UNDERSTANDING CONCEPT OF BUSINESS UNDER GST ACT

Author- Tanvi Thapliyal

The idea behind the creation of the CGST Act was to unify taxation for manufacturing, trading, and services, ensuring a single tax system for the entire nation. Prior to the implementation of GST, the tax system was highly inefficient. Taxes had a significant impact on businesses and consumers. The inefficient handling of input taxes led to a chain of taxes being imposed at multiple stages, ultimately increasing the cost of products. This, in turn, created a tendency among businesses and consumers to resort to corruptive means in order to avoid paying taxes.

Prior to the implementation of GST, there were several laws that necessitated various compliances and registrations, all of which were not interconnected. It has been noticed that both the central and state governments are imposing taxes on a single transaction. Prior to the implementation of GST, taxes were imposed at three different levels. These taxable events have created a situation where taxes overlap and become complicated, leading to a rise in issues that ultimately burden the courts.

The introduction of GST on 1st July 2017 brought about numerous advantages-

• Taxes were reduced, leading to lower prices and ultimately decreasing inflation.
• The integration of markets has led to simplified business transactions, ultimately benefiting small taxpayers.
• Black transactions have significantly decreased due to the implementation of self-regulating and non-intrusive electronic tax systems.
• Consumers have become increasingly aware and well-informed due to the simplified tax system and the reduction in the number of taxes.
• The Make in India initiative has effectively zero-rated exports, providing a boost to domestic businesses by encouraging and protecting them.

What is the Definition of Business in GST Law?

According to section 2(17) of the CGST Act, 2017, the term "Business" encompasses-

Any form of business, trade, profession, or other similar activity, regardless of whether it is done for financial gain or not;

Any activity or transaction related to or associated with sub-clause (a); Any activity or transaction similar to sub-clause (a), regardless of the volume, frequency, continuity, or regularity of such transaction;

The supply or acquisition of goods, including capital goods and services, in connection with the start or end of a business; The provision by a club, association, society, or similar organisation of facilities or benefits to its members for a subscription or other payment; Charging a fee for admission to any premises; Services provided by someone in their capacity as an office holder in the course of their trade, profession, or vocation; The activities of a race club, including operating a total

Every activity or transaction carried out by the Central Government, a State Government, or any local authority is considered as part of their public duties.

The Act provides a comprehensive definition of the term business. This encompasses a wide range of activities and transactions that are related to trade, manufacture, commerce, profession, vocation, adventure, wager, or other similar endeavours. The terms lack specific definitions, and the inclusion of 'Agriculture' in the business has not been explicitly stated.

Understanding the Concept of Business

The definition of business encompasses a wide range of activities, including trade, manufacture, profession, commerce, vocation, wager, adventure, or any other similar activity, regardless of whether it is done for pecuniary gain. The term "pecuniary benefit" refers to a monetary advantage that brings financial gain to an individual. Unlike in GST laws, pecuniary benefit is not a crucial factor in determining whether an activity qualifies as a business. Any activity, regardless of financial gain, would be considered within the realm of business.

The definition refers to something that is additional to the core area of the business and may not align with its main purpose. This means that even if the business is making profits from an activity that it wasn't originally intended for, it is still required to pay taxes under the GST Act.

The Act places emphasis on business transactions based on their volume, frequency, continuity, or regularity. This means that the rule of supply and consideration becomes crucial in determining tax obligations, regardless of the primary focus of the business. If someone is engaged in a transaction where they provide goods and services in exchange for payment, it will be considered a business under the GST Act, regardless of whether it is a one-time occurrence or a regular arrangement.

The Act primarily centres around the concept of 'in furtherance of the business'. This encompasses any activity, whether related or unrelated, significant or insignificant, that pertains to the business and garners consideration for it. Such activities will be deemed as contributing to the advancement of the business and will be subject to GST.

Understanding the Definition of Business Through Examples

Any type of activity, whether it be a trade, profession, commerce, or any other similar endeavour, regardless of whether it is done for financial gain or not.

• The bank offers a range of services, such as loans and credit, that are available to its customers.
• Producing high-quality wine in vineyards for both local and international markets.
• Legal advice provided by experienced solicitors specialising in property and family disputes.
• An NGO is dedicated to offering free education to children who are facing challenges due to Down syndrome.

There are various activities and transactions that are related to or connected to sub-clause (a).

• Educational institutions providing science labs to private research entities for research purposes.
• Secure lockers available for storing gold and other valuable items at the bank.

Any activity or transaction, regardless of its volume, frequency, regularity, or continuity, falls under sub-clause (a).

• Experiencing the thrill of playing IPL through gambling apps and coming out victorious.
• A law firm is selling their old stationery.

Dealing with the procurement or purchase of goods and services, particularly those related to starting or ending a business.

• Services provided by a legal advisor to draft the contract for setting up a corporate entity.
• Brokers play a crucial role in facilitating the process of renting an apartment and charging a brokerage fee for their services.
• Providing facilities or benefits to members is a common practice among clubs, associations, societies, and similar organisations. These perks are usually offered in exchange for a subscription or some other form of consideration.
• Futsal arenas were created with the intention of promoting recreational activities and fostering a love for sports.
• Recreational clubs within societies.
• Allowing individuals access to certain locations in exchange for payment.
• Get your movie tickets for the latest releases at the nearest theatres.
• Discover the wonders of ancient history with our selection of tickets to archaeological sites.
• Admission passes to experience the excitement of a fair or circus.
• Services provided by an individual in a position they have accepted within their chosen field or occupation.
• Providing advisory and consultancy services, the company's director assists in regulating another company's GST-related issues.
• The activities of a race club, such as operating a totalizator or holding a licence as a bookmaker, are essential components of the club's operations.
• A totalizator is a fixed commission earned by any racing club, regardless of the outcome. This commission is considered taxable income.
• All activities and transactions are managed by the Central Government, State Governments, or local authorities as public authorities.
• The national highway authority is engaged in the construction of highways, providing compensation to landowners whose lands are affected by the development process.

Some other examples:

Person 'A' pursues painting as a hobby, only to unexpectedly sell a painting for a staggering 1 crore. Is it considered a business under the GST Act?

Indeed, 'A' initially pursued painting as a personal hobby, but eventually found himself providing his artwork to someone else in exchange for compensation. This inadvertently falls under the category of supply as defined by the GST act, resulting in 'A' being classified as a business under the GST Act.

Person 'A' sells his vintage car to person 'B' for a whopping Rs. 2 crores. Is this transaction classified as a business transaction under the GST Act?

Indeed, the Act places emphasis on factors such as the volume, frequency, continuity, and regularity of transactions in order to determine whether it qualifies as a business. Additionally, it takes into account the existence of a trade between person 'A' and 'B'. However, there was a particular instance that required a significant amount of money, making it necessary to conduct business under the GST Act.

A person named 'A' decides to sell his old jewellery to a jeweller named 'B' for a sum of Rs. 50,000. Is this transaction classified as a business under the GST Act?

No, when a person sells their old gold jewellery to a jeweller and the jeweller provides payment for it, this transaction cannot be considered as part of their business activities. Therefore, it does not meet the criteria for supply and will not be classified as a business under the GST Act.

The role of the judiciary in defining the term "business" under the GST Act

Appeal No. MAH/GST-AAAR-14/2018-19 has been filed by Shrimad Rajchandra Adhyatmik Satsang Sadhna Kendra. On June 14, 2018.

The petitioner argued that their trust was established with the main goal of promoting knowledge of Jain dharma. They sold publications and CDs to support this cause, and therefore, should not be considered a business under the GST Act. However, the court held a contrasting view and emphasised that the petitioner's activities of selling goods constituted trade and commerce, falling within the purview of the GST Act.

The case of Commissioner of Sales Tax vs. Sai Publication Fund (2002) 4 SCC 7 (SC) is an important one.

Four devoted individuals came together to establish a charitable trust with the purpose of spreading the teachings of Sai Baba of Shirdi. In order to accomplish their goal, they released a variety of written materials, including books, booklets, and other publications, all containing Sai Baba's message. These materials were offered to devotees at a small cost to cover expenses. The trust submitted an application to ascertain its classification as a 'dealer' under section 52(1) (a) (1) of the Act, thereby exempting it from being considered a business.

In this case, the court noted that simply selling goods like books, pamphlets, and other publications does not classify the trust as a 'dealer'. Therefore, it is not engaged in trade or commerce and does not qualify as a business.

The appeal filed by CMS Info Systems Limited, with reference number MAH/AAAR/05/2018-19 dated 10.05.2018, is under consideration.

Here, the applicant would purchase vehicles and convert them into cash carry vans, which were then sold as scrap. This raises the question of whether selling the motor vehicle as scrap qualifies as a business transaction and if GST will be applicable.

According to the court's ruling, the transaction involving the supply of cash carry vans to scraps would be classified as a supply made in the course of "furtherance of business" and would be subject to GST.

The case of Nagri Eye Research Foundation vs. Union of India, with reference to special civil application no. 7822 OF 2021 September 7th, 2021.

In this particular situation, the trust provided medicines from its medical store at reduced prices without any financial gain, and it did not operate as a business under the GST Act.

The court noted that the definition of the term 'business' encompasses various activities such as trade, commerce, and manufacture, regardless of whether they are done for financial gain. Consequently, the court concluded that the trust's activities should be regarded as business activities.

Conclusion

The CGST Act represents a significant milestone in the realm of indirect taxation in India. The government's objective in enacting this Act is to ensure that all transactions made in exchange for consideration are considered as business. The inclusive definition of business under section 2(17) of the CGST Act expands the scope of business and leaves no room for tax evasion or other corrupt practices.

FAQs

What is considered as 'business' under the GST Act?

Under the GST Act, 'business' includes any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is carried on with the motive of profit.

Do all activities fall under the definition of 'business' for GST purposes?

No, not all activities are considered as 'business' for GST purposes. The activity must be carried out on a continuous or repetitive basis with the intention of making a profit.

Does the GST Act consider charitable or non-profit activities as 'business'?

Generally, charitable or non-profit activities are not considered as 'business' under the GST Act unless they involve the supply of goods or services for consideration in the course of furtherance of business activities.

What are the implications of being considered as a 'business' under the GST Act?

Being considered as a 'business' under the GST Act means that the entity may be required to register for GST if its aggregate turnover exceeds the threshold limit prescribed by the authorities.

Is there a threshold limit for turnover under the GST Act?

Yes, there is a threshold limit for turnover under the GST Act. Currently, the threshold limit for registration is ₹20 lakhs (₹10 lakhs for special category states) for most states in India.

Are there any exemptions or special provisions for small businesses under the GST Act?

Yes, small businesses with an aggregate turnover below the threshold limit may opt for the Composition Scheme, under which they are subject to simplified compliance requirements and pay GST at a fixed rate on their turnover.

What if a business operates in multiple states?

If a business operates in multiple states, it may be required to register for GST in each state where it has a taxable presence, i.e., where it has a place of business or makes taxable supplies.

Are there any penalties for non-compliance with GST registration requirements?

Yes, failure to register for GST when required or failure to comply with GST registration requirements may attract penalties under the GST Act, including monetary fines and prosecution.

How does the GST Act define the concept of 'supply'?

The GST Act defines 'supply' very broadly to include all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration in the course or furtherance of business.

Is there any distinction between goods and services for GST purposes?

No, the GST Act treats goods and services uniformly, and the same tax provisions generally apply to both goods and services.