Schedule-II: Classification of Supply as Goods or Services
# Schedule-II: Goods or Services?
When a transaction qualifies as a supply, Schedule-II decides whether it is a supply of goods or a supply of services.
## Key Entries in Schedule-II
### (1) Transfer
Transaction
Nature
Transfer of title in goods
Goods
Transfer of title at a future date (hire-purchase, sale-or-return)
Goods
Transfer of rights in goods without transfer of title
Services
### (2) Land and Building
Lease, rental, licence, easement, tenancy or licence to occupy land or building → Services.
### (3) Job Work / Treatment / Process
Any treatment or process applied to another person's goods → Services.
The job worker may use some of his own inputs while providing the service — still services.
### (4) Transfer of Business Assets
Transaction
Nature
Permanent transfer or disposal
Goods
Put to private use / made available for non-business use
Services
Cessation rule: If a business ceases to be a taxable person, assets lying with it are deemed supplied as goods, except:
Business transferred as a going concern to another person.
Business continued by personal representative (e.g., on death).
### (5) Other Services
Temporary transfer or permitting use of IPR → Services.
Software related services (development, design, customisation) → Services.
Agreeing to do an act, tolerate an act/situation, or refrain from an act → Services, only if:
There is a contractual obligation (express or implied), AND
Consideration flows in return.
### (6) Renting of Immovable Property → Services
### (7) Restaurant / Outdoor Catering
Supply of food or drink (other than alcoholic liquor for human consumption) as part of any service → Services.
### (8) Construction of Building / Civil Structure
See separate lesson on construction services.
Worked example
### Example 1
Q. Mr. Mittal sends his old furniture to Mr. Pal to re-design it for ₹ 2,00,000. Goods or services?
A. Pal is applying a process (re-designing) on Mittal's furniture → Job work → Supply of services under Schedule-II Para 3.
### Example 2
Q. Infosys develops a software with regular updates for a client. Nature of supply?
A. Software-related service → Supply of services.
### Example 3
Q. A school pays ₹ 4,00,000 to a nearby factory to install noise-cancelling equipment (to reduce noise disturbance). Nature?
A. Factory has agreed to do an act for consideration → Supply of services (Schedule-II Para 5(e)).
### Example 4
Q. A society pays ₹ 20,000 to a hawker to refrain from creating noise. Nature?
A. Hawker has agreed to tolerate/refrain from an act for consideration → Supply of services.
### Example 5
Q. Mr. X (former employee) accepts ₹ 5,00,000 from his ex-employer for agreeing not to compete in a particular area. Nature?
A. Non-compete fee — refrain from an act for consideration → Supply of services.
### Example 6
Q. Company sells a used office vehicle (business asset) permanently. Nature?
A. Permanent transfer of business asset → Supply of goods (Schedule-II Para 4).
### Example 7
Q. Director uses a company car for personal weekend trips. Nature?
A. Business asset put to private use → Supply of services.
⚠️ Common exam mistakes
Classifying lease/rent of land as supply of goods — it is always a supply of services.
Treating job work as supply of goods because the goods change form — it is supply of services as the worker is processing another's goods.
Treating 'agreeing to refrain' or 'tolerating' as supply even without a contractual obligation — both contract and consideration are required.
Treating personal use of a business asset as a supply of goods — Schedule-II treats this as a service.
Treating sale of under-construction building like sale of land — Schedule-II carves out construction with pending completion as service (see construction lesson).
Bare-Act text Schedule-II · CGST Act, 2017 · click to expand
Schedule-II, CGST Act, 2017 — Activities or transactions to be treated as supply of goods or supply of services. Key paras: (1) Transfer; (2) Land and building; (3) Treatment or process; (4) Transfer of business assets; (5) Supply of services (IPR, software, agreeing to do/refrain/tolerate, renting of immovable property, construction services, works contract, food/drink); (6) Composite supply (works contract; supply of food); (7) Supply of goods by unincorporated associations to members.