INTERPRETATION OF CENTRAL GOODS AND SERVICES TAX (CGST) ACT (PART-4) (Meaning of Important Terms)

[Dr. Sanjiv Agarwal]

This part of the series contains meanings of certain terms covered in Section 2 of the CGST Act, 2017.  These are business, business vertical and casual taxable person.

Business [Section 2(17)]

'Business' includes––

1. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
2. any activity or transaction in connection with or incidental or ancillary to sub-clause(a);
3. any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
4. supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
5. 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;
6. admission, for a consideration, of persons to any premises;
7. 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;
8.  services provided by a race club by way of totalisator or a licence to book maker in such club; and
9. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.

The definition of the term ‘ business’ is important from the point that supplies of taxable goods and / or services made in the course or furtherance of business are taxable. Any supplies of goods and / or services which is not made in the course or furtherance of business will not be covered by the definition of Supply.

However, the importation of services whether or not in the course or furtherance of business, will be considered as a Supply.

It is important to note that the for the coverage under the term business, the intention to earn profit out of it will not be considered. Even if there is no intention to make profit out of it, still the transaction may be covered in the definition of 'business'. For example, supply of goods by an association to its members. It may be noted that any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities shall be deemed to be business.

This definition is an inclusive definition wherein all types of transactions including incidental or ancillary to trade, commerce, manufacture, profession, vocation, adventure, wager or other similar activities are covered. It is immaterial whether such transactions are for pecuniary benefit or not. These terms have not been defined. 'Agriculture' is specifically excluded from 'business'.

Business includes:

• day-to-day running of the business,
• rationalization of business administration and modernization of machinery of business,
• preservation of business and protection of its assets and property from expropriation, coercive process or assertion of hostile title,
• payment of statutory dues and taxes imposed as pre-condition for commencement or carriage of business,
• things incidental to carriage of business. [Birla Cotton Spng. & Wvg. Mills Ltd v. Commissioner of IT, 1967 (3) TMI 104 - CALCUTTA HIGH COURT , affirmed, Commissioner of Income-Tax, West Bengal I Versus Birla Cotton Spinning And Weaving Mills Limited  - 1971 (8) TMI 9 - SUPREME Court ].

Business Vertical [Section 2(18)]

'Business vertical' means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals.

Explanation.––For the purposes of this clause, factors that should be considered in determining whether goods or services are related include––

(a) the nature of the goods or services;

(b) the nature of the production processes;

(c) the type or class of customers for the goods or services;

(d) the methods used to distribute the goods or supply of services; and

(e) the nature of regulatory environment (wherever applicable), including banking,

     insurance, or public utilities.

Under the scheme of the CGST Act, each taxable person is required to have one registration in a state, from which it makes supplies of taxable goods or services. Even if such person has more than one place of business in a single state, still such person is required to obtain only one registration. However, an exception has been made for a separate business vertical. Thus, a taxable person having more than one business vertical in a state can consider to obtain more than one registrations in that state for each of different verticals.

It may be noted that this is a facility and is thus optional for the tax payer. There is no compulsion on a taxable person having more than one business vertical in a state to seek as many registrations as is the number of business verticals. Even such person may decide to have only one registration in the state.

In case the taxable person decides to have separate registration for each of his business verticals in a state, he will not be eligible to transfer input tax credit of one business vertical to other business vertical even in the same state.

A business vertical if registered separately would not be eligible for availing scheme of composition levy under section 10. The input tax credit distributed by Input Service Distributor (ISD) can be allocated or apportioned to business vertical also.

Following factors should be considered in determining whether products or services are related include :

• the nature of the products or services.
• the nature of the production processes.
• the type or class of customers for the products or services.
• the methods used to distribute the products or provide the services.
• if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

Business vertical is relevant for the purpose of distribution of input credit by Input Service Distributor (ISD) and for the purpose of obtaining separate GST registration. If the entity opts to have separate registration for different business verticals, it will have more than one registration within the State.

Casual taxable person [Section 2(20)]

'Casual taxable person' means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.

Casual taxable persons are those persons who undertake business activities in a casual or on temporary basis. They have no fixed place of business (e.g. traders in trade/ business fairs or exhibitions). Such persons may provide or may get involved in supply or acquisition of goods and / or services in any capacity i.e., as principal, agent or in other capacity. However, it should be in taxable territory, in course of furtherance of business.

Two features are crucial for a taxable person to be categorized as casual taxable person. One that such person 'occasionally' undertakes transactions involving supply of goods and / or services. 'Occasionally' generally means over a short period of time say few days, weeks or months. Two, such taxable person does not have a permanent place of business in the relevant State. He should not have fixed place of business in taxable territory.

Owing to the fact that a casual taxable person does not have a permanent place of business in the State, special treatment has been provided for such taxable persons in respect of their registration, provision of security, filing of returns and the assessments. 

(To be continued.....)