NOVEMBER 23, 2018

By Abhijit Saha

THE definition of 'supply' as per section 7 of the Central Goods and Services Tax Act, 2017 (CGST) includes all forms of supply of goods and services for a consideration by a person in the course or furtherance of business barring few exceptions. Hence it is very important to understand what is the "supply" that is in the course or furt herance of business.

Section 2(17) of CGST Act defines "business" inter alia to include any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

The Pecuniary benefit is nothing but the economic benefit accrued to the service provider immediately in exchange for the said service provided, directly or indirectly and is correlatable with the service provided. There has to be a direct nexus between the service provided and the economic benefit accrued, whether direct or indirect.

This means if the economic benefit is accrued in future and the said benefit is not correlatable with the service provided, then the said economic benefit is not covered by the pecuniary benefit mentioned in the definition of 'business'. In such a case, it would be treated as provision of service without any pecuniary benefit (i.e. without any consideration).

Hence, if the economic benefit accrues in future and is not correlatable with the service provided, then it is to be treated as no pecuniary benefit accrued to the service provider as per the definition of the 'business'. Pecuniary benefit is immediate, direct or indirect and correlatable. But, the economic benefit is a wider term and it includes the pecuniary benefit as mentioned in the definition of business and also the future benefits, indirect and not correlatable.

For example, if the holding company provides service to the subsidiary company without consideration, then it fulfills the condition that the activity is not for any pecuniary benefits and hence fulfills the definition of 'Business' as per GST law and hence said service is in course or furtherance of business. However, strictly speaking, the said service helps the subsidiary company to grow its business which results into increased outflow of dividend income to the Holding company in future. Hence, the economic benefits accrues to the service provider in the long run but it is in distant future and also the said economic benefit is not correlatable with the service provided by the holding company.

In view of the above, if an economic benefit accrues in future and is not correlatable with the service provided, then it would be treated as provision of service without any consideration. Such service if provided to a related person would qualify as supply of service without consideration in course or furtherance of business as per Schedule-I of the CGST Act.

In order to qualify any service as in course of business, the said service should be provided with the intention of deriving economic benefits. If the benefits are not immediate and direct and also not correlatable then apparently it looks like without consideration, as per Schedule-I.

There is no other situation when the service is provided without consideration in course of business. If the service is provided in course of business, then economic benefits must accrue. If it accrues immediately, directly or indirectly, then the same is treated as provision of service against consideration.

If the economic benefit is not immediate, direct and not correlatable, then the said service is treated as provided without consideration in course of business. Hence it would be liable to GST only if it falls under Schedule-I.

There cannot be a situation when the service is provided absolutely FREE and still considered as provided in course of business. If that view is taken, then the implication of in course of business does not make any sense. Then there would be no difference between business and charity. Any service without economic benefit in whatsoever form, cannot qualify as in course of business. It would not even fall under Schedule-I category which stipulates supply without consideration in course or furtherance of business.

If the service provided free and without any economic benefit is considered as in course of business, then the definition of business is distorted. There cannot be an activity in course of business which does not have the economic benefit implications, directly or indirectly or immediate or in future or correlatable or un-correlatable.

There is a school of thought which makes a distinction between "in course of business" and "furtherance of business". Such distinction is anomalous. In course of business is like running the business and furtherance of business is like doing something for the growth of the business. Running the business and growing the business are integrally connected and an entangled phenomenon. It is not commercially or technically possible to say that a service is not in course of business but for furtherance of business. It is similar to saying that it is not for running the business but for growing the business. In course of business and furtherance of business are conjunctive and not disjunctive. If the business itself does not exist it cannot be stated that it is for furtherance of business.

In view of the above, author's view is that even if there is no consideration (pecuniary benefit) still it may be in course or furtherance of business but if there is no economic benefit accruing, it cannot be in course or furtherance of business.

(The views expressed are strictly personal)