GST

Business under GST- Overview, Meaning & Examples

BUSINESS UNDER GST- OVERVIEW, MEANING & EXAMPLES-min

The concept behind the establishment of the CGST Act was one nation: one tax for manufacturing, trading, and services. Before GST, the tax regime was grossly inefficient. Taxes had cascading effects on businesses and consumers, i.e. there was inefficient breakage of input taxes resulting in the imposition of a tax chain at multiple stages, which at last added to the cost of a product and resulted in the tendency of the businesses and consumers to use corruptive means to avoid paying taxes.

Before GST, multiple laws required multiple compliances and registrations without any interlinkages with one another. It was observed that both central and state governments are taxing one transaction.

Before GST tax used to get levied at three levels, i.e.

These taxable events made taxes overlapping and complicated, resulting in rising issues ultimately burdening courts.

The implementation of GST on 1st July 2017 resulted in multiple benefits. For example –

  • The cascading of taxes reduced, resulting in the reduction of prices, ultimately decreasing inflation.
  • Markets unified, resulting in making business transactions easy, ultimately benefitting the small taxpayers.
  • There is a steep reduction in black transactions because of the self-regulating and non-intrusive electronic tax systems.
  • Consumers became more aware and informed because of the simplified tax regime and reduction in the multiplicity of taxes.
  • The initiative of Make in India made exports zero-rated, encouraging and protecting domestic business.

How Does Gst Law Define Business-

As per section 2(17) of CGST Act[1], 2017 “Business” includes–

  1. Any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for a pecuniary benefit[2];
  2. Any activity or transaction in connection with or incidental or ancillary to sub-clause (a)[3];
  3. Any activity or transaction like sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction[4];
  4. Supply or acquisition of goods, including capital goods and services, in connection with the commencement or closure of business[5];
  5. Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members[6];
  6. Admission, for a consideration, of persons to any premises[7];
  7.  Services supplied by a person as the holder of an office which he has accepted in the course or furtherance of his trade, profession, or vocation[8];
  8. activities of a race club including by way of totalizator or a license to book maker or activities of a licensed book maker in such club[9]; and
  9. Any activity or transaction is undertaken by the Central Government, a State Government, or any local authority in which they are engaged as public authorities[10].
    • The Act gives an inclusive definition of the term business. It includes all types of activities and transactions incidental or ancillary to trade, manufacture, commerce, profession, vocation, adventure, wager, or other similar activities. The terms are not specifically defined, and ‘Agriculture; has not been specifically included in the business[11].
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Analysis Of The Term Business

  • The definition of business contains any “trade,  manufacture, profession, commerce, vocation, wager, adventure,  or any other similar activity, whether or not for pecuniary gain.” Here, the term pecuniary benefit is monetary and provides financial gain to a person. In contrast, in GST laws1, Pecuniary benefit is not an essential element or a deciding factor for an activity to be considered a business. Even an activity undertaken without any monetary benefit would fall under the scope of business.
  • The definition uses the term ancillary or incidental, i.e. something that is additional to the core area of the business and could be contrary to the main purpose of the business, which means that even if the business is making profits by means of an activity which it wasn’t constituted then also it is liable to pay taxes under the GST Act.
  • The Act focuses on the business transactions as per their volume, frequency, continuity, or regularity, making the rule of supply and consideration significant to attract taxes, i.e. even if the core area of business is something else. They are involved in a transaction that includes the supply of goods and services from their end in the return of a consideration it will amount to be a business under GST Act no matter if it was a one-time transaction or a regular one.
  • Ultimately, the main focus of the Act is upon the term ‘in furtherance of the business’, which includes any activity related, unrelated, important, non-important, or anything concerning the business that attracts consideration for the same will be considered to be done to further the business and will attract GST.

Meaning Of The Term Business With Examples

  1. Any “trade, manufacture, profession, commerce, vocation, wager, adventure,  or any other similar activity, whether or not for pecuniary gain.”[1].
    • The bank provides exempted services like loans, credit, etc., are to its customers.
    • Manufacturing of vine in vineries for local sale and exportation.
    • Legal advisory by advocates in matters involving property and family disputes.
    • NGO providing free education to children suffering from Down syndrome.
  2. Any activity or transaction in relation to or incidental or ancillary to sub-clause (a)[2];
    • Educational institutions are giving out science labs to private research entities for research purposes.
    • Lockers for keeping gold and other valuables by bank.
  3. Any activity or transaction like sub-clause (a), whether or not there is volume, frequency, regularity or continuity of such transaction[3].
    • Playing IPL through gambling apps for the first time and winning.
    • Sale of old stationery by a law firm.
  4. Supply or acquisition of goods involving capital goods and services in relation to the commencement or closure of business[4].
    • Services rendered by a legal advisor for drafting the contract for the establishment of a corporate entity.
    • Brokers are helping in renting an apartment for brokerage.
  5. Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members[5].
    • Futsal arenas were established for recreational activities and to encourage playing sports.
    • Recreational clubs of societies.
  6. Admission, for a consideration, of persons to any premises[6].
    • Movie tickets to theatres.
    • Tickets to archaeological sites.
    • Ticket to visit a fair or circus.
  7. Services rendered by a person as a holder of any office accepted by him during his trade, profession or vocation[7]
    • Advisory and consultancy provided by a company’s director to regulate another company’s GST-related issues.
  8. Activities of a race club, including by way of totalizator or a license to book maker or activities of a licensed book maker in such club[8].
    • A totalizator is the fixed commission earned by any racing club irrespective of the outcome persisting the same, which is a taxable income.
  9. Any activity or transaction is taken care of by the Central Government, a State Government, or any local authority in which they are engaged as public authorities.[9].
    • Construction of highways by the national highway authority by giving compensation to the landowners whose lands come in hindrance of development.
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Other Examples-

  1. Person ‘A’ undertakes painting as a hobby but ends up selling a painting worth 1 crore. Will it be business under the GST Act?
    • Yes, although ‘A’ started his hobby of painting for self-satisfaction but ended up supplying the same to another person in return for consideration, thereby covering the transaction within the definition of supply under the GST act, leading to him doing business under the GST Act.
  2. Person ‘A’ sells his vintage car to person ‘B ‘ for Rs. 2 crores. Will this transaction be considered business under the GST Act?
    • Yes, the Act focuses upon the volume, frequency, continuity, and regularity of transactions for it to be a business and because there is a trade between person ‘A’ and ‘B’. However, one time but it involves a huge sum of money hence, will be business under GST Act.
  3. Person ‘A’ sells his old jewellery to jeweller ‘B’ for Rs. 50,000. Will this transaction be considered as a business under the GST Act?
    • No, selling old gold jewellery by a person to a jeweller and jeweller giving the consideration for same cannot be said to be done in the course or furtherance of his business and, hence, does not qualify to supply and will not be a business under GST Act.

Role Of The Judiciary In Defining The Term Business Under Gst Act

  1. Shrimad Rajchandra Adhyatmik Satsang Sadhna Kendra, Appeal No. MAH/GST-AAAR-14/2018-19 Dated 14.06.2018.
    • In this case, the petitioner contended that the primary purpose behind the establishment of their trust was to spread knowledge of Jain dharma, and publications, CDs, was sold for the same and hence cannot be considered as business under GST Act. Still, the court was of different opinion and stated that the petitioner was engaged in trade and commerce by selling of goods and is very well covered under the scope of business under GST Act.
  2. Commissioner of Sales Tax vs. Sai Publication Fund (2002) 4 SCC 7 (SC).
    • In this case, a charitable trust was formed by four devotees of Sai Baba of Shirdi with the intent of spreading the word of Saibaba. To achieve the same objective, they published several “books, booklets, literature, and other publications” bearing Sai Baba’s message; the same was made available to the devotees for a minimal fee to bear the costs. The trust made an application to determine whether it is a ‘dealer’ according to section 52(1) (a) (1) of the Act, subsequently not making it a business.
    • The court, in this case, observed that the mere sale of goods such as books, pamphlets, and other publications could not term the trust to be a ‘dealer’; hence, it is not an entity carrying trade or commerce and is not a business.
  3. CMS Info Systems Limited Appeal No. MAH/AAAR/05/2018-19 DATED 10.05.2018.
    • In this case, the applicant used to buy vehicles to fabricate them into cash carry vans and later on used to sell the same in scrap, raising the question of whether the sale of this motor vehicle in scrap will be treated as supply in the course of “furtherance of business” and whether GST Will be levied on such transactions.
    • In this case, the court held that the transaction where a supply is made of cash carry vans to scraps would be considered as supply in the course of “furtherance of business” and would attract GST.
  4. Nagri Eye Research Foundation vs. Union of India r/special civil application no. 7822 OF 2021 Dated 09/07/2021.
    • In this case, the trust was supplying medicines from its medical store at lower rates without any pecuniary motive and was not carrying a business under the GST Act.
    • The court observed that as per the definition of the term ‘business’, it includes trade, commerce, manufacture, etc., whether or not for a pecuniary benefit, and therefore, the activity of the trust has to be considered as the activity of carrying business.
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Conclusion

The CGST Act is a major breakthrough in the field of indirect taxation in India. The objective of the government behind the establishment of this Act is to bring all the transactions entered into by a person in return for consideration under the ambit of business and the inclusive definition of business under section 2(17) of CGST Act broadens the scope of business and interprets it in a way that no window is left open for tax invasion and other corruptive practices.

References

  1. https://services.gst.gov.in/services/gstlaw/gstlawlist

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