2018 (7) TMI 76 – AUTHORITY FOR ADVANCE RULING, GUJARAT – 2018 (14) G. S. T. L. 483 (A. A. R. – GST), [2018] 2 GSTL (AAR) 84 (AAR) – Levy of GST on supply made to related party without consideration – Tripartite Agreement – scope of supply – By virtue of tripartite agreement between NDDB, State Government & Unions, whether the arrangement between NDDB and Unions would be considered as supply between ‘related persons’ in accordance with Schedule 1 of the Central Goods & Service Tax Act, 2017? – developing dairying in the respective states – state governments have entrusted NDDB to run the management, appoint key managerial persons and provide end to end services which ultimately would help the Unions in developing. – Held that:- Section 7 of CGST Act defines ‘supply’. Some of the scope of supply, as per Section 7c of the Act, are the activities specified in Schedule I, made or agreed to be made without a consideration. One of the activities to be treated as a supply even if made withou
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
upport to the applicant. In such a situation, there is no kind of relationship between NDDB and the Unions. Hence situation specified at sl no. 5 of Section 15(5) of CGST Act is not found in existence in the transaction between NDDB and WAMUL and NDDB & JMU and accordingly such transactions are not to be considered as related party transactions in GST.
–
Whether the applicant would be required to determine value of activities undertaken by them in accordance with Section 15(5) of CGST Act, 2017 read with Rule 28 of the CGST Rules, 2017? – Held that:- Since the answer to the first part of the points raised by the applicant is negative no need to examine the next point of them.
–
Ruling:- The transactions undertaken by NDDB and Unions in accordance with the agreements made by NDDB with State Government of Assam and Jharkhand are not to be considered as supply between ‘related persons’ in accordance with Schedule I of Central Goods and Service Tax Act, 2017 read with Section 15 of
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
specifically authorized NDDB to undertake any activity entrusted by the central government or any state government where the government requires assistance of NDDB s expertise in the dairy development sector; that as per Section 16(5) of the NDDB Act, the applicant can participate, with the prior approval of the central government, in any organization, financially, managerially, or in any other manner. 1.2 The applicant stated that the state government of Jharkhand & Assam have sought assistance of the applicant to support Jharkhand State Cooperative Milk Producers Federation Limited (JMU) and West Assam Milk Producers Co-operative Union Limited (WAMUL); that arrangement has been entered into by the said state governments and applicant with an objective of reviving the JMU & WAMUL (hereinafter jointly referred to as Unions ) and developing dairying in the respective states; that the state governments have entrusted NDDB to run the management, appoint key managerial persons and
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
kind or otherwise. It is also submitted that the applicant has not issued any invoices to state governments or Unions. 1.5 The applicant further submitted that during the earlier regime of service tax, the services so provided by them were not subject to service tax in absence of any kind of consideration; that the situation would remain the same irrespective of the fact that the parties to the contract are related persons; that in GST regime, the transaction between related person would be valued at open market value irrespective of the fact that there is no consideration and price is the sole consideration for supply. 1.6 It is further submitted that according to Section 7 of CGST Act read with Schedule I, the supply of goods or services between related persons, even without consideration, in the course of furtherance of business would be contemplated as supply of goods or service; that in order to be supply, it is essential to understand whether NDDB and Unions would be considered a
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ubmitted that Unions are beneficiaries of the agreement as the agreements are entered into for their growth; that as per the agreement dated 26.9.2013 the scope of WAMUL is limited to provide support to NDDB in managing and running the operations of WAMUL. 1.9 The applicant then on the aspect of who can be considered as service recipient in any transaction referred the decisions of Delhi Tribunal in the case of Paul Merchants Limited Vs. Commissioner of C.Excise, Chandigarh (2013 (29) STR 257 (Tr-Del.) and GAP International Sourcing (India) Pvt.Limited Vs. Commissioner of S.Tax , Delhi (2015(37) STR. 757 (tri-Del.). 1.10 It is also submitted by the applicant that the relationship between parties is identified from the perspective of who is service recipient; that it is logical and legal that the relationship can never be established between the service provider and the beneficiaries. The applicant then submitted that, in absence of any kind of relationship between NDDB and Unions in th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
earning any kind of benefit which means that there are no extra commercial benefit to be earned by the applicant. In view of above, the applicant submitted that nil or zero charges are sole consideration for supply and therefore, the same needs not require revaluation to open market value. 1.12 The applicant further stated that the agreements has originated due to signing of a contract between NDDB and the state governments and the applicant is in a position to control Unions only because of agreements due to which the relationship is formed and in such a situation the agreement because of which the relationship establishes cannot be considered a related party transaction requiring open market valuation; that the relationship is not established between them as a reason of acquiring any stake by either of them or any beneficial interest. 1.13 The applicant further stated that it is logically inappropriate that when the applicant does not charge anything and the arrangement is undertaken
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ion and the corrigendum to earlier application for advance ruling and made at the time of personal hearing. We have also gone through the comments offered by the department vide FNo. IV/16-29/GST/AAR-NDDB/T/17 dated 18.01.2018. 3. Firstly, we would like to see the provisions for the Schedule I of the CGST Act, 2017. Schedule- 1 deals with the activities to be treated as supply even if made without consideration. Section 7 of CGST Act defines supply . Some of the scope of supply, as per Section 7© of the Act, are the activities specified in Schedule I, made or agreed to be made without a consideration. One of the activities to be treated as a supply even if made without consideration, as per clause 2 of Schedule I, is the supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business. 4. Provisions of Section 15 of CGST Act, 2017 provides for valuation of taxable supply of goods
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
led by a third person; 7. together they directly or indirectly control a third person; or 8. They are members of the same family. 5 In the present case, pursuant to the agreements made by the applicant with the state government of Jharkhand and Assam, the applicant provides services to Unions. It is also seen that the actual services are received by the concerned State Governments and the Unions are simply beneficiaries of the services performed by the applicant. Thus, there is no question of exercise of control by the applicant over the Unions. Unions are in fact provide support to the applicant to fulfill the purposes as per the agreements made with the state governments and the applicant and in return they receive the benefits of it. 6 By the agreement dated 26th September, 2013, between the State of Assam and NDDB, made with a view to revive WAMUL, a decision is found to have been taken to hand over the management of WAMUL to NDDB under some terms and conditions specified therein.
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ernment of Jharkhand . 8 It would be evident from above that the Unions are only beneficiaries of agreement entered into by the state governments with the applicant. The Unions are required only to provide adequate support to the applicant. In such a situation, we do not find any kind of relationship between NDDB and the Unions. Hence situation specified at sl no. 5 of Section 15(5) of CGST Act is not found in existence in the transaction between NDDB and WAMUL and NDDB & JMU and accordingly such transactions are not to be considered as related party transactions in GST. 9. Since the answer to the first part of the points raised by the applicant is negative no need to examine the next point of them. 10. Considering above, we rule as under:- RULING (i) The transactions undertaken by NDDB and Unions in accordance with the agreements made by NDDB with State Government of Assam and Jharkhand are not to be considered as supply between related persons in accordance with Schedule I of Cen
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =