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Circular Circular 35/9/2018 GST provides provisions applicable on Unincorporated Joint Venture (JV) i.e. Services Provided by members to JV or from JV to members will be taxable or not


Financial Year: 2018


Dear Friends

 

Circular No 35/9/2018-GST provides for GST taxability on Joint Venture Agreements

 

JV being an unincorporated temporary association constituted for the limited purpose of carrying out a specified project within a time frame.

 

Explanation as per Circular

CBEC vide Circular No. 179/5/2014 – ST issued from F.No. 179/5/2014-ST dated 24 September 2014 had clarified that if cash calls are merely transaction in money, then they are excluded from the definition of service provided in Section 65B (44) of the Finance Act, 1994.

 

Therefore, the law with regard to levy of GST on service supplied by member of an unincorporated joint venture (JV) to the JV or to other members of the JV, or by JV to the members, essentially remains the same as it was under service tax law. Thus, it is clarified that the clarification given vide Board Circular No. 179/5/2014 – ST dated 24.09.2014 ibid in the context of service tax is applicable for the purpose of levy of GST also.

 

Illustration A:

There are 4 members in the JV including the operating member and each one contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating member purchases machinery for Rs 400 for the JV to be used in oil production

 

There will not be the subject matter of GST for the reason that the operating member is not carrying out an activity for another for consideration. In Illustration A, the money paid for purchase of machinery is merely in the nature of capital contribution and is therefore a transaction in money.

 

 

Schedule II of CGST Act, 2017 enumerates activities which are to be treated as supply of goods or as supply of services.

 

It states in para 7 that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods

 

 

Article 366(29A) in The Constitution Of India 1949

(29A) tax on sale or purchase of goods includes

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  5. a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

 

Illustration B: There are 4 members in the JV including the operating member and each one contributes Rs 100 as part of their share. A total amount of Rs 400 is collected. The operating member thereafter uses its own machine and performs exploration and production activities on behalf of the JV.

 

In this case, the operating member uses its own machinery and is therefore providing ‘service’ within the scope of supply of CGST Act, 2017. This is because in this scenario, the operating member is recovering the cost appropriated towards machinery and services from the other JV members in their participating interest ratio. Therefore GST will be applicable.

 

Please download circular from the below link

 

Thanks

CA Rahul Gupta