1. Definition of Business under GST- Overview
From the above definition it can be noted that:
Business includes any activity carried out by a person whether or not, there is volume, frequency, continuity or regularity of such transaction.
Meaning a single transaction of supply also is considered business
Also occasional trade or even one time trade constitutes business.
Ex – Selling of mangoes by a farmer during summer
Mr.Z find a piece of jewellery on the road and sells it to Mr.Y for a profit (one time trade)
2. Meaning of Furtherance of Business Under GST
The term “business” has been defined but the phrase “in the course or furtherance of” has not been dealt with in any manner under the GST law.
The literal meaning of the said phrase ‘in the course of or furtherance of ‘ is ‘during the act of or in continuation of carrying out such act in future’
Thus, in course or furtherance of Business means either of following :
Anything done in relation to business, while carrying out business or simply a revenue-generating ordinary activity of that organisation/concern.
For example: Selling scrap generated in process of manufacturing turbines.
Purchases & Sales of spare parts by an automobile vendor.
Anything done to achieve the objectives of continuing to conduct the same business in future
For example: Activities done as part of CSR by a Company.
Hence the phrase also covers any supplies made in connection with the business.
3. Purpose of the phrase ‘in the course or furtherance of Business’ under GST
Any activity carried out by the entity in the course or furtherance of business is included in the ambit of business definition and hence will be considered as ‘supply’ under GST. Further one must check for the taxability of supply and exemptions.
‘In the course or furtherance’ is not defined, but is broad enough to cover any supplies made in connection with the business. The phrase widens the scope of Business definition to bring more activities in its ambit. Important to note that any supplies received by a taxable person used/ consumed in the course or further of business is eligible for claiming input tax credit.
The phrase further enables the entity to supply and to receive supplies where the act is towards achieving the goals of the business. This impacts the eligibility to claim input tax credit.
Hence, it becomes important for an entity to understand and justify that a particular act is done in the course and furtherance of its business goals and intentions.
4. Meaning of Business under GST explained with illustrations
As per Sec 2(17) of CGST Act, 2017 “Business” includes :
a. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
i. Banks providing financial services to its customers.
ii. Company manufacturing turbines for export and local sale.
iii. Provision of CA services to client such as audit and consultancy.
iv. An artist earning income for dance performances.
v. Gambling in a Derby.
vi. Charitable hospital providing free medicines to farmers.
Note: Pecuniary benefit means monetary benefits. It’s a benefit or compensation that is quantifiable in monetary terms.The primary significance of this term is economic gain by the entity.
b. any activity or transaction in connection with or incidental or ancillary to (a) above;
i. Provisions of lockers for rent to customers in the Bank premises as Banks have high security.
ii. Turbine Manufacturing company letting out R&D facilities to research units towards improvement of product and expansion.
c. any activity or transaction in the nature of(a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;
i. Mr.X gambles for the first time in Derby and wins.
ii. Sale of mangoes by a farmer during summer in flea market.
iii. Sale of old newspapers by a CA firm.
d. supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;
i. Services rendered by a Company Secretary to incorporate a Company.
ii. Real estate agent helping Company to acquire factory godown for a commission.
e. 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, as the case may be;
i. Cooperative society formed for lending loans to farmers.
ii. Recreation club formed by apartment owners.
f. admission, for a consideration, of persons to any premises; and
i. PVR selling movie tickets.
ii. Entry / Admission fee collected by Art exhibitions to display artifacts, paintings and sculptures made by artists.
iii. Museums run by Governments for an entry fee to public to display objects of historical significance.
g. services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
i. Consultancy service provided by a Company CFO regarding Mergers to another company.
h. services provided by a race club by way of totalisator or a licence to bookmaker in such club;
i. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
i.Acquisition of land for Metro construction by the State Government from the landowners for some compensation.
ii. Government running BBMP service for the welfare of citizens.
Examples to understand Supplies made in the course and furtherance of business
1. Supply of goods to an orphanage by any manufacturing company for free distribution to meet its CSR obligations will not get covered as a taxable as it is without consideration. Such distribution would be in the course of business for the company as meeting CSR obligations is ancillary or incidental to its main business.
2. A Banking company selling hypothecated assets due to default in debt payment by its borrowers is in the course and furtherance of business.
3. A turbine manufacturing company running a staff canteen is in the course and furtherance of business.
4. A non resident person Mr.X visits India as a tourist and sells his camera for Rs.10000. This doesn’t amount to supply as it is not in the course and furtherance of business.
5. A practicing CA who is registered under GST sells his personal Rado watch. It doesn’t amount to supply as it is not in the course and furtherance of business.
Examples to understand the term whether or not it is for a pecuniary benefit
1. A Charitable hospital providing free medical treatment to poor patients or to farmers is also covered under the scope of ‘business’ though its not for pecuniary benefit.