## Schedule I – When 'No Consideration' Still Triggers GST

### The Concept

Normally, consideration is a must for a supply (Section 7(1)(a)). But Section 7(1)(c) read with Schedule I specifies four categories of activities that are deemed to be supply even when no consideration is involved.

This is the law's way of preventing tax avoidance through 'free' transfers, related-party manoeuvres, and self-supplies.

### The Four Schedule I Entries

#### Entry 1 – Permanent Transfer or Disposal of Business Assets (where ITC was availed)

Both conditions must be satisfied:

1. Permanent transfer or disposal of business asset (not just temporary use), AND

2. ITC was availed on such asset.

If the business gave away an asset on which it had earlier claimed input tax credit, the deemed supply ensures GST is paid back — preventing 'free' leakage of credited assets.

Examples:

Company donates an old computer (ITC was claimed) to an employee — deemed supply.
Company scraps/disposes a machine (ITC was claimed) by giving it free to a vendor — deemed supply.
Company donates a building (no ITC was ever claimed, e.g. it was pre-GST) — NOT a supply.

#### Entry 2 – Supply Between Related Persons or Distinct Persons in Course of Business

(Continued — full discussion in next page of source material.)

### Why This Matters for ITC Logic

If you took credit on the purchase, and then transferred the asset for free, you have effectively obtained a credit without ever paying output tax. Entry 1 plugs that gap by deeming the free transfer a supply — so output GST applies on its open market value (Section 15 valuation rules).

### Two-Limb Test for Entry 1

```

Was the asset transferred PERMANENTLY?

Yes → Continue No → Not a supply under Sch I

Was ITC availed on the asset?

Yes → SUPPLY (under Sch I) No → Not a supply

```

### Cases That Look Like Disposal But Aren't Supply

Goods given on loan / temporary use (not permanent transfer) → outside Entry 1.
Goods where ITC was blocked under Section 17(5) (e.g. motor vehicle for personal use) → no ITC was availed → outside Entry 1.
Goods purchased before GST regime (no GST-ITC concept) → outside Entry 1 (but may attract excise/VAT under transitional rules).

Worked example

### Example 1

Example – Donation of Computer

ABC Ltd. donates an old computer to a charitable school. The company had claimed ITC of ₹3,000 when it purchased the computer in 2020.

Analysis:

Permanent transfer: Yes (donation).
ITC availed: Yes.

→ Deemed supply under Sch I Entry 1. GST payable on open market value (or as per Rule 28 valuation rules).

### Example 2

Example – Scrapping a Machine

XYZ Ltd. scraps an old machine and sells the scrap to a junk dealer for ₹500. The machine was bought in 2019 with ITC of ₹40,000 claimed.

Analysis: This is a sale with consideration (₹500), so it is a normal supply under Section 7(1)(a) — not Schedule I. GST applies on ₹500 (transaction value).

Variation: If the company had instead given the machine free to the junk dealer (no consideration), Schedule I Entry 1 fires — GST payable on open market value of the machine.

### Example 3

Example – Personal-use Asset (Blocked ITC)

A company purchases a luxury sedan in 2022 for the director's personal use. ITC was NOT available (blocked under Section 17(5)). Later, the company gifts the car to the director on his retirement.

Analysis: ITC was never availed → second condition fails → NOT a supply under Schedule I Entry 1. No GST on the gift.

⚠️ Common exam mistakes

Forgetting that BOTH conditions (permanent transfer + ITC availed) must be met — many students apply only one.
Treating temporary transfer (e.g. on returnable basis) as Schedule I supply — only permanent transfer qualifies.
Missing that if ITC was blocked or not claimed, Entry 1 does NOT apply.
Confusing 'disposal' with 'sale' — disposal here means letting go without consideration; sale is normal supply under Section 7(1)(a).
Forgetting that valuation of such deemed supply follows Rule 28 (open market value), not just Section 15(1) transaction value (because there is no transaction value).

Bare-Act text Section 7(1)(c) read with Schedule I · CGST Act, 2017 · click to expand

Schedule I to the CGST Act, 2017 — Activities to be treated as supply even if made without consideration: 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. 3. Supply of goods — (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 4. Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

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Schedule I – Supply Without Consideration

Worked example

⚠️ Common exam mistakes