supply

As per Section 7(2), Schedule III specifies activities that are outside GST scope.

Examples:

• Services by an employee to employer (salary).
• Sale of land.
• Sale of completed building.
• Services of MPs, MLAs, Panchayat members, and other constitutional posts.
• Services by courts and tribunals.

 

Examples to Understand Section 7

Let’s simplify Section 7 with some practical examples:

Example 1: Sale of Goods

A shopkeeper sells a mobile phone for ₹20,000. This is a supply of goods, liable to GST.

Example 2: Barter Transaction

A farmer gives 50 kg rice to another farmer in exchange for 30 kg wheat. No money involved, but still considered supply under GST.

Example 3: Employee Salary

An employee receives ₹50,000 per month salary. This is an employment service, which falls under Schedule III and is not taxable under GST.

Example 4: Supply Without Consideration

A company transfers machinery worth ₹5 lakh from its head office in Delhi to its branch in Maharashtra. Even though no payment is made, this is treated as supply under GST.

Example 5: Renting a House

A property owner rents out commercial property for ₹1 lakh/month. This is considered supply of services and attracts GST.

 

Importance of Section 7 for Businesses

1. Defines Tax Liability – Businesses know what transactions are taxable.
2. Avoids Double Taxation – Clarifies whether something is goods or services.
3. Compliance Clarity – Helps businesses issue correct GST invoices.
4. Covers Modern Transactions – Barter, digital services, and free supplies are covered.
5. Prevents Disputes – Provides a structured approach for classification.

 

Challenges in Section 7

While Section 7 is comprehensive, businesses face challenges like:

1. Classification Issues
• Sometimes confusion arises on whether something is goods or services (e.g., software).
2. Free Supplies
• Businesses struggle to determine taxability of free samples or promotional items.
3. Schedule Overlaps
• Differentiating between Schedule II and Schedule III can be confusing.
4. International Services
• Import/export of services creates compliance complexities.

 

Judicial Rulings on Section 7

Courts have interpreted Section 7 in several cases:

• Barter Transactions: Courts confirmed that barter without money still counts as supply.
• Employer-Employee Relationship: Salary and employment contracts are outside GST.
• Free Samples: Some rulings clarified that free samples given for business promotion may not be taxable if covered under Schedule III.

 

Section 7 in Simple Words

To put it simply:

• If you sell, transfer, exchange, rent, lease, or license goods/services → It’s a supply.
• If you provide something free to a related party → it’s a supply.
• If you’re just paying salary or selling land/buildings → it’s not supply.

 

Practical Tips for Businesses

1. Check Schedule I, II, III before classifying transactions.
2. Maintain detailed invoices for all supplies, even barter/exchange.
3. Consult experts for complex cases like works contracts or digital goods.
4. Stay updated with government notifications about reclassification.
5. File returns carefully to avoid penalties due to wrong classification.

 

Benefits of Section 7 for the GST System

• Uniform Definition of supply across India.
• Comprehensive Coverage of traditional and modern transactions.
• Flexibility with government’s power to notify new supplies.
• Transparency for taxpayers and businesses.

 

Conclusion

Section 7 of the CGST Act, 2017 defines the Scope of Supply, making it one of the most important provisions under GST law. It determines what activities are taxable, what is exempt, and how to classify goods and services.

For businesses, understanding Section 7 is crucial for compliance, accurate invoicing, and avoiding penalties. While classification issues may arise, the detailed schedules and judicial guidance help bring clarity.

Overall, Section 7 forms the backbone of GST, ensuring that India’s indirect tax system is fair, transparent, and business-friendly.

 

FAQs on GST Section 7

Q1. What does Section 7 of the CGST Act cover?
It defines the scope of supply, i.e., what transactions are considered as supply of goods or services under GST.

Q2. What is considered supply under GST?
Sale, transfer, barter, exchange, license, rental, lease, or disposal of goods/services in the course of business.

Q3. Is salary taxable under GST?
No, services by an employee to an employer in the course of employment are excluded from supply under Schedule III.

Q4. Is barter considered supply under GST?
Yes, even without money, barter and exchange transactions are considered supply.

Q5. What is Schedule I under Section 7?
Schedule I lists supplies that are taxable even without consideration, such as transfers between related persons.

Q6. What is Schedule II?
Schedule II classifies whether a transaction is supply of goods or services.

Q7. What is Schedule III?
Schedule III lists activities that are not considered supply, such as salary, sale of land, and services of MPs/MLAs.

Q8. Can government decide what is goods or services?
Yes, under Section 7(1A), government can notify classification of specific activities as goods or services.

 

Section 6 of CGST Act GST Section 6 Explained: Cross Empowerment of Central & State Tax Authorities

GST Section 6: Understanding the Mutual Empowerment of Tax Authorities Difference between Central and State GST officers

 Introduction

 When the Goods and Services Tax (GST) was implemented in July 2017, it replaced a complex web of indirect taxes such as VAT, service tax, excise duty, and CST. 

The idea was to simplify India's taxation system and ensure uniformity across the country. However, since GST is a dual taxation system—where both the center and states have the authority to impose and collect taxes—questions began to arise:

• Who will assess the taxpayers? 

• Who has the authority to collect taxes in special cases?

 • Can central and state tax officials work together?

To address such issues, Section 6 of the Central Goods and Services Tax (CGST) Act, 2017 has been introduced. It clearly defines the concept of cross-empowerment between central and state tax authorities.

 

In this blog, we will explain Section 6 of GST in simple words, explore its provisions, real-life examples, challenges, and its importance for businesses.

What is Section 6 of GST?

Section 6 of the CGST Act mentions the provisions related to the powers of the central and state government officials.

• It ensures that there is no duplication of tax assessments and clarifies who has the right to enforce the authority in a specific situation.        

• In simple words:
 

Central tax officials (who are working under the CGST Act) and state tax officials (who are working under the SGST Act) have been empowered to act on behalf of each other.

 • This means that any tax officer can issue notices, conduct assessments, and take action under both the CGST and SGST Acts, provided that the case is not already being handled by the other authority.

This principle is known as cross empowerment under GST. ।

Main provisions of Section 6

• Let's break down the important provisions of Section 6 to make them easier to understand:    

• 1 Powers of central and state authorities (Article 6(1)) 

• Officers appointed under the CGST Act are authorized to act as officers under the SGST/UTGST Act. • Similarly, officers under the SGST/UTGST are authorized to operate under the CGST Act. • This avoids duplication and ensures smooth functioning.

• 2. Prohibition on double action (Section 6(2)

If a specific case has already been assigned to a central officer, then the state officer cannot take that case, and vice versa. • This can help prevent taxpayers from being troubled by multiple processes in the same case by different officers.

            

 3. Terms and Conditions (Section 6(3)

The government may set conditions and restrictions for cross-empowerment. 

 This ensures that there is no abuse of power and maintains clarity between the center and the states.

1.Why is Section 6 important?

Section 6 is extremely important for businesses, taxpayers, and government officials because it: 

Prevents duplication of work, allowing businesses to avoid facing multiple assessments from central and state tax authorities for similar transactions.

Ensures smooth administration, enabling central and state officials to act in place of each other, which guarantees faster resolutions and compliance.

Reduces litigation by clearly defining jurisdiction, which minimizes unnecessary disputes between the center and the state. 6. Facilitates business.

 

Taxpayers do not think about which authority to contact. The single process carried out by one authority is binding. 

Real-Life Examples of Section 6 in Action

Let’s make this clear with practical examples:

Example 1:

A business in Delhi is being audited by the Central GST officer for FY 2023-24. In this case:

The State GST officer cannot initiate another audit for the same period.

 Only one proceeding will be valid, avoiding duplication.

Example 2:

A trader in Karnataka is found guilty of issuing fake invoices. Here:

 Both Central and State officers have the power to investigate.

But once one authority takes charge, the other cannot duplicate the same action.

Example 3:

An e-commerce business is operating across multiple states. A State officer in Maharashtra initiates a tax assessment under SGST Act. Due to cross empowerment:

That officer can also take action under the CGST Act.

This avoids the need for two separate assessments

Benefits of Cross Empowerment under Section 6

 Single Authority, Dual Powers

 Saves time for both taxpayers and authorities.

 Reduces confusion in jurisdiction.

 Improves Efficiency

Tax officers can act swiftly without waiting for coordination between Centre and State.

Better Resource Utilization

 Since officers can act on behalf of each other, workload distribution becomes easier.

 Uniform Implementation of GST

 Ensures that GST laws are applied consistently across India.

Challenges in Section 6

While Section 6 has many benefits, certain challenges exist:

 Jurisdictional Confusion

 Sometimes, businesses face confusion about whether a proceeding is under CGST or SGST.

2.Coordination Issues

If Central and State officers don’t coordinate properly, there could still be duplication of efforts.

3 Limited Awareness

small businesses may not fully understand how cross empowerment works.

 Possible Overlap in Investigations

 In fraud or evasion cases, both authorities may initiate inquiries, leading to disputes.

Section 6 and GST Council Decisions

The GST Council has played an important role in framing rules under Section 6. The Council decided that:

 Taxpayers with a turnover below ₹1.5 crore are generally handled by State tax authorities.

Taxpayers with a turnover above ₹1.5 crore are divided between Central and State authorities in a 90:10 ratio (90% by States, 10% by Centre).

This division ensures that both Central and State authorities have jurisdiction but also avoids overlap.

Section 6 in Simple Words

Think of Section 6 as a mutual agreement between the Centre and States:

 Either a Central officer or a state officer can act in your case.

 But only one authority will proceed at a time.

 Once a case is picked by one authority, the other cannot intervene in the same matter.

Judicial Interpretations of Section 6

Over the years, courts have also explained the importance of Section 6.

Courts have emphasized that dual proceedings are not allowed.

 Once jurisdiction is exercised by one authority, the other must step back.

This ensures that taxpayers are not burdened with multiple litigations.

Impact of Section 6 on Businesses

For businesses, Section 6 has had a significant impact:

Clarity in Tax Proceedings → They know only one authority will act.

Less Compliance Burden → No duplicate audits or investigations.

Better Trust in the GST System → Simplifies the taxpayer-government relationship.

More Transparency → Clear rules on who has jurisdiction.

Practical Tips for Businesses under Section 6

1.Maintain Proper Records

Since either Central or State officers can assess you, always keep your GST records updated.

2.Know Your Jurisdiction

Understand whether your turnover places you under State or Central jurisdiction.

3.Respond Promptly to Notices

If you receive a notice, check whether it is from CGST or SGST officer. Only one proceeding should exist.

4.Consult a Tax Expert

For complex cases, always consult a GST practitioner to avoid compliance issues.

Advantages of Section 6 for the Government

Efficient Use of Manpower: Both Centre and State can handle cases without duplicating efforts.

 Better Revenue Monitoring: Helps plug tax evasion through cooperation.

 Uniform Enforcement: Ensures GST rules are applied consistently nationwide.

Conclusion

Section 6 of the CGST Act is one of the most crucial provisions of the GST framework. It establishes the concept of cross empowerment between Central and State tax officers, ensuring smooth tax administration and preventing duplication of work.

For taxpayers, it provides relief from multiple proceedings, reduces compliance burden, and ensures fairness. For the government, it enables efficient resource utilization and uniform enforcement.

While challenges such as jurisdictional confusion and coordination issues exist, the benefits of Section 6 far outweigh them. It truly reflects the spirit of cooperative federalism, where both Centre and States work together to make GST effective and business friendly.

FAQs on GST Section 6 What is Section 6 of CGST Act in GST

Q1. What is Section 6 of the CGST Act?

Section 6 deals with cross empowerment of Central and State GST officers, allowing them to act on behalf of each other.

Q2. Can both Central and State officers act simultaneously on the same case?

No. Once one authority has taken up a case, the other cannot initiate proceedings on the same matter.

Q3. Why was Section 6 introduced?

It was introduced to prevent duplication of efforts, reduce taxpayer burden, and improve coordination between Centre and States.

Q4. Who handles small taxpayers under GST?

As per GST Council decisions, taxpayers with turnover below ₹1.5 crore are generally handled by State authorities.

Q5. What happens if both Central and State officers issue notices for the same case?

In such cases, judicial interpretation favors that only one proceeding should continue, and duplication is not allowed.

Q6. Does Section 6 apply to fraud and evasion cases?

Yes, both Central and State officers can initiate action, but once one authority takes charge, the other must step back.

Q7. How does Section 6 help businesses?

It ensures that only one authority conducts proceedings, reducing compliance burden and avoiding harassment.

 

 End