Taxation - GST Ch 02: Supply - Test 1: answer key

Question 1 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. M/s Vikramaditya Tech Labs LLP, a registered entity in Bengaluru, specializes in IT and software development services. During the financial year 2026-27, it entered into several transactions: (i) It supplied customized ERP software to a client in Singapore for a consideration of ₹ 25,00,000, receiving payment in convertible foreign exchange. (ii) It organized an advanced training program on 'AI Tools' for its own employees, without consideration. The training was conducted by an external expert to whom the LLP paid ₹ 2,00,000. (iii) The LLP is a member of the 'Bengaluru Tech Association' (a non-profit entity registered under GST). The Association collected an annual subscription of ₹ 50,000 from the LLP for providing networking facilities and access to its research reports. (iv) The LLP's CFO, Mr. Rohan, availed architectural services from a firm in New York for designing his personal residence. The fee was ₹ 8,00,000, which he paid from his personal bank account. All amounts are exclusive of GST, unless specified.

The supply of customized ERP software to the client in Singapore is:

1. A supply of goods, as software is tangible property.
2. A non-taxable supply, as it is an export.
3. A composite supply, where software is the principal supply.
4. A supply of services, as it involves development and customization. (correct answer)

Answer: D — A supply of services, as it involves development and customization.

Explanation. Section 2(52) defines goods as every kind of movable property, while Section 2(102) defines services as anything other than goods. Customized software is an intangible product and does not qualify as movable property. Therefore, the development and supply of customized software is classified as a supply of services under GST.

Where it goes wrong. Students often incorrectly classify software as goods due to its physical delivery media or confuse it with a composite supply where goods are the principal element.

Authority. Section 2(52) of the CGST Act, 2017; Section 2(102) of the CGST Act, 2017

Question 2 · 2 marks · Taxation - GST Ch 02: Supply · medium

The annual subscription of ₹ 50,000 paid by the LLP to the Bengaluru Tech Association is:

1. Not a supply as the Association is a non-profit entity.
2. A supply of services under Section 7(1)(aa). (correct answer)
3. A supply of goods.
4. A supply of services under Section 7(1)(a) only.

Answer: B — A supply of services under Section 7(1)(aa).

Explanation. Section 7(1)(aa) specifically covers activities or transactions by a person, other than an individual, to its members or constituents for cash, deferred payment, or other valuable consideration. The association and its members are deemed to be separate persons, and the subscription constitutes a valid supply of services.

Where it goes wrong. Students may incorrectly assume that non-profit organizations are entirely outside the GST net or may apply the general clause under Section 7(1)(a) without recognizing the specific provision.

Authority. Section 7(1)(aa) of the CGST Act, 2017

Question 3 · 2 marks · Taxation - GST Ch 02: Supply · medium

If the LLP provides the customized software to a client without any consideration, it would be:

1. A supply, as it is in the course of business.
2. A deemed supply under Schedule I.
3. Not a supply, as it is without consideration and not covered under Schedule I. (correct answer)
4. A supply under Section 7(1)(b).

Answer: C — Not a supply, as it is without consideration and not covered under Schedule I.

Explanation. Under Section 7(1)(a), a supply of goods or services must be made for a consideration. A supply made without consideration is not taxable unless it falls under the specific instances listed in Schedule I (e.g., permanent transfer of business assets, supplies between related persons). complimentary supply of software does not fall under Schedule I.

Where it goes wrong. Students may think that any transaction in the course of business is automatically a supply, ignoring the fundamental 'consideration' requirement, or may incorrectly stretch the Schedule I provisions.

Authority. Section 7(1)(a) of the CGST Act, 2017; Schedule I of the CGST Act, 2017

Question 4 · 2 marks · Taxation - GST Ch 02: Supply · medium

Which of the following is true regarding the payment of ₹ 2,00,000 made by the LLP to the external expert?

1. It is a supply of service by the LLP to its employees.
2. It is a supply of service by the expert to the LLP. (correct answer)
3. It is a deemed supply under Schedule I.
4. It is not a supply as it is without consideration to employees.

Answer: B — It is a supply of service by the expert to the LLP.

Explanation. The external expert provides professional training services to the LLP for a monetary consideration. This transaction constitutes a supply of services by the expert to the LLP under Section 7(1)(a), as it is made in the course or furtherance of business.

Where it goes wrong. Students may get distracted by the fact that the training is complimentary for employees and wrongly conclude that the payment to the expert is also outside the purview of GST.

Authority. Section 7(1)(a) of the CGST Act, 2017

Question 5 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. Smt. Anuradha Sen (Proprietor of Aryan Steels) and Nandini Real Estates Pvt. Ltd. are registered under GST in Maharashtra. During FY 2026-27, the following transactions took place: (i) Smt. Anuradha sold steel rods worth ₹ 15,00,000 to a customer in the course of her business. (ii) She permanently transferred a laptop (used in her business) to her nephew without any consideration. She had availed Input Tax Credit (ITC) on the said laptop. (iii) Nandini Real Estates provided a commercial shop on rent to a tenant for a monthly rent of ₹ 1,20,000. (iv) Nandini Real Estates received legal advisory services from its parent company located in Germany for its business operations. The parent company did not charge any consideration for these services.

The permanent transfer of the laptop by Smt. Anuradha to her nephew is:

1. A deemed supply under Schedule I as ITC was availed. (correct answer)
2. Not a supply as it is made without consideration.
3. A supply of service under Section 7(1)(b).
4. Exempt from GST as it is a personal gift.

Answer: A — A deemed supply under Schedule I as ITC was availed.

Explanation. Para 1 of Schedule I explicitly states that the permanent transfer or disposal of business assets where input tax credit has been availed on such assets is treated as a supply, even if made without consideration. Since Smt. Anuradha had availed ITC, the transfer qualifies as a supply.

Where it goes wrong. Students frequently trip on the 'consideration' aspect, assuming that since it was a gift to a nephew, it is not a supply, while missing the specific inclusion under Schedule I.

Authority. Schedule I, Para 1 of the CGST Act, 2017

Question 6 · 2 marks · Taxation - GST Ch 02: Supply · hard

The legal advisory services received by Nandini Real Estates from its German parent is:

1. A deemed supply under Schedule I as it is from a related person in the course of business. (correct answer)
2. Not a supply as no consideration was paid.
3. A supply under Section 7(1)(b) as import of services.
4. Exempt from GST as it is an import.

Answer: A — A deemed supply under Schedule I as it is from a related person in the course of business.

Explanation. Para 4 of Schedule I covers the import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business, without consideration. The parent company is a related person, and the service is for business purposes, making it a deemed supply.

Where it goes wrong. Students may incorrectly apply Section 7(1)(b), which requires consideration for import of services, and overlook the Schedule I deeming provision for related persons.

Authority. Schedule I, Para 4 of the CGST Act, 2017

Question 7 · 2 marks · Taxation - GST Ch 02: Supply · medium

The sale of steel rods by Smt. Anuradha is:

1. A supply of goods under Section 7(1)(a). (correct answer)
2. A supply of services under Section 7(1)(a).
3. A mixed supply.
4. Not a supply as it is a sale of movable property.

Answer: A — A supply of goods under Section 7(1)(a).

Explanation. The sale of steel rods is a transfer of movable property (goods) for a monetary consideration in the course of business. It squarely falls under the definition of supply of goods as per Section 7(1)(a).

Where it goes wrong. Students might wrongly think that all sales involve an element of service, or might misclassify movable property as a service.

Authority. Section 7(1)(a) of the CGST Act, 2017

Question 8 · 2 marks · Taxation - GST Ch 02: Supply · medium

The renting of the commercial shop by Nandini Real Estates is classified as:

1. Supply of goods.
2. Neither supply of goods nor services.
3. Supply of services under Schedule II. (correct answer)
4. Composite supply.

Answer: C — Supply of services under Schedule II.

Explanation. Para 2 of Schedule II explicitly classifies any lease, tenancy, easement, or licence to occupy land, as well as the lease or letting out of a building (including a commercial complex) for business or commerce, as a supply of services.

Where it goes wrong. Students may get confused as immovable property is involved, potentially mistaking it for a supply of goods, or may think it is outside GST.

Authority. Schedule II, Para 2 of the CGST Act, 2017

Question 9 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Karan, a resident individual, availed legal services from a law firm in London for his personal property dispute. The payment was made in GBP. Which of the following is correct?

1. It is not a supply as it is not in the course of business.
2. It is a deemed supply under Schedule I.
3. It is a non-taxable supply.
4. It is a supply under Section 7(1)(b) as it is import of services for consideration. (correct answer)

Answer: D — It is a supply under Section 7(1)(b) as it is import of services for consideration.

Explanation. Section 7(1)(b) brings importation of services for a consideration within the ambit of supply, regardless of whether it is in the course or furtherance of business. Therefore, even though the service is for personal use, it constitutes a supply.

Where it goes wrong. Students often assume that personal services are outside GST, forgetting the specific exception carved out for the import of services under Section 7(1)(b).

Authority. Section 7(1)(b) of the CGST Act, 2017

Question 10 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A company permanently transfers a motor vehicle (on which ITC was blocked) to its director without consideration. What is the GST implication?

1. Deemed supply under Schedule I.
2. Not a supply as ITC was blocked. (correct answer)
3. Supply of service under Section 7(1)(a).
4. Exempt supply.

Answer: B — Not a supply as ITC was blocked.

Explanation. Para 1 of Schedule I applies only when input tax credit has been availed on the business assets being transferred. Since the ITC on the motor vehicle was blocked, the condition for deeming this transaction as a supply is not satisfied.

Where it goes wrong. Students may blindly apply Schedule I for any permanent transfer of business assets, ignoring the crucial precondition regarding the availment of ITC.

Authority. Schedule I, Para 1 of the CGST Act, 2017

Question 11 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Alpha Ltd. is a member of a housing society. The society collects maintenance charges from its members for providing security and water facilities. Which section governs this?

1. Section 7(1)(a)
2. Section 7(1)(b)
3. Section 7(1)(aa) (correct answer)
4. Section 7(1)(c)

Answer: C — Section 7(1)(aa)

Explanation. The collection of maintenance charges by a housing society (an entity other than an individual) from its members for services provided is specifically covered under Section 7(1)(aa). The society and its members are deemed to be separate persons for this purpose.

Where it goes wrong. Students might incorrectly choose Section 7(1)(a), overlooking the specific provision introduced to bring member-centric transactions under the GST net.

Authority. Section 7(1)(aa) of the CGST Act, 2017

Question 12 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is considered as "consideration" under GST?

1. Subsidy given by the Central Government.
2. A deposit given for supply (unless applied as consideration).
3. A gift to an employee up to ₹ 50,000.
4. Subsidy given by a private company. (correct answer)

Answer: D — Subsidy given by a private company.

Explanation. The definition of consideration under Section 2(31) specifically excludes subsidies given by the Central or State Government. However, subsidies provided by private entities (like a private company) are included within the scope of consideration.

Where it goes wrong. Students may generalize the exclusion of subsidies for all entities or may incorrectly treat gifts up to ₹ 50,000 as consideration when they are actually exempted from being a supply.

Authority. Section 2(31) of the CGST Act, 2017

Question 13 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Ankit sold his personal car to a dealer. Is this a supply under GST?

1. No, as it is not in the course or furtherance of business. (correct answer)
2. Yes, as sale of goods.
3. Yes, as it is a deemed supply.
4. No, as cars are exempt.

Answer: A — No, as it is not in the course or furtherance of business.

Explanation. One of the primary parameters for a transaction to qualify as a supply under Section 7(1)(a) is that it must be made in the course or furtherance of business. Selling a personal car does not meet this criterion, hence it is not a supply.

Where it goes wrong. Students may see 'sale of goods' and 'consideration' and hastily conclude it is a supply, forgetting the 'business test'.

Authority. Section 7(1)(a) of the CGST Act, 2017

Question 14 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A company provides complimentary samples of its new product to potential customers. Is this a supply?

1. Yes, as it is a supply of goods.
2. No, as it is without consideration and not covered under Schedule I. (correct answer)
3. Yes, as it is a deemed supply.
4. No, as it is a gift.

Answer: B — No, as it is without consideration and not covered under Schedule I.

Explanation. complimentary samples are supplied without any consideration. Under GST, unless an activity is specifically listed in Schedule I, a supply without consideration is not taxable. Distribution of complimentary samples does not find a place in Schedule I.

Where it goes wrong. Students often mistakenly believe that any goods leaving the factory, even complimentary samples, are deemed supplies under Schedule I, confusing it with permanent transfer of business assets.

Authority. Section 7(1)(a) of the CGST Act, 2017; Schedule I of the CGST Act, 2017

Question 15 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Zenith Ltd. transferred goods from its factory in Pune to its depot in Mumbai (both registered in Maharashtra under the same PAN and same registration). Is this a supply?

1. Yes, as it is a stock transfer.
2. Yes, as it is a deemed supply under Schedule I.
3. No, as it is exempt.
4. No, as it is not a supply between distinct persons (same registration). (correct answer)

Answer: D — No, as it is not a supply between distinct persons (same registration).

Explanation. Supply between distinct persons is a deemed supply under Schedule I. However, if a person has multiple places of business within the same State and holds a single registration, these establishments are not considered distinct persons. Therefore, the stock transfer is not a supply.

Where it goes wrong. Students often assume all inter-branch transfers are taxable, forgetting that 'distinct persons' require separate registrations (or different States), and a single registration within the same State breaks this chain.

Authority. Section 25(4) of the CGST Act, 2017; Schedule I of the CGST Act, 2017

Question 16 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following activities is NOT treated as a supply even without consideration under Schedule I?

1. Permanent transfer of business assets (ITC availed).
2. Supply between related persons in the course of business.
3. Import of services from a related person for personal use. (correct answer)
4. Supply of goods by principal to agent (agent supplies on behalf of principal).

Answer: C — Import of services from a related person for personal use.

Explanation. Para 4 of Schedule I deems import of services without consideration as a supply only if it is in the course or furtherance of business. Import for personal use from a related person does not qualify as a deemed supply.

Where it goes wrong. Students might read 'related person' and 'without consideration' and immediately jump to the conclusion that it is a deemed supply, missing the crucial 'in the course of business' requirement.

Authority. Schedule I of the CGST Act, 2017

Question 17 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. B, a resident, received interior decoration services from his brother in Canada for his residence. No consideration was paid. Is this a supply?

1. No, as it is not in the course of business and no consideration. (correct answer)
2. Yes, as it is import of service.
3. Yes, as it is from a related person.
4. No, as it is personal.

Answer: A — No, as it is not in the course of business and no consideration.

Explanation. While the brother is a related person, the import of service without consideration is a deemed supply only when received in the course or furtherance of business. Since it is for a personal residence, it falls outside the scope of Schedule I.

Where it goes wrong. Students often over-apply the 'related person' concept from Schedule I and forget the essential condition that the service must be for business purposes.

Authority. Schedule I, Para 4 of the CGST Act, 2017; Section 2(49) of the CGST Act, 2017

Question 18 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A supply of goods and services for a single price where the supply does not constitute a composite supply is called:

1. Composite supply.
2. Principal supply.
3. Mixed supply. (correct answer)
4. Continuous supply.

Answer: C — Mixed supply.

Explanation. Section 2(74) defines a mixed supply as two or more individual supplies of goods or services made in conjunction with each other by a taxable person for a single price, where such supply does not constitute a composite supply.

Where it goes wrong. Students often confuse mixed supply with composite supply. The key differentiator is that in a mixed supply, the items are not naturally bundled.

Authority. Section 2(74) of the CGST Act, 2017

Question 19 · 2 marks · Taxation - GST Ch 02: Supply · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is a "non-supply" under Schedule III?

1. Temporary transfer of IPR.
2. Sale of land. (correct answer)
3. Renting of immovable property.
4. Works contract.

Answer: B — Sale of land.

Explanation. Schedule III, Para 5, explicitly lists the sale of land as an activity that shall be treated neither as a supply of goods nor a supply of services. Other options are taxable supplies under Schedule II.

Where it goes wrong. Students might get confused between movable and immovable property or assume renting of immovable property is also excluded.

Authority. Schedule III of the CGST Act, 2017

Question 20 · 2 marks · Taxation - GST Ch 02: Supply · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A charitable trust receives a donation of ₹ 5,00,000 from a donor. The trust places a nameplate acknowledging the donor. Is GST applicable?

1. Yes, as it is a supply of service.
2. Yes, as it is a consideration.
3. No, as charitable trusts are exempt.
4. No, as there is no quid pro quo. (correct answer)

Answer: D — No, as there is no quid pro quo.

Explanation. As per the circular, donations received by charitable institutions are treated as consideration only if there is a quid pro quo (an obligation to supply a service). Displaying a nameplate to express gratitude does not amount to an obligation to supply a service, hence GST is not applicable.

Where it goes wrong. Students may see the nameplate acknowledgement and think it is an advertising service, missing the subtle distinction clarified by the circular regarding gratitude vs. commercial promotion.

Authority. Circular No. 116/35/2019 GST dated 11.10.2019