Important Definitions

1. Business: [S. 2(17)] of CGST Act and SGST Acts

Importance of Definition:
According to Section 9(1) of CGST and SGST Acts, CGST and SGST shall be
levied on all intra- State supplies of goods or services or both.
According to Section 7(1) of these Acts, the expression supply includes all
forms of supply of goods or services or both….made or agreed to be made for a
consideration by a person in the course or furtherance of business.
Supply which is not in the course or furtherance of business is not taxable
barring a few exceptions. For example, import of service for consideration is
taxable supply even if it is not in the course or furtherance of business.
However, import of service from related persons without consideration will be
taxable supply only if it is in the course or furtherance of business.
Thus GST mostly will not be imposed if a person makes supply of goods or
services or both not in the course or furtherance of business. For example, if a
person sells his scooter, ornaments or any other personal thing, then no GST
will be levied.
According to Section 2 (17) of CGST and SGST Acts the term ‘Business’
includes the followings:
I. General Activities
(a) Any trade, commerce, manufacture, profession, vocation, adventure,
wager, or any other similar activity(this makes the definition inclusive),
whether or not it is for a pecuniary benefit;
Trade:
Justice Shah in State of Punjab vs. Bajaj Electricals Ltd. [1968] 70 ITR
730(SC) observed that trade in its primary meaning is the exchanging of
goods for goods or goods for money.
Commerce:
If a person purchases goods with a view to selling them at profit, it is an
ordinary case of trade. If such transactions are repeated on a large scale, it is
called commerce.
Manufacture: (earlier defined under Central Excise Act)
Section 2(72) of CGST and SGST Acts define the term manufacture as
“manufacture means processing of raw material or inputs in any manner that
results in emergence of a new product having a distinct name, character and
use and the term ‘manufacturer’ shall be construed accordingly”.
In U.o.I. vs. Delhi Cloth & General Mills Co. Ltd. AIR 1963 SC 791 it was held that
manufacture means ‘bringing into existence a new substance’ i.e. a new commercial
commodity different from that out of which it is made. Article produced should bear a
new name in the market.
It does not mean the material from which the thing is manufactured should lose its basic
or essential properties.
When Goldsmith takes a lump of gold and makes ornament, carpenter makes tables,
chairs then these are manufacturing. But retreading of tyres, printing of saris are not
manufacture. Similarly when a tailor makes a suit or clothe, it does not cease to be cloth
but commercially it is a different thing.
Test of Irreversibility is an important criterion to ascertain as to whether a given process
amounts to manufacture.(if the product cannot be reversed into the original product than
it is manufacture)
Profession:
Profession generally means the activities for earning livelihood which require intellectual
skill or manual skill(some kind of qualification is the condition precedent to adopt a
profession), e.g., the work of a lawyer, doctor, auditor, engineer and so on, are in the
nature of profession.
Vocation:
Vocation means activities which are performed in order to earn livelihood(no special
qualification), e.g. brokerage, insurance agency, music, dancing, etc.
Adventure:
The word adventure implies a pecuniary risk. The word indicates that a single and
isolated transaction may fall within the definition of business. For example, Mr.
X, a famous actor, makes some paintings and sells them. The sale of paintings
qualifies as supply in the course or furtherance of business even though it is made
for one time. (volume, frequency, continuity does not matter)
In G. Venkataswami Naidu & Co. vs. C.I.T. (1959) 35 ITR 594 (SC) Justice
Gajendragadkar gave certain factors to test whether a transaction is an adventure
in the nature of trade(a single plunge I enough provided it should it should be in
the manner of trade).
Wager:
Wager is included in the definition of business. Thus on betting also GST will be
levied.
Any other similar activity: (to be interpreted ejusdem generis)
For example, Banks providing financial services to its customers.
whether or not it is for a pecuniary benefit:
These words indicate that Pecuniary benefit or profit earning is not a pre-
condition for business. The taxable person can be said to carry out supply for
business even if it is not for profit. Hence, if a charitable institution is providing
food to poor at normal price, still it is business.
2(17)(b) Any activity or transaction in connection with or incidental or ancillary to sub-
clause (a)
Incidental activities:
For example, providing warranty(warranty charged on sale of goods then on that warranty
also GST will be levied), servicing etc. may be activities incidental to trade, selling bags
with sweets, wrapping goods in paper etc. may be incidental activity to trade. Purification,
filtration, packing may be activities incidental or ancillary to manufacture.
Ancillary Activities:
For examples;
(i) Provisions of lockers for rent to customers in the Bank premises as Banks have high
security;
(ii) Turbine Manufacturing company letting out R&D facilities to research units towards
improvement of product and expansion.
2(17)(c) Any activity or transaction in the nature of sub clause (a) whether or not there is
volume, frequency, continuity or regularity of such transaction.
These words indicate that Volume, frequency, continuity or regularity is not necessary to
constitute business. A single transaction can also be business. For example, a public sector
undertaking sells its used cars, then it will constitute business. Sale of old newspapers by a
firm of Chartered Accountants will constitute business.
II. Specific Activities:
2(17)(d) Supply or acquisition of goods including capital goods and services in
connection with commencement or closure of business.(business commences when
production starts however if expenditure is incurred before commencement then it is also
chargeable under GST.)
Examples:
Supply of goods or services in connection with commencement of business: (i) Services
rendered by a Company Secretary to incorporate a Company; (ii) Real estate agent
helping Company to acquire godown for its factory on a commission.
Supply of goods or services in connection with closure of business:
2(17)(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.
Thus subscription fee being charged from members by club for provision of club
facilities is also a business. Earlier, only facilities provided to non-members were taxable.
For example; (i) Cooperative society formed for lending loans to farmers, (ii) Recreation
club formed by apartment owners.
In CIT Vs. Bankipur Club Ltd,[1997] 226 ITR p.97 (SC) it was held that usual
privileges, advantages and conveniences; attached to the members of the club, cannot be
said to be "a trading activity."
The basic principle underlying is the principle of mutuality that no one can make profit
out of himself. In other words, no one can enter into a trade or business with himself.
(clubs and assn are not to be considered different from their members)
(f) admission, for a consideration, of persons to any premises;
For example, (i). PVR selling movie tickets, (ii) Entry Admission fee collected by Art
exhibitions to display artifacts, paintings and sculptures made by artists, (iii) Museums run
by Governments for an entry fee to public to display objects of historical significance.
Admission to any premises is normally related to amusement, entertainment of persons being
admitted.
(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;
For example, Consultancy service provided by a Company CFO regarding Mergers to
another company.
(h) services provided by a race club by way of totalisator or a licence to bookmaker in such
club ( after 2018 amendment all activities of a race club are chargeable under GST );
For conducting Race Club two kinds of licences are provided viz. Totalisator licence and
Book Maker licence. In Totalisator licence, the person (operator) conducting the race
distributes the total amount of bet amongst the winning bettors in proportion to the stake put
by them on the winning horse (of course after deducting the amount of commission for the
operator and taxes.) In Bookmaker licence, the person conducting the race gives a fixed sum
to the winner on the basis of stake put by him on the winning horse. E.g. 1,000/- on per 50/-
stake.
(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.
This clause makes it clear that the functions and activities undertaken by the
government as public authorities shall be treated as business
activities. Activities of government as public authorities also fall under
business, but exemption is separately provided for substantial part of such
activities as exceptions under Schedule III.(Negative list of supply)

2. Capital Goods [S. 2(19)]

Capital goods means goods, the value of which is capitalized in the books of
account of the person claiming the input tax credit and which are used or
intended to be used in the course or furtherance of business.
Machineries, plants, furnitures etc. which are not traded but they are used in
the business are examples of capital assets.(service charge for installations of
machinery can also be claimed as input tax credit)
Input Tax Credit on capital goods can be availed by a registered supplier at
one shot (i.e. 100% at the time of capitalization in books of account) except
the goods used for construction of immovable property.
3. Export of Goods [S. 2(5) of IGST Act, 2017]
“Export of goods” with its grammatical variations and cognate expressions, means
taking goods out of India to a place outside India.
Where a person has an establishment in India and any other establishment outside
India, then such establishments shall be treated as establishments of distinct persons.
[See Explanation I to S. 8 of IGST Act.]
A person carrying on a business through a branch or an agency or a representational
office in any territory shall be treated as having an establishment in that territory.
[Explanation II to S. 8 of IGST Act.]
Example: Mr. A has an establishment in New Delhi and also an establishment in
Dubai. Supply of goods from New Delhi to Dubai establishment of Mr. A shall be
treated as supply to distinct person and hence export of goods.
4. Export of Services [S. 2(6) of IGST Act, 2017]
“Export of services” means the supply of any service when,––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in
convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely establishments of
a distinct person in accordance with Explanation 1 in Section 8
What is meant is that branch and Head Office of the same taxable person shall
not be treated as two distinct persons for this provision. Thus there cannot be
export of service to own branch office outside India and GST will be levied.
According to Explanation 1(i) to Section 8 IGST Act for the purposes of the
IGST Act, where a person has an establishment in India and any other
establishment outside India then such establishments shall be treated as
establishments of distinct persons.
Exports of Goods or Services or both have been treated as zero rated supply
u/s 16 of IGST Act, 2017. It means no IGST is payable. However, ITC will be
available on tax paid while purchase of raw materials (which may be adjusted
against GST payable or refund of tax may be claimed if could not be adjusted).
5. Import of Goods [S. 2(10) of IGST Act, 2017]
‘‘Import of goods” with its grammatical variations and cognate expressions
means bringing goods into India from a place outside India.
6. Imort of Services [S. 2(11) of IGST Act,2017]
‘‘Import of services” means the supply of any service, where––
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;
Imports are treated as Inter-State supplies by virtue of Explanation to Article 269-A of the Indian
Constitution and Section 7(2) of the Integrated Goods and Services Tax Act, 2017. Therefore, import
attracts IGST along with Customs Duties. In the case of some products(goods) like Pan Masala, GST
Compensation Cess is also levied(sin goods)(along with custom duty and igst). If only services are
imported then no custom duty only igst is levied.
7. Goods [S.2 (52) of CGST and SGST Acts]
“Goods” means every kind of movable property other than money and securities, but includes
actionable claim, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply.
Money: 2(75)
Mere supply of money could be settlement of a transaction (money is used as consideration and is not
goods itself)- for instance, making a payment for goods and services. It could not have been argued that
the person making the payment itself is making a supply. Therefore, the intent of the law is to exclude
supply of money.
Security:
Section 2 (101) of CGST and SGST Acts define security as Securities shall have the same meaning as
assigned to it in clause (h) of Section 2 of Securities Contracts (Regulation) Act, 1956. Thus it includes
shares, scripts, stocks, bonds, debenture stock or other movable securities of any incorporated company
or body corporate.
Actionable Claims:
Section 2 (1) of the CGST and SGST Acts define actionable claim as having the same meaning as
assigned to it under Section 3 of the Transfer of Property Act, 1882. Actionable claims can be enforced
only through a court of law. It cannot be bought or sold. However, it can be assigned. Basically,
actionable claim means a claim for an unsecured debt. (For example, claims for arrears of rent, claim
for profit by a partner in a firm, claim for Provident Fund, claim for recovery of insurance money etc.)
Every kind of Movable Property:
Animals and Birds
K. J.Abraham vs. Asst. S.T.O. [1960] 11 STC 291 (Ker) – held that animals and birds
in captivity are goods.
Trees:
Trees are not goods. However, if it has been agreed to be severed under the Contract of
is sale, the same become goods and VAT or Sales Tax can be imposed. [State of Orissa
vs. Titagarh Paper Mills Co. Ltd. AIR 1985 SC 1293; Shantabai vs. State of Bombay
AIR 1985 SC 532]
Steam:
Nizam Sugar Factory Ltd. vs. C.S.T. [1957] 8 STC 61 (A.P.) - Steam is goods.
Electricity:
State of A.P. vs. National Thermal Power Corporation (2002) 5 SCC 203 - held in
case of electrical energy generation or production and consumption are simultaneous.
Electricity is movable property though it is not tangible, it is goods.
Electrical energy has been specified in heading 2716 in both Central Excise and
Customs Tariff and hence is goods. See also C.S.T. vs. M.P. Electricity Board [1970]
25 STC 188 (SC) – wherein it was held that electrical energy or electricity is goods.
Intangible articles:
Bharat Sanchar Nigam Ltd. vs. U.o.I. AIR 2006 SC 1383 – held that a goods may be a
tangible property or intangible one. Computer Software was held as goods.
In Tata Consultancy Services vs. State of A.P. AIR 2005 SC 371 (5-member Constitution Bench)
held that computer software packages sold off the shelf like Oracle, Lotus, Master-Hey etc. are
goods. The copyright in the programme may remain with originator of programme, but the
moment copies are made and marketed, they become goods.
Infosys Technologies Ltd. vs. Special Commissioner [2008] 17 VST 256 (Mad.) – held
customized and non-customised software both are goods and liable to Sales Tax.
Since intangible properties are also goods hence copyrights, licences SIM card, Trade Marks etc.
are goods liable to VAT.
Lottery Tickets:
In H. Anraj vs. Govt. of Tamil Nadu AIR 1986 SC 63 it was held that lottery tickets were goods.
In this case Lottery tickets of other States were taxable @ 20% where Tamil Nadu Lottery tickets
were exempt from Sales Tax. Held violative of Art. 304(a)
However, in Sunrise Associates vs. Govt. of NCT of Delhi [2006] (5) SCC 603 it has been held
that Lottery Ticket is actionable claim which had been excluded from definition of goods under
State Sales Tax Acts. Hence, lottery tickets were held not goods. Thus H. Anraj case had been
overruled. However, under CGST and SGST Acts, Actionable Claims are goods.
8. Services [S. 2 (102) of CGST and SGST Acts]:
Section 2 (102) of CGST and SGST Acts define services as “services means anything other than
goods, money and securities but includes activities relating to use of money or its conversion by
cash or by any other mode, from one form, currency or denomination, to another form, currency
or denomination for which a separate consideration is charged”.