Understanding the Definition of Business under GST

Under the Goods and Services Tax (GST) framework, the term 'business' encompasses a broad spectrum of activities, including trade, commerce, manufacturing, professions, and vocations. This definition extends to both primary and secondary activities, irrespective of whether they generate monetary gain. This document will delve into the comprehensive meaning of 'business' within GST, supplemented with practical illustrations.

Understanding the Definition of Business under GST

The definition clarifies that business activities include any transaction undertaken by an individual, regardless of its volume, frequency, continuity, or regularity. This means even a single supply transaction or an occasional trade can be classified as business. For instance, a farmer selling mangoes seasonally, or an individual selling a found piece of jewelry for profit, would both fall under this definition.

Interpretation of 'In the Course or Furtherance of Business' Under GST

While 'business' is explicitly defined, the phrase 'in the course or furtherance of business' lacks specific elaboration within GST law. Its literal interpretation implies actions performed 'during the act of' or 'in continuation of' business operations. This concept broadly encompasses:

• Any action linked to business execution, ongoing business activities, or routine revenue-generating operations of an entity. For example, selling manufacturing scrap from turbine production, or an automobile vendor dealing in spare parts.
• Activities undertaken to support the future continuation and objectives of the business. This includes, for instance, Corporate Social Responsibility (CSR) initiatives by a company. Consequently, this phrase extends to cover all supplies related to a business's operations.

Significance of the 'In the Course or Furtherance of Business' Phrase

Activities performed 'in the course or furtherance of business' are integrated into the business definition under GST, thereby classifying them as 'supply.' Subsequent steps involve assessing the taxability and potential exemptions for such supplies. Despite not being formally defined, this phrase possesses a broad scope, encompassing all supplies associated with business operations. Its inclusion expands the reach of the business definition, drawing more activities into its purview. Crucially, any supplies procured by a taxable individual for use or consumption 'in the course or furtherance of business' qualify for Input Tax Credit (ITC). This stipulation empowers entities to engage in both supplying and receiving goods or services that align with their business objectives. Therefore, entities must thoroughly comprehend and substantiate that their actions are genuinely aligned with their business's goals and intentions to claim ITC benefits.

Illustrative Examples of Business Under GST

Section 2(17) of the CGST Act, 2017 outlines what constitutes 'Business,' including:

• Any trade, commerce, manufacturing, profession, vocation, adventure, wager, or comparable activity, regardless of whether it yields monetary gain.

  • Examples:

    • Banks offering financial services to customers.
    • A company producing turbines for both domestic and international markets.
    • Chartered Accountants providing audit and consultancy services.
    • An artist generating income from dance performances.
    • Gambling activities, such as those at a Derby.
    • A charitable hospital distributing free medicines to farmers.

    Note: 'Pecuniary benefit' refers to financial compensation or gain that can be quantified monetarily, signifying economic advantage for the entity.

• Any activity or transaction related to, or incidental or ancillary to, the aforementioned points (trade, commerce, etc.).

  • Examples:
    • Banks offering locker facilities for rent to customers within their secure premises.
    • A turbine manufacturing company leasing out its Research and Development (R&D) facilities to other research units to foster product enhancement and business growth.

• Any activity or transaction similar to those in point (a), irrespective of its volume, frequency, continuity, or regularity.

  • Examples:
    • An individual gambling for the first time at a Derby and winning.
    • A farmer selling mangoes during the summer at a local market.
    • A Chartered Accountant firm selling old newspapers.

• The supply or acquisition of goods, including capital assets and services, pertaining to the initiation or termination of a business.

  • Examples:
    • Services provided by a Company Secretary for company incorporation.
    • A real estate agent assisting a company in acquiring a factory warehouse for a commission.

• The provision of facilities or benefits by a club, association, society, or similar entity to its members, typically for a subscription or other form of consideration.

  • Examples:
    • A cooperative society established to provide loans to farmers.
    • A recreational club created by apartment residents.

• The admission of individuals to any premises in exchange for consideration.

  • Examples:
    • PVR selling cinema tickets.
    • Art exhibitions collecting entry fees to showcase artifacts, paintings, and sculptures by artists.
    • Government-operated museums charging an entry fee for public viewing of historically significant objects.

• Services rendered by an individual holding an office, provided these services are accepted 'in the course or furtherance of' their trade, profession, or vocation.

  • Example:
    • A Company CFO offering merger-related consultancy services to another organization.

• Services extended by a race club through a totalisator or by granting a license to a bookmaker within that club.

• Any activity or transaction carried out by the Central Government, a State Government, or any local authority when operating in their capacity as public authorities.

  • Examples:
    • State Governments acquiring land for Metro rail construction, providing compensation to landowners.
    • Government bodies managing municipal services (e.g., BBMP) for public welfare.

Examples Illustrating Supplies 'In the Course and Furtherance of Business'

• A manufacturing firm providing goods to an orphanage for free distribution, fulfilling its CSR duties, is considered 'in the course of business' because CSR is an incidental activity. However, since it's without consideration, it typically wouldn't be a taxable supply.
• A banking institution selling hypothecated assets due to loan defaults by borrowers is engaged in an activity 'in the course and furtherance of business.'
• A company that manufactures turbines operating a staff canteen for its employees is also conducting an activity 'in the course and furtherance of business.'
• When a non-resident tourist sells a personal camera in India, this transaction usually does not constitute a supply 'in the course and furtherance of business.'
• A registered Chartered Accountant selling a personal watch would not classify this as a supply 'in the course and furtherance of business,' as it pertains to personal assets.

Understanding 'Whether or Not It Is for a Pecuniary Benefit'

A charitable hospital delivering free medical care to impoverished patients or farmers still falls within the definition of 'business,' even though these services do not aim for monetary profit.