Seven years ago, the Goods and Services Tax (GST) was implemented as India’s largest indirect tax reform. With its dual taxation system, GST has replaced nearly all other taxes. Although procedural aspects like returns and refunds are increasingly streamlined, numerous unresolved legal and interpretational issues persist, especially regarding the nature of the taxable event.
Taxability on Supply
‘Supply’ includes:
- All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease, or disposal, made or agreed to be made for a consideration by a person in the course or furtherance of business;
- The import of services for a consideration, whether or not in the course or furtherance of business;
- The activities specified in Schedule I made or agreed to be made without a consideration.
The definition is inclusive, broadening the scope of what constitutes a supply. As long as an activity is made for a consideration and is in the course or furtherance of business, it is considered a supply, unless specifically excluded.
Interpreting “In the Course or Furtherance of Business” Under GST
To fully appreciate the GST implications of any transaction, it is crucial to analyze the phrase “in the course or furtherance of business.” This phrase is crucial for both assessing the tax liability of a transaction under GST laws and determining the eligibility of the recipient to claim input tax credit.
How GST Law Defines Business
“Business” is defined under Section 2(17) of the CGST Act, 2017, and includes:
- Any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for pecuniary benefit;
- Any activity or transaction in connection with or incidental or ancillary to (a);
- Any activity or transaction in the nature of (a), whether or not there is volume, frequency, continuity, or regularity;
- Supply or acquisition of goods, including capital assets and services, in connection with the commencement or closure of business;
- 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;
- Admission, for a consideration, of persons to any premises;
- Services supplied by a person as the holder of an office in the course or furtherance of his trade, profession, or vocation;
- Services provided by a race club by way of totalizator or a license to book maker in such club;
- Any activity or transaction undertaken by the Central Government, a State Government, or any local authority in their capacity as public authorities.
The term “business” under GST is broad and inclusive, encompassing a wide range of activities.
Meaning of “In the Course of Furtherance of Business”
The expression “in the course or furtherance of business” is not defined in the GST Act, 2017. Generally, it is understood that any activities undertaken by a person in connection with or having a close nexus to their business are in the course or furtherance of business.
Is Monetary Benefit a Prerequisite?
Under GST laws, the definition of business includes activities such as trade, commerce, manufacture, etc., whether or not they are for pecuniary benefit. Therefore, monetary benefit is not an essential element to determine whether an activity is in the course or furtherance of business.
Incidental or Ancillary Activities
Business, as defined under GST, includes activities incidental or ancillary to trade, commerce, manufacture, etc. Judicial precedents have clarified that not all activities undertaken can be said to be “business.” For instance, in the case of Royal Talkies, Hyderabad vs. Employees State Insurance Corporation, the court ruled that an activity is incidental if it pertains to something else as primary, and it should not be extraneous or contrary to the purpose of the establishment.
Pre-GST vs. Post-GST Interpretation
Pre-GST judgments, such as the case of State of Tamil Nadu vs. Board of Trustees of Port of Madras, established that not every activity undertaken can be termed as business. The Supreme Court observed that carrying on business requires something more than just buying and selling goods.
Under the GST regime, the scope of “business” is broader. Recent advance rulings, such as in CMS Info Systems Limited and Nagri Eye Research Foundation, indicate that the GST authorities may take a broader view of what constitutes business.
To conclude, the definition of “business” under GST is broad and inclusive, potentially encompassing activities not previously considered business under earlier tax laws. The interpretation of “in the course or furtherance of business” is crucial for determining tax liability and eligibility for input tax credit. India’s GST reform is evolving, introducing streamlined processes, broad definitions, and ongoing legal challenges that shape the business landscape. With its expanded scope, previously excluded activities may now be taxable. Careful analysis of each case is essential to avoid potential litigation. Staying informed and proactive will help businesses navigate these complexities effectively.