In our earlier blog Supply of Goods and Services: What does it Mean we discussed about supply with consideration which is mostly about business operational activities like sales, transfers, and so on.
In most cases, a transaction qualifies as 'supply' under GST only when it involves payment of consideration — a price, fee, or monetary equivalent. But the GST law creates specific exceptions. Certain activities are treated as taxable supply even when no money changes hands.
These exceptions are listed in Schedule I of the CGST Act, 2017, read with Section 7(1)(c). Understanding them is critical for businesses that deal with branch transfers, gifting of assets, imports from group companies, or agency arrangements — because getting these wrong can result in missed tax payments, penalties, and loss of ITC.
This guide covers all four Schedule I entries, import of services rules, and practical worked examples for each scenario.
What Does 'Supply Without Consideration' Mean Under GST?
Under Section 7(1) of the CGST Act, a transaction is a 'supply' if:
- It involves goods or services or both
- It is made for a consideration (payment)
- It is made in the course or furtherance of business
The law normally requires all three conditions. However, Section 7(1)(c) read with Schedule I creates an override: the listed activities are taxable as supply even if no consideration is paid.
Schedule I: All 4 Activities Treated as Supply Even Without Consideration
Here is the complete Schedule I of the CGST Act with all four activities, their conditions, and GST treatment:
|
Para |
Activity |
Key Condition |
GST Treatment |
|
Para 1 |
Permanent transfer/disposal of business assets |
ITC must have been availed on the asset |
Taxable supply — GST applies even with no payment |
|
Para 2 |
Supply between related persons or distinct persons |
Must be in course or furtherance of business |
Taxable supply — valued at open market value |
|
Para 3 |
Supply by principal to agent (goods) |
Agent undertakes to supply goods on behalf of principal |
Taxable supply — both legs can be taxable |
|
Para 4 |
Import of services from related person/own establishment outside India |
Must be for business purposes |
Taxable supply — GST payable under Reverse Charge |
Para 1 — Permanent Transfer or Disposal of Business Assets (ITC Availed)
If a business permanently transfers or disposes of an asset — by gifting, donating, scrapping, or writing off — without receiving any payment, GST still applies, but only if input tax credit (ITC) was originally claimed on that asset.
Key Conditions:
- The asset must have been used for business purposes
- ITC must have been availed on the original purchase
- The transfer must be permanent (goods sent for job work or testing do not qualify)
Para 2 — Supply Between Related Persons or Distinct Persons
When a supply is made between related persons or distinct persons (different GST registrations of the same PAN), it is taxable even without consideration — as long as it is in the course or furtherance of business.
Who are 'Related Persons' under GST? (Section 2(84) of CGST Act)
- Officers or directors of each other's businesses
- Legally recognized business partners
- Employer and employee (for supply of goods/services)
- One directly or indirectly owns/controls ≥25% of the other's shares or voting stock
- One directly or indirectly controls the other
- Both are under common third-party control
- Members of the same family
- Sole agent, sole distributor, or sole concessionaire of the other
Who are 'Distinct Persons' under GST? (Section 25 of CGST Act)
Any taxable person with more than one GST registration (same PAN, different states or multiple registrations in the same state) is treated as a 'distinct person.' Every registration is a separate entity for GST purposes.
Para 3 — Supply of Goods by Principal to Agent (or Agent to Principal)
When a principal (the business owner) supplies goods to an agent — who will then supply those goods on behalf of the principal — the transaction is taxable under Schedule I even if no consideration is paid between them.
This applies when the agent undertakes to supply the goods in their own name (and not as a transparent intermediary). The key distinction is who is contractually responsible for the supply to the end customer.
Schedule I Para 4 — Import of Services From Related Persons Outside India
If a business in India imports services from a related person (such as a parent company or group entity) located outside India — even if no fee is charged — the import is treated as a taxable supply. The Indian entity must pay GST under the Reverse Charge Mechanism (RCM).
How is Value Determined for Supply Without Consideration?
When a supply is made without consideration, there is no transaction price to use as the GST base. The CGST Valuation Rules (Rules 28–35) provide a hierarchy for determining the taxable value:
- Open Market Value (OMV) — the price of identical/similar goods or services in the open market at the time of supply
- Value of supply of like kind and quality goods/services in similar circumstances
- Value as determined using the cost method (cost of production/acquisition + 10% markup)
- Value as determined by the 'residual method' using reasonable means consistent with the valuation principles
For supply between distinct persons (e.g., branch transfers), if the recipient is eligible for full ITC, the supplier can alternatively declare the value as nil in the invoice — the law allows this specific flexibility.
