Jan 302017

Business Vertical under GST

Meaning of business vertical?

As per sec 2(18) of the revised model GST act, “business vertical” means a distinguishable component of an enterprise that is engaged in supplying an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business verticals.

Hence, any component of the whole business shall be a separate business vertical if it has following characteristics:

  1. It must be a distinguishable component of the whole enterprise. That means, component identified as a business vertical must be capable of transfer, close or otherwise deal with without affecting other of whole business.
  2. The distinguishable component may be engage in supplying individual product / services or the bundle of related product / services. Among other factors. following factors shall also be considered for determining the related goods or services:
    • The nature of products or services
    • The nature of production process
    • The type or class of customers for the products or services
    • The methods used to distribute the product or providing of services
    • The nature of regulatory environment, if applicable.
  3. The risk or rewards of products or services included in a business vertical must be same.

The law relating to business vertical is given below:

  1. Registration: As per provision of section 23(2) – Notwithstanding anything contained in sub-section (1), a person having multiple business verticals in a State may obtain a separate registration for each business vertical, subject to such conditions as may be prescribed. Hence, it is not obligatory but optional to register each of the business vertical of a business in a state.
  2. Codification of business verticals: The structure of GSTIN is made is such a way that it would incorporate upto 35 business verticals of the same legal entity having same PAN. 13th digit would be alpha-numeric (1-9 and then A-Z) and would be assigned depending on the number of registrations a legal entity (having the same PAN) has within one State.

          For example, a legal entity with single registration within a State would have „1‟ as 13th digit of the GSTIN.

          If the same legal entity goes for a second registration for a second business vertical in the same State, the 13th               digit of GSTIN assigned to this second entity would be „2‟.

  1. Option to avail composition scheme: Option to avail composition scheme is person wise and PAN based. Hence, it is not possible to avail composition scheme for one vertical of the business and pay tax in regular manner for one or more of another vertical of the same business by the same PAN holder. Composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.
  2. Conditions for registering separate business vertical in the same state: In GST regime, multiple registrations within a State for business verticals of a taxable person would be allowed. This provision is subject to following conditions –
    • Input Tax Credit across the business verticals of such taxable persons shall not be allowed unless the goods or services are actually supplied across the verticals.
    • For the purpose of recovery of dues, all business verticals, though separately registered, will be considered as a single legal entity.