Chapter 8 of 11

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CA Intermediate Taxation★ The opening chapters of ICAI Paper 3 Section B, roughly 14 of its 50 marks. The first two questions of the four-question GST sequence — is it a supply, is it taxable — plus the place of supply rules that answer where it is taxed.

GST: Introduction, Supply, Charge and Place of Supply

Why India runs a dual GST, what counts as a supply under section 7, the composite/mixed supply distinction, the levy under section 9, and the rules that decide which state — or which country — a supply is taxed in.

⏱ 32 min readHard difficulty✓ Free · exam-pattern aligned

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Timed practiceMCQs from this chapter with instant scoring

FlashcardsFormulas & traps on spaced repetition

CA Intermediate PYQsSolved previous-year questions

By the end of this chapter you'll be able to…

1Explain why India runs a dual GST and how CGST, SGST, IGST and UTGST relate to each other
2Apply the four elements of the section 7 definition of supply to a transaction
3Identify the Schedule I transactions deemed to be supply despite the absence of consideration
4Identify the Schedule III activities that are neither a supply of goods nor of services
5Distinguish a composite supply from a mixed supply and apply the correct tax treatment to each
6Apply the charging provision under section 9, including the petroleum exclusion
7Apply reverse charge in its two triggering circumstances
8Apply the composition levy conditions and thresholds
9Apply the place of supply rules for goods (including bill-to-ship-to) and for services
10Apply the place of supply rules for import and export of goods, and explain zero-rating

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Why this chapter matters in CA Intermediate

GST replaced a tangle of separate levies with one destination-based tax on supply, and everything in this chapter follows from that design choice. Section 7's inclusive definition of supply, together with Schedule I's deemed supplies and Schedule III's carve-outs, is the gate every transaction must pass through before any rate or exemption question even arises. Place of supply then answers where a supply is taxed, which is what makes it intra-state (CGST+SGST) or inter-state (IGST) — and because GST is destination-based rather than origin-based, getting this wrong misallocates revenue between states and can leave a genuine cross-border supply taxed as though it were domestic.

Before you start — revise these

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How to Crack CA Inter Taxation

The four-question GST sequence — supply, taxability, time of supply, value and rate — is set out there and this chapter answers the first two questions plus the where-is-it-taxed question.

GST: Introduction, Supply, Charge and Place of Supply

Weightage: The opening chapters of ICAI's Paper 3 Section B, roughly 14 of its 50 marks. The four-question sequence from the method chapter begins here: is it a supply, is it taxable, and — via place of supply — where is it taxed.

Why India has a dual GST

Before GST, India taxed the same value chain through a tangle of separate levies — excise duty at manufacture, service tax on services, VAT at the state level on sale of goods, entry tax, octroi — each with its own base, its own credit chain (often broken between levies), and its own compliance machinery. A good moving from raw material to a finished product sold across state lines could be taxed multiple times on the same value, with no credit for tax already paid at an earlier stage in a different levy.

GST replaces this with one tax on the supply of goods and services, structured as a dual levy because India's Constitution divides taxing powers between the Centre and the States: Central GST (CGST) and State GST (SGST) are levied together on an intra-state supply, each by the respective government, at (generally) equal rates that together equal the notified GST rate; Integrated GST (IGST), levied by the Centre, applies to an inter-state supply, at a rate equal to CGST plus SGST combined, with the revenue apportioned between the Centre and the destination State. Union Territory GST (UTGST) applies in place of SGST for supplies within a Union Territory without its own legislature.

The unifying design principle is destination-based taxation with a continuous credit chain: tax accrues to the state of consumption, not the state of origin, and credit for tax paid at every prior stage flows through to the next, so tax is ultimately borne only on the value added at each stage, with no cascading.

What is a supply — section 7

The inclusive definition

Supply includes: 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; import of services for a consideration, whether or not in the course or furtherance of business; activities specified in Schedule I, made or agreed to be made without consideration; and activities to be treated as a supply of goods or supply of services as specified in Schedule II.

Four elements recur across nearly every question testing this definition, and stating each explicitly is what a "is this a supply" answer is built on: a transaction (of the kind listed); for consideration (subject to the Schedule I exception); in the course or furtherance of business; and involving goods or services (as opposed to money or securities, which are excluded from both definitions).

Schedule I — deemed supply without consideration

Certain transactions are treated as supply even without consideration, because the ordinary requirement of consideration is waived by statute for these specific categories:

Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
Supply between related persons or between distinct persons (as specified in section 25), when made in the course or furtherance of business — this is what brings inter-branch stock transfers between differently registered branches of the same legal entity within the tax net, even though no money changes hands between the branches.
Supply of goods by a principal to an agent (or agent to principal) where the agent undertakes to supply or receive such goods on behalf of the principal.
Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Gifts to employees are specifically excluded from this deeming (that is, not treated as supply) up to a value of ₹50,000 in a financial year from an employer to an employee.

Schedule III — activities that are neither supply of goods nor supply of services

Certain activities are expressly outside GST altogether, not merely exempt but not a supply at all: services by an employee to the employer in the course of or in relation to employment; services by any court or Tribunal; functions performed by Members of Parliament, Members of State Legislatures, and holders of specified constitutional posts; funeral, burial, crematorium or mortuary services including transportation of the deceased; sale of land, and sale of a building (except where consideration is received before completion certificate, which is a supply); actionable claims, other than lottery, betting and gambling.

Composite and mixed supply

Composite supply: two or more taxable supplies of goods or services, naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The tax treatment (rate, exemption, place of supply) of the entire composite supply follows the principal supply — the classic example is goods transported with insurance and packing as part of a single supply contract, where the principal supply (goods) determines the treatment of the whole.

Mixed supply: two or more individual supplies made in conjunction with each other for a single price, where such supplies do not naturally bundle in the ordinary course of business. A mixed supply is treated as a supply of that particular good or service which attracts the highest rate of tax among the constituents.

The distinguishing test between the two is whether the combination is a natural, ordinary-course bundling (composite) or an artificial bundling for a single price that could equally have been sold separately (mixed) — a gift box combining chocolates, a toy and a diary sold together for one price, with no natural connection compelling them to be sold together, is a mixed supply; a five-star hotel room booking that includes complimentary breakfast is a composite supply, breakfast being naturally bundled with hotel accommodation in the ordinary course of business.

Charge of GST — section 9

The levy

CGST (mirrored by SGST/UTGST for the state component, and IGST for inter-state supplies) is levied on all intra-state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, at rates notified by the government, on the value determined under section 15, collected in the manner prescribed, and paid by the taxable person.

Petroleum products (petroleum crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel) are currently outside GST, continuing to be taxed under the pre-GST regime (central excise and state VAT), pending a notified date for their inclusion.

Reverse charge

Ordinarily the supplier pays GST (forward charge). Under reverse charge, the recipient of the supply is liable to pay tax instead, in two circumstances: notified categories of supply (specified goods or services, regardless of the supplier's registration status); and supply by an unregistered person to a registered person, of a nature notified by the government.

Reverse charge exists to secure revenue where the supplier is unregistered, unorganised, or otherwise difficult for the tax administration to reach directly, and to shift the compliance burden to a recipient more capable of bearing it.

Composition levy — section 10

An alternative, simplified scheme for small taxpayers: a registered person whose aggregate turnover in the preceding financial year did not exceed ₹1.5 crore (₹75 lakh for specified special category states) may opt to pay tax at a notified flat percentage of turnover rather than the ordinary rate applied to value, in lieu of the tax otherwise payable, subject to conditions: no inter-state outward supply; no supply through an e-commerce operator required to collect tax at source; cannot issue a tax invoice charging GST to the recipient (must issue a bill of supply); and cannot claim input tax credit.

A separate composition scheme is available for suppliers of services (or a mix of goods and services) with turnover up to a lower notified threshold, at a different flat rate.

Place of supply

Why it matters

GST is destination-based, so identifying where a supply is deemed to occur determines whether it is intra-state (CGST + SGST) or inter-state (IGST), and for a service or a cross-border transaction, which specific jurisdiction's tax applies at all. This is the fourth question in the method chapter's sequence, and it is answered by a distinct set of rules for goods and for services.

Place of supply of goods (domestic) — general rule

Where supply involves movement of goods, the place of supply is the location where the movement terminates for delivery to the recipient.

Where supply does not involve movement (goods made available without being moved, such as machinery assembled at the buyer's site), the place of supply is the location of the goods at the time of delivery.

Bill-to-ship-to transactions: where goods are delivered to a third party on the instruction of the buyer (before or during movement), the place of supply is deemed to be the principal place of business of that third person (the buyer who instructed the delivery), not the location of actual physical delivery — this is a deeming provision that overrides the physical delivery location specifically for this triangular pattern.

Place of supply of services (domestic) — general rule

Where the recipient is registered, place of supply is the location of the recipient.

Where the recipient is not registered, place of supply is the recipient's location if the address is on record; otherwise, the location of the supplier.

Specific exceptions to the general rule exist for services connected to immovable property (place of supply is where the property is located), restaurant and catering services (place of performance), and several other specified categories, each with its own rule that overrides the general recipient-location default.

Place of supply — import and export

Import of goods: place of supply is the location of the importer.

Export of goods: place of supply is the location outside India.

Imports and exports of goods are treated as inter-state supplies and attract IGST — import of goods attracts IGST (in addition to customs duty) at the point of customs clearance; export of goods is a zero-rated supply, meaning GST is not charged on the outward supply itself, and the exporter is entitled to claim a refund of input tax credit accumulated on inputs used in making that export, or to export under bond/LUT without payment of IGST at all.

Key formulas & results

Everything to memorise for the exam hall, in one card. Screenshot this for revision.

Intra-state supply: CGST + SGST (or CGST + UTGST in a Union Territory); Inter-state supply: IGST = CGST + SGST combined rate

Supply = transaction (sale/transfer/barter/exchange/licence/rental/lease/disposal) + for consideration + in course/furtherance of business + goods or services

Schedule I deems supply without consideration: permanent transfer of ITC-availed business assets, related/distinct person supplies, principal-agent goods, import of services from a related person/establishment

Employee gifts up to 50,000 per financial year are excluded from the Schedule I deeming

Composite supply: tax treatment follows the PRINCIPAL supply

Mixed supply: taxed at the HIGHEST rate among the constituent supplies

Composition levy threshold: 1.5 crore aggregate turnover (75 lakh for specified special category states) in the preceding year

Place of supply of goods (movement): where movement terminates for delivery; (no movement): location of goods at time of delivery

Bill-to-ship-to: place of supply = principal place of business of the third person who instructed delivery

Place of supply of services: location of recipient if registered; if unregistered, recipient's address on record, else supplier's location

Import of goods: place of supply = location of the importer, taxed as inter-state (IGST); Export of goods: place of supply = location outside India, zero-rated

INTERMEDIATE EXAMINATIONCA Inter

1. State the four elements that recur in testing whether a…[6]

The four elements are: a transaction of the…

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Tap the paper to answer it.

Practice Studio

CA Inter answers are written, not ticked

Write one on GST: Introduction, Supply, Charge and… and it comes back marked to the CA Inter scheme in about twenty seconds.

Write one answer

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Traps CA Intermediate sets — and how to dodge them

These are the exact option-traps and misreads that cost marks under negative marking.

WATCH OUT

✗ Treating every transfer of goods as a supply without checking for consideration and business purpose, missing the Schedule I exceptions that deem supply despite no consideration

✓

WATCH OUT

✗ Failing to recognise inter-branch stock transfers between distinctly registered units of the same entity as a deemed supply under Schedule I

✓

WATCH OUT

✗ Treating sale of land or a completed building as a supply, when Schedule III places both outside GST

✓

WATCH OUT

✗ Confusing composite and mixed supply, or applying the highest-rate rule to a composite supply instead of following the principal supply

✓

WATCH OUT

✗ Applying reverse charge only to unregistered-to-registered supplies, forgetting the separate category of notified supplies subject to reverse charge regardless of the supplier's registration status

✓

WATCH OUT

✗ Allowing a composition dealer to issue a tax invoice charging GST, when a composition dealer must issue a bill of supply and cannot charge GST separately

✓

WATCH OUT

✗ Applying the general place of supply rule for goods to a bill-to-ship-to transaction instead of the specific third-person deeming rule

✓

WATCH OUT

✗ Using the supplier's location as the default place of supply for a registered recipient's services, when it should be the recipient's location

✓

WATCH OUT

✗ Treating export of goods as exempt rather than zero-rated, missing the distinct refund/LUT mechanism zero-rating carries

✓

WATCH OUT

✗ Assuming petroleum products are taxed under GST like other goods, when they remain outside GST pending a notified date

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Exam-pattern practice

PYQ-style questions with full solutions. Work through them as a readiness check — mark yourself honestly and get your gap report at the end.

Readiness check

Are you exam-ready for GST: Introduction, Supply, Charge and Place of Supply?

15 problems from this chapter. Try each one, reveal the worked solution, mark yourself honestly — get your gap report at the end.

15 questions~11 min

5-minute revision

The whole chapter, distilled. Read this the night before the exam.

•GST is a dual levy: CGST+SGST for intra-state, IGST for inter-state, UTGST replaces SGST in Union Territories
•Destination-based taxation with a continuous credit chain is the unifying design principle
•Supply needs: a listed transaction + consideration (unless Schedule I) + business purpose + goods or services (money/securities excluded)
•Schedule I deems supply without consideration for ITC-availed asset transfers, related/distinct person supplies, principal-agent goods movement, and import of services from a related establishment
•Employee gifts up to 50,000 per financial year are outside the Schedule I deeming
•Schedule III puts employment, court/Tribunal services, MP/MLA functions, funeral services, sale of land, sale of a completed building, and most actionable claims outside GST entirely
•Composite supply follows the principal supply's treatment; mixed supply is taxed at the highest constituent rate
•Petroleum crude, diesel, motor spirit, natural gas and ATF remain outside GST pending a notified date
•Reverse charge: notified categories (any supplier), OR unregistered-to-registered notified supplies
•Composition levy: turnover up to 1.5 crore (75 lakh special category), flat rate, no inter-state supply, no e-commerce TCS supply, bill of supply only, no ITC
•Place of supply of goods with movement: where movement terminates; without movement: location at time of delivery
•Bill-to-ship-to: place of supply is the THIRD PERSON's principal place of business, overriding the physical delivery location
•Place of supply of services: registered recipient's location; unregistered — address on record, else supplier's location
•Import of goods: place of supply is the importer's location, taxed as inter-state (IGST); export of goods: place of supply outside India, zero-rated with refund/LUT options

CA Intermediate question blueprint

How this topic is asked, tier by tier — so you can prep to the pattern.

Typical weightage: 14

Exam-hall strategy

Battle-tested tips from mentors and toppers for this topic under the sectional clock.

Work through the four supply elements explicitly whenever a fact pattern's status as a supply is in question, rather than asserting a conclusion
Check Schedule I before concluding a transaction without consideration is outside GST, and Schedule III before concluding an activity with consideration is inside it
For composite versus mixed supply, state the test (natural bundling in ordinary trade) explicitly before classifying
In reverse charge questions, identify which of the two triggering circumstances applies and name it
For composition levy questions, check the turnover threshold first, then run through every condition rather than stopping at the first one satisfied
In place of supply problems for goods, check for a bill-to-ship-to pattern before applying the general movement rule
For services, state the recipient's registration status explicitly, since it is the threshold fact the whole rule turns on
In export questions, name the zero-rating mechanism and both available routes (LUT or pay-and-refund) even if the facts only require one

Beyond the exam

Where this skill shows up in the job you're competing for — and in life.

Every inter-branch stock transfer between differently reg…

Every inter-branch stock transfer between differently registered units of a large retail or manufacturing business is a live GST compliance point checked at every audit, precisely because of the Schedule I deeming rule

Real estate developers structure payment schedules and co…

Real estate developers structure payment schedules and completion certificate timing carefully because of the Schedule III boundary between a taxable construction service and an untaxed sale of a completed building

The composite versus mixed supply distinction is litigate…

The composite versus mixed supply distinction is litigated regularly in the hospitality, retail and logistics industries, since the tax rate difference between the two classifications can be substantial

Exporters rely on the zero-rating mechanism

Exporters rely on the zero-rating mechanism, choosing between the LUT route and the pay-and-refund route based on their cash flow position and the speed of refund processing they experience

Where else this topic is tested

Prepare once, score in every exam that asks it.

CA Final Paper 5 — Indirect Tax Laws, where these provisions extend into greater procedural and dispute-resolution depth

CMA Intermediate — Indirect Taxation

CS Executive — Tax Laws

GST practitioner certification examinations, where supply classification and place of supply are core testable content

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Questions aspirants ask

Pulled from the Q&A community and mentor sessions.

Because section 7's core definition requires consideration, and several transactions that genuinely move value through a business's supply chain, or that ought to be taxed for the credit chain to work properly, do not involve any payment at all. Inter-branch stock transfers are the clearest example: no money changes hands between two registered units of the same legal entity, so without Schedule I such transfers would fall outside the ordinary definition of supply entirely, breaking the destination-based allocation of tax between the state the goods leave and the state they arrive in, and potentially allowing large volumes of goods movement to escape the tax net simply by keeping it internal to one business.

Ask whether a reasonable business in that trade would ordinarily sell the items together, or whether their combination is a marketing choice that could just as easily be undone. If the combination reflects how the trade ordinarily operates — delivery with furniture, insurance with freight, breakfast with a hotel room — it is naturally bundled and composite, with tax following the principal item. If the combination exists only because someone chose to package unrelated items for a single price — a hamper, a gift set, a combo offer pairing items with no functional connection — it is a mixed supply taxed at the highest constituent rate. The key question is naturalness of the bundle in ordinary trade practice, not merely whether a single price was charged.

Both, and they are connected. Place of supply first determines whether a transaction is intra-state or inter-state, which fixes whether CGST plus SGST, or IGST, is charged. For an intra-state supply, the SGST component goes directly to the state where the place of supply is located, since that is by definition the same state as the supplier for an intra-state transaction. For an inter-state supply, IGST is collected by the Centre but then apportioned to the destination state, that is the state identified as the place of supply, reflecting GST's core design as a destination-based tax where the state of consumption receives the state-level revenue regardless of where the supplier happens to be located.

The classic composition scheme under section 10 in its original form was primarily aimed at suppliers of goods, with an explicit bar on most service supplies beyond a small incidental allowance. A separate composition scheme was subsequently introduced specifically for suppliers of services, or of a mix of goods and services, with its own lower turnover threshold and its own flat rate distinct from the goods-focused scheme. A candidate should treat these as two related but distinct schemes with different thresholds and rates, and identify which one a given fact pattern is asking about based on whether the assessee is primarily a goods trader or a service provider.