Advance rulings | Definition of Business | Sec 2(17) | CGST Act, 2017

Definition Of  Business Under GST – Overview

Supply or acquisition of goods including capital goods and services

Admission of person to any premises

Provision of facilities to a member of a club, association etc

Activities are undertaken by CG, SG or  any Local authority

Services supplied as the holder of the office

Services by Race club

Trade, Commerce, Manufacture, Profession, Vocation etc

Incidental or Ancillary Activity related to such trade, commerce, manufacture, profession, vocation etc

Whether or not there is volume, frequency, continuity or regularity

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 activities in future’

Thus, in the course or furtherance of Business means either of the following :

Anything was done in relation to business while carrying out business or simply a revenue-generating ordinary activity of that organization/concern.

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 the 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 the input tax credit.

The phrase further enables the entity to supply and to receive supplies where the action is towards achieving the goals of the business. This impacts the eligibility to claim the 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.

Advance Rulings on definition under 2(17) “Business” 

CMS Info Systems Limited Application No: 08/2017-18 Order No. 19/03/2018

1) Questions sought by the applicant: Whether supply of such motor vehicles as scrap after its usage can be treated as ‘supply’ in the course or furtherance of business and whether such a transaction would attract GST? If yes, please provide the rate of GST and/or Compensation Cess.

2) Submission of the applicant : The applicant is supplying motor vehicles as scrap after using the same. Therefore the issue raised is whether such a transaction can be considered to be “supply” in the eyes of GST law. In this regard, it would be worth analyzing section 7 of GST Act which read as under:-

The term Supply has been defined under section 7 (1) of the CGST Act by way of Scope of Supply which includes:

(a) All forms of Supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

On analysizing the above definition , it may be observed that only when tracsaction is in the course or furtherence of business, the transaction would be treated as supply.

For reaching to conclusion it is important to understand the term “Business” Sec 2(17) defines as under

“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;

(b) any activity or transaction in connection with or incidental or ancillary to (a) above;

(c) any activity or transaction in the nature of(a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business;

(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;

(f) admission, for a consideration, of persons to any premises; and

(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;

(h) services provided by a race club by way of totalizator or a license to book maker 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.

Clause (C) of the above definition may cause certain doubts that even if a stray transaction of selling scrap is covered under the definition of “business”. However itis very important to note that clause (c) of above definition shall be in the nature of trade, commerce, manufacture, profession, vocation etc.

The trade or commerce are not defined under GST Act and therefore recourse may be taken to dictionary.  Cambridge dictionary.” the activities of buying and selling the things”Oxford dictionary.”the activity of buying and selling specially on a large scale” Your dictionary. “Trade is defined as the general marketplace of buying and selling goods the way you make living or the act of exchanging or buying or selling something”For above dictionary meaning , it appears to consider something as business, it should be an “activity” not a stray transaction.

The question raised before finance minister whether the activity of selling old gold jewellery by an individual supplier comes within the purview of the “supply” . FM clarifies as follow:

the Finance Ministry clarified, providing respite to people who exchange jewelry.

“Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewelry is not the business of the said individual), and hence does not qualify to be a supply.

From the above clarification, It seemed that the intention of the government is not to treat all transactions as “Supply” unless which are carried on the normal course of the business activities which are carried with an intention to engage suppliers into the activities of buy or sell of relevant commodity/services.

3) Findings and discussion- As per concerned officer:

The submission, as reproduced verbatim, could be seen thus-

The point wise comment are as follow-

i)  As per section 7(1)a the activity of supply of vehicle comes under the ambit “Scope of Supply” as it clearly states all forms of supply  of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; As per section 2(17) “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;

(b) any activity or transaction in connection with or incidental or ancillary to (a) above;

(c) any activity or transaction in the nature of(a) above, whether or not there is volume, frequency, continuity or regularity of such transaction;

Therefore the activity of supply of vehicles as scrap after usage shall fall under the definition and scope of supply comes under the definition of business.

ii) Further it is also clear that the said activity is not covered under a negative list given under Section 7(2)and Schedule III of CGST Act-, Activities treated as neither Supply of Goods or Services

1. Services by an employee to the employer in the course of or in relation to his employment.

2. Services by any court or Tribunal established under any law for the time being in force.

3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;

(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

6. Actionable claims, other than lottery, betting and gambling.

7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India.

8. (a) Supply of warehoused goods to any person before clearance for home consumption; (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.

Accordingly the activity of supply of scrap shall be covered under the scope of the supply and shall be taxable at appropriate rate . Depending upon the type of sale of motor vehicles, The GST rate would be applicable:-

i) If the Motor Vehicles are sold as ” old and used motor vehicles ” then the rate of CGST would be applicable as refferred as Notification No. 01/2017 – Central Tax

ii) If the motor vehicles are sold as scrap then depending upon the material of which they are made, CGST rate and cess would be applicable accordingly.

Having seen that the transaction amounts to a “Supply” under the GST Act , we move on to the next aspect which the applicant desires to know and which is the rate of GST and Compensation Cess. Chapter 87 of the customs tariff covers motor vehicles.The applicant has not informed the Customs/Excise Tariff Heading . Neither has any copy of the invoices effecting the supply been tendered . The applicant has submitted a sample agreement copy which it enters into while delivering services of cash management . However, the same throws no light on the type of motor vehicles to be used. Further, whether the vehicles are sold as scrap and unusable OR sold as old vehicles is not found confirmed from any  documents. It is generally seen that there is surrender of the RTO Registration Book when the vehicles are disposed off as scrap. Hence, it needs to be ascertained as to whether the vehicles are sold as scrap. For  vehicles sold as scrap which does not amount to sale of a vehicle as such, the rate of the material sold as scrap would apply. For vehicles sold as vehicles , a perusal of the Notification issued for the purpose of the GST Act reflects thus –

1. Notification No. 02/2017 – Central tax Rate enlisting the goods exempted from GST does not cover the impunged cash-carrying goods

2. Notification No. 01/2017 – Central tax Rate enlisting goods taxable to GST at various rate:

a) Schedules I to III and V to VI  do not cover the impunged goods

b) Entries in Schedule IV would cover the impunged goods.

In respect of requisite deails before us, we have to ask the applicant to go through the Notification No. 01/2017 – Central Tax and Notification No. 01/2017 – Compensation Cess Rate , as amended from time to time.

3) Ruling by Officer:

Supply  of such motor vehicles as scrap after its usage can be treated as ‘supply’ in the course or furtherance of business. As regards rate of GST and /or  Compensation cess, the details being inadequate, the applicant may refer to the Notification No. 01/2017 – Central Tax and Notification No. 01/2017 Compensation Cess(Rate), as amended from time to time.