Think of supply as the on/off switch for GST. No supply → no GST. Full stop. Section 7 defines this switch, and it is deliberately wide — the word "includes" in the opening line is your first clue that the list is not exhaustive.
The core rule under Section 7(1)(a): any sale, transfer, barter, exchange, licence, rental, lease, or disposal of goods or services, done for a consideration and in the course or furtherance of business, is a supply. So if Rajesh & Co. Pvt. Ltd. sells finished goods, leases a warehouse, or barters old machinery for raw materials — all supply, all taxable. Two conditions must co-exist here: (i) consideration, and (ii) business purpose. Miss either one and you fall outside this clause.
But the law has two deliberate expansions that students often miss. Import of services (Section 7(1)(b)) is supply even if it is not in the course of business — so if Ms. Iyer hires a Singapore consultant for personal home renovation, that transaction is still a supply. The business-purpose condition is simply dropped for cross-border services. The second expansion: Schedule I activities (Section 7(1)(c)) are treated as supply even without consideration. Permanent transfer of a business asset on which ITC was claimed, or sending goods between related/distinct persons — these are supply with zero rupees changing hands. This stops people from routing assets through related parties to avoid tax.
Once you confirm something is a supply, Schedule II (Section 7(1A)) acts as the classifier — it tells you whether to treat it as supply of goods or supply of services. Do not confuse Schedule II (classification) with Schedule I (deemed supply without consideration).
At the other end sits Schedule III (Section 7(2)) — the negative list. Activities listed here are neither goods nor services, completely outside GST. Classic Schedule III items: employee services to employer, sale of land, sale of a going concern, and actionable claims (other than lottery/betting/gambling). No supply = no GST liability = no need to even raise an invoice.
In exams, Section 7 questions are framed as: "Is this transaction a supply? Under which clause?" Always map your answer to the exact clause — 7(1)(a), 7(1)(b), 7(1)(c)/Schedule I, or Schedule III. This is asked frequently as a 4–6 mark question, often disguised inside a case study.
Example 1 — Import of services for personal use
Ms. Priya Iyer, a homemaker (not a GST-registered business), hires a Dubai-based interior designer to redesign her Mumbai apartment. She pays ₹4,50,000 (equivalent) by wire transfer. The designer has no establishment in India.
Is this a 'supply' under Section 7?
| Test | Result |
|---|---|
| Is there a supply of service? | Yes — interior design is a service |
| Is there consideration? | Yes — ₹4,50,000 |
| Is it in course of business? | No — purely personal |
| Which clause applies? | Section 7(1)(b) — import of services; business condition not required |
Answer: Yes, this is a supply under Section 7(1)(b). Ms. Iyer is liable to pay GST under Reverse Charge Mechanism (RCM) on ₹4,50,000. If she were a registered business, she could claim ITC; as a homemaker, she cannot. The ₹4,50,000 bears full IGST cost.
---
Example 2 — Deemed supply without consideration (Schedule I)
Rajesh & Co. Pvt. Ltd. has its registered office in Mumbai (GSTIN: MH) and a branch in Hyderabad (GSTIN: TG) — both are distinct persons under GST. Mumbai sends goods worth ₹12,00,000 (at cost) to the Hyderabad branch for storage, charging ₹0 (internal transfer, no invoice raised).
Is this a 'supply'?
Step 1: Check Section 7(1)(a) — no consideration, so this clause does NOT apply.
Step 2: Check Schedule I, Entry 2 — "Supply of goods or services between distinct persons / related persons, even without consideration, if made in the course or furtherance of business." ✓ Both branches are distinct persons. ✓ Transfer is in course of business.
Step 3: Value the supply. Since consideration is nil, valuation rules (Rule 28 of CGST Rules) apply → Open Market Value = ₹12,00,000.
GST applicable: Assume IGST @ 18% (inter-state)
IGST = 18% × ₹12,00,000 = ₹2,16,000
Mumbai HO must issue a tax invoice to Hyderabad branch for ₹12,00,000 + ₹2,16,000 IGST. Hyderabad branch can claim ITC of ₹2,16,000.
Final Answer: Yes, supply under Schedule I read with Section 7(1)(c). Tax = ₹2,16,000 IGST.
📖 Bare Act text — Section 7, CGST Act 2017
(click to expand)
(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; (b) import of services for a consideration whether or not in the course or furtherance of business; (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.