In Re : M/s. National Dairy Development Board
GST
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)
AUTHORITY FOR ADVANCE RULING, GUJARAT – AAR
Dated:- 8-5-2018
ADVANCE RULING NO. GUJ/GAAR/RULING/2018/11 (IN APPLICATION NO. Advance Ruling/SGST&CGST/2017-18/AR/22)
GST
Mr. R. B. Mankodi, Member And Mr. G. C. Jain, Member
For The Applicant : Shri Hardik Shah, CA
RULING
The applicant, NDDB, is a statutory body constituted by an Act of Parliament, namely the National Dairy Development Board Act, 1987 (NDDB Act); the objectives of NDDB include promoting dairy and other agriculture based industries; and the activities undertaken by NDDB, to fulfill its objectives, include providing technical, financial as well as managerial assistance.
1.1 The applicant submitted that the NDDB Act also empowers them to transfer the whole or any part of its managerial, technical or other functions in rel
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and developing dairying in the respective states; that the 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.
1.3 It is further stated that as per the agreements made by them with these state governments on the matter, the applicant undertake following end to end activities as if they are owning and running Unions-
(i) Taking over management of Unions and deputation of key managerial persons including managing director
(ii) Preparation of business plans and implementation of the same
(iii) Decide on procurement and distribution channels and preparation of policies thereof
(iv) Determine the pricing policies for sale of products and usage of brands owned by Unions
(v) Borrowing of funds as and when required
(vi) Taking relevant decisions in order to achieve sustainable growth for Unions.
1.4 They further submitted that the applicant provides servi
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nce 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 as related persons.
1.7 The applicant then by referring to the Section 15 of CGST Act and Rule 28 of CGST Rules, submitted that the moot question arises in the matter is that whether the applicant and Unions can be considered as related parties attracting open market valuation only because of control exercised over Unions on the basis of agreements entered into with the state governments which means that the privity of contract is between the applicant and the state governments; that the state governments have instructed to manage all operations and performing all activities without consideration; that it is the duty of the state governments to develop the dairy industry in the state; that in such scenario, the benefit of handing over the management of Unions to experts would accrue the state governments only; that t
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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 the given contract, the question of valuation of services at open market value does not arise at all and the zero value would be treated as sole consideration for supply, subject to tax.
1.11 The applicant further submitted that irrespective of their above submissions, even if it is assumed that there exist relationship between the applicant and Unions as a reason of control of the applicant over Unions, the price for services is not influenced because of relationship; that it is at the instance of the state governments, they provide services at free of cost; that it is an obligation of state government for revival and development of dairy industries and they are insisting the applicant to not charge any sum; that such kind of reason or moral support provide by them cannot be equated with normal related party tran
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em 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 at transaction value or for price which is sole consideration, then also by reason of control, the applicant would be required to value the services and pay hefty taxes in absence of any kind of extra commercial benefit.
1.14 On the basis of above facts and submissions, the applicant has sought ruling on following points-
(i) 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?
(ii) Assuming answer to above point is affirmative, 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 Rul
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rsons 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 or services or both. Section 15 of the CGST Act lays down the valuation aspects under GST which explained the value of taxable supply of goods or services or both on which tax is payable. It states that the value of supply of goods and services shall be the 'transaction value' that is the price actually paid or payable for the said supply, where the supplier and the recipient are not related and price is the sole consideration for the supply. Section 15(5) of CSGT Act specify the following situations wherein two persons could be deemed to be 'related persons'
1. Such persons are officers or directors of one another's businesses;
2. Such persons are legally recognized partners in business;
3. Such persons are employer and employee;
4. Any person directly or indirectly owns, controls or holds twe
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tween 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. On perusal of this agreement, NDDB would manage the WAMUL as Administrator by way of implementing suitable business plan for WAMUL, marketing the milk and milk products of WAMUL, deploying suitable man power in WAMUL etc.
7 By the agreement dated 1st March, 2014, between the State of Jharkhand and NDDB, made with the purpose of revitalize the JMU, it was decided to handover the management of JMU to NDDB under the specified terms and conditions therein. As per these terms and conditions, it is seen that NDDB would take over the management of the JMU along with all the assets and manage it as Administrator; that NDDB would prepare planning for developing the JMU and implement it; that NDDB would deploy suitable personnel to key management of JMU; NDDB would work out and implement busine
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