Whether a sale without any consideration amounts to a valid sale under the Indian Contract Act and GST Laws?

[YAGAY andSUN]

Query:

Whether a sale without any consideration amounts to a valid sale under the Indian Contract Act and GST Laws?

Legal Analysis:

1. Under the Indian Contract Act, 1872

• As per Section 10 of the Indian Contract Act, a valid contract must be supported by consideration.
• Section 25 states that agreements made without consideration are void, unless they fall under a few specific exceptions (like voluntary gifts in writing, compensation for past voluntary services, or promises made out of natural love and affection).

Conclusion under Contract Act:
A sale without consideration is not a valid contract of sale under the Indian Contract Act unless it qualifies as a gift or fits under the limited exceptions.

2. Under GST Law (CGST Act, 2017)

• Under Section 7(1)(a) of the CGST Act, "supply" includes sale, transfer, barter, exchange, license, rental, lease, or disposal made for a consideration in the course or furtherance of business.
• However, Section 7(1)(c) read with Schedule I of the CGST Act covers certain activities that are deemed to be ‘supply’ even if made without consideration. These include:
  • Permanent transfer/disposal of business assets where ITC was availed
  • Supply between related/distinct persons in the course of business
  • Supply of goods/services by employer to employee beyond ₹50,000
  • Import of services from a related person or establishment outside India

Conclusion under GST Law:
Even if there is no consideration, the transaction may still be considered a "deemed supply" under Schedule I, making it liable to GST.

Combined Legal Position:

Law	Without Consideration	Status
Indian Contract Act	Not a valid sale	Void (unless it’s a gift or under exceptions)
GST Law	Can still be a taxable supply	Yes, if covered under Schedule I

Final Conclusion:

• Under Indian Contract Law, a sale without consideration is generally not valid and is treated as void, unless it qualifies under exceptions (e.g., gift).
• Under GST, such a transaction can still be treated as a “supply” if it falls under Schedule I, even without consideration, and may attract GST accordingly.