Schedule II of CGST Act, 2017: Activities or Transactions Treated as Supply of Goods or Supply of Services

Schedule II to the Central Goods and Services Tax Act, 2017 classifies specified activities or transactions as a supply of goods or a supply of services. It is read with section 7, which defines the scope of supply under GST.

Key legal point: Schedule II primarily classifies a transaction that qualifies as a supply under section 7. Section 7(1A) provides that, where specified activities or transactions constitute a supply under section 7(1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.
Important amendment: Paragraph 7 of Schedule II, which formerly dealt with supply of goods by an unincorporated association or body of persons to a member, was omitted by section 122 of the Finance Act, 2021 and is deemed to have been omitted with effect from 1 July 2017. Transactions between a person, other than an individual, and its members or constituents are now addressed in section 7(1)(aa), subject to the statutory conditions.
Contents
  1. Meaning and role of Schedule II
  2. Transfer
  3. Land and building
  4. Treatment or process
  5. Transfer of business assets
  6. Activities treated as supply of services
  7. Composite supplies treated as services
  8. Important amendments

Meaning and role of Schedule II under the CGST Act

Section 7 of the CGST Act sets out the scope of "supply". Schedule II then identifies whether specified supplies are to be treated as goods or services. This classification can affect the applicable GST provisions, rate notifications, place and time of supply rules, exemptions, and compliance treatment.

For the statutory text and current legislative material, see the official Central Goods and Services Tax Act, 2017 on India Code and the CBIC GST portal.

Updated text and explanation of Schedule II

  1. 1. Transfer

    1. Any transfer of the title in goods is treated as a supply of goods.
    2. Any transfer of a right in goods, or of an undivided share in goods, without transfer of title is treated as a supply of services.
    3. A transfer of title in goods under an agreement providing that property in the goods will pass at a future date upon payment of the full agreed consideration is treated as a supply of goods.

    Meaning: "Title" refers to ownership. A transaction transferring ownership is classified as goods, while allowing a right to use or enjoy goods without transferring ownership is generally classified as a service under this paragraph.

  2. 2. Land and building

    1. A lease, tenancy, easement or licence to occupy land is treated as a supply of services.
    2. A lease or letting out of a building, including a commercial, industrial or residential complex for business or commerce, wholly or partly, is treated as a supply of services.

    This classification must also be read with Schedule III, including the treatment of sale of land and, subject to paragraph 5(b) of Schedule II, sale of a building.

  3. 3. Treatment or process

    Any treatment or process applied to another person's goods is treated as a supply of services. This provision is relevant to processing and job-work type arrangements where ownership of the goods remains with another person.

  4. 4. Transfer of business assets

    1. Where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so that they no longer form part of those assets, the transfer or disposal is treated as a supply of goods.
    2. Where goods held or used for business are put to private use, or are used or made available for a purpose other than a business purpose, the use or making available of those goods is treated as a supply of services.
    3. When a person ceases to be a taxable person, goods forming part of the assets of the business are treated as supplied immediately before cessation, except where:
      1. the business is transferred as a going concern to another person; or
      2. the business is carried on by a personal representative who is deemed to be a taxable person.

    Amendment note: The words "whether or not for a consideration" in paragraph 4(a) and 4(b) were omitted retrospectively with effect from 1 July 2017 by the Finance Act, 2020.

  5. 5. Activities treated as supply of services

    The following are treated as supplies of services:

    1. Renting of immovable property.
    2. Construction of a complex, building, civil structure or part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of the completion certificate, where required, by the competent authority or after first occupation, whichever is earlier.
    3. Temporary transfer or permitting the use or enjoyment of an intellectual property right.
    4. Development, design, programming, customisation, adaptation, upgradation, enhancement and implementation of information technology software.
    5. Agreeing to the obligation to refrain from an act, to tolerate an act or a situation, or to do an act.
    6. Transfer of the right to use goods for any purpose, whether or not for a specified period, for cash, deferred payment or other valuable consideration.

    Meaning of "competent authority" for construction

    For paragraph 5(b), "competent authority" means the Government or an authority authorised under law to issue a completion certificate. Where such a certificate is not required from such authority, the Schedule also recognises certification from the specified architect, chartered engineer or licensed surveyor, as applicable under the statutory text.

    Meaning of "construction"

    For this provision, "construction" includes additions, alterations, replacements or remodelling of an existing civil structure.

  6. 6. Composite supply

    The following composite supplies are treated as a supply of services:

    1. Works contract as defined in section 2(119) of the CGST Act.
    2. Supply, by way of or as part of a service or in any other manner, of food or any other article for human consumption or any drink, other than alcoholic liquor for human consumption, where the supply or service is for cash, deferred payment or other valuable consideration.

    Section 2(119) - works contract: Broadly, a works contract is a contract for specified construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property in which transfer of property in goods is involved in executing the contract.

Important amendments affecting Schedule II

  • The heading was amended to refer to "activities or transactions", with retrospective effect from 1 July 2017.
  • In paragraph 4(a) and 4(b), the words concerning treatment "whether or not for a consideration" were omitted retrospectively with effect from 1 July 2017 by the Finance Act, 2020.
  • Paragraph 7 was omitted by section 122 of the Finance Act, 2021, deemed effective from 1 July 2017. Accordingly, it should not be presented as a current operative paragraph of Schedule II.

Schedule II and section 7: practical reading

A useful approach is first to determine whether an activity or transaction is a "supply" under section 7, including the relevant exclusions under Schedule III. If it is a supply, Schedule II may then classify the specified transaction as a supply of goods or a supply of services. The classification should be applied together with relevant definitions, notifications, exemptions and other provisions of the GST law.

Related CGST Act schedules

Disclaimer: This page is a general legal and tax information resource. For a transaction-specific GST position, the applicable statutory provisions, amendments, notifications, circulars and judicial decisions should be examined.