Levy & Collection on 'Supply' (ss.7 & 9 CGST); the Taxable Event — Law of Taxation Notes

Levy & Collection on “Supply” (ss.7 & 9 CGST); the Taxable Event

Under the old law, the taxable event was manufacture (excise), or sale (VAT), or provision of service (service tax) — three different triggers. GST swept all three away and made one event the trigger for tax: “supply”. Get the meaning of “supply” right and you have the key to the entire GST charge.

The charge and the taxable event

The taxable event under GST is “supply”. Not manufacture, not sale — supply. Tax becomes payable when there is a supply of goods or services.

A. Meaning of supply — s.7 CGST. “Supply” includes all forms of supply of goods or services — 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; import of services for a consideration (even if not in business); and the activities in Schedule I made without consideration (deemed supplies), read with Schedule II (which classifies activities as goods or services) and Schedule III (activities that are neither goods nor services).

Section 7(1) CGST: “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 …”

Schedule I — supplies WITHOUT consideration that are still taxed (the scoring detail): permanent transfer/disposal of business assets on which credit was taken; supply between related/distinct persons in the course of business; supply by a principal to his agent (and vice versa); and import of services from a related person.

B. The charge — s.9 CGST. GST is levied on all intra-State supplies at the notified rate (up to 20% under CGST) on the value determined under s.15, and collected in the prescribed manner. Alcoholic liquor is excluded; petroleum products are to be taxed from a notified date. s.9(3)/(4) provide for reverse charge (recipient pays — Unit IV), and s.9(5) for e-commerce operators.

C. Value of supply — s.15. GST is charged on the transaction value — the price actually paid or payable — where the supplier and recipient are unrelated and price is the sole consideration, plus specified inclusions (incidental charges) and less discounts.

🧩 WORKED EXAMPLE — Is it a “supply” chargeable to GST?

Facts. A company permanently transfers, free of charge, an old machine (on which it had claimed input tax credit) to another business.

Rule. Under s.7(1)(c) read with Schedule I, the permanent transfer or disposal of business assets on which input tax credit has been availed is a supply even without consideration.

Apply. Although no money changes hands, the machine is a business asset on which credit was taken, so its free transfer is a deemed supply.

Conclusion. GST is chargeable on this transfer under s.9, even though it is gratuitous — a classic Schedule I trap. (A gift by an employer to an employee up to ₹50,000 in a year would not be a supply.)

In Simple Terms: GST is triggered by one event — supply. “Supply” (s.7) covers almost every way goods or services change hands for consideration in business — sale, barter, lease, licence, import of services — and even a few things done without payment (Schedule I). Section 9 then levies the tax on the transaction value (s.15).

flowchart TD
    ROOT["Taxable event = SUPPLY (s.7)"]:::root
    ROOT --> A["For consideration, in business<br/>sale/barter/lease/licence/rental"]:::leaf
    ROOT --> B["Import of services for consideration"]:::leaf
    ROOT --> C["Schedule I: without consideration<br/>(related persons, agent, business assets)"]:::leaf
    ROOT --> D["Charge s.9 on value s.15 (transaction value)"]:::sub
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef sub fill:#F2F2F2,stroke:#555,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

Union of India v Mohit Minerals (P) Ltd. (2022) — on the scope of “supply” and the levy, including reverse charge on ocean freight.

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