GST Supply and Levy: Sections 7 to 10 of the CGST Act

The taxable event under GST is supply. Section 7 of the CGST Act defines what counts as a supply, with schedules that add some activities, classify others and exclude some altogether. Section 9 then levies the tax, ordinarily on the supplier but in notified cases on the recipient or an e-commerce operator, and section 10 offers small taxpayers a simplified composition scheme. This note covers supply and levy.

1. Scope of Supply: Section 7

Section 7 and the Schedules

Figure 1: Section 7 and the Schedules

Section 7(1)(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 in the course or furtherance of business.
Section 7(1)(b). Import of services for a consideration, whether or not in the course or furtherance of business.
Section 7(1)(c). Activities in Schedule I, made or agreed to be made without consideration.
Section 7(1A). Activities in Schedule II are treated as supply of goods or of services as specified there.
Section 7(2). Activities in Schedule III, and specified activities of governments and local authorities, are neither supply of goods nor of services.

2. Schedules I and III

Supply without consideration, and non-supplies

Figure 2: Supply without consideration, and non-supplies

Schedule III was amended so that actionable claims are outside GST except specified actionable claims, namely betting, casinos, gambling, horse racing, lottery and online money gaming, which are taxed. Sale of land, and of buildings other than those sold before completion, is also outside GST, because it is governed by stamp duty.

3. Composite and Mixed Supply: Section 8

Composite supply. Two or more supplies naturally bundled and supplied in conjunction in the ordinary course of business, one being the principal supply; taxed as the principal supply.
Mixed supply. Two or more individual supplies made together for a single price that are not naturally bundled; taxed at the rate of the supply attracting the highest rate.

4. Levy: Section 9

Section 9 and section 10

Figure 3: Section 9 and section 10

Section 9(1). CGST is levied on all intra-State supplies of goods or services, except alcoholic liquor for human consumption, at rates notified on the Council's recommendation, not exceeding 20 per cent; an equal State tax applies under the SGST Acts.
Section 9(2). Tax on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel applies only from a date notified on the Council's recommendation.
Reverse charge, s.9(3) and (4). For notified categories, and for notified supplies by unregistered persons to specified registered persons, the recipient pays the tax.
E-commerce, s.9(5). For notified services supplied through an electronic commerce operator, the operator is liable as if it were the supplier.
IGST, s.5 of the IGST Act. Integrated tax on inter-State supplies and imports, at rates not exceeding 40 per cent.

5. Composition Scheme: Section 10

A registered person whose aggregate turnover in the preceding year does not exceed the notified limit may pay tax at a fixed low rate on turnover instead of the normal rate. A composition taxpayer cannot collect tax from customers or claim input tax credit, cannot make inter-State outward supplies or supply through most e-commerce operators, and cannot manufacture notified goods. A separate option is available to small service providers.

⚠ Exam trap

Supply under s.7 includes supplies for consideration in the course or furtherance of business, import of services even outside business, and Schedule I activities without consideration. Schedule III activities, such as employee services, court services, funeral services, sale of land and most actionable claims, are neither goods nor services. A composite supply is taxed as its principal supply; a mixed supply at the highest rate. CGST is levied on intra-State supply up to 20 per cent; IGST up to 40 per cent; alcohol is excluded and petroleum is taxable only from a notified date.

6. Frequently Asked Questions

Is a gift of goods by an employer to an employee a supply?

Schedule I treats gifts by an employer to an employee as supply only where their value exceeds the prescribed limit in a year; gifts within that limit are not supply.

What is the difference between a composite and a mixed supply?

A composite supply is naturally bundled with a principal supply and is taxed as that principal supply; a mixed supply combines items not naturally bundled and is taxed at the highest rate among them.

7. Related Topics

Topic 26: GST, the 101st Amendment and the GST Council. The constitutional basis.
Topic 28: Place and Time of Supply, IGST Act. Intra-State or inter-State.
Topic 29: Input Tax Credit. Credit on inputs.