Circular No. 35/9/2018-GST
1
F. No. B-1/20/2016-TRU
Government of India
Ministry of Finance
Department of Revenue
Tax research Unit
****
Room No. 146G, North Block,
New Delhi, 5th March 2018
To,
The
Principal
Chief
Commissioners/Chief
Commissioners/
Principal
Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All)
Madam/Sir,
Subject: Joint Venture ---taxable services provided by the members of the Joint
Venture (JV) to the JV and vice versa and inter se between the members of the JV-reg
I am directed to say that in the Service Tax regime, 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. Whether a cash call is
merely a transaction in money and hence not in the nature of consideration for taxable
service, would depend on the terms of the Joint Venture Agreement, which may vary from
case to case. The Circular clarified that cash calls, sometimes, could be in the nature of
advance payments made by members towards taxable services received from joint
venture(JV); and that payments made out of cash calls pooled by a JV towards taxable
services received from a member or a third party is in the nature of consideration and hence
attracts Service Tax. The Circular further stated that JV being an unincorporated temporary
association constituted for the limited purpose of carrying out a specified project within a
time frame, a comprehensive examination of the various JV agreements (at times, there
could be number of inter se agreements between members of the JV) holds the key to
understanding of the taxation of transactions involving taxable services between the JV and
its members or inter-se between the members of a JV. Therefore, officers in the field
formations were advised to carefully examine the leviability of service tax with reference to
the specific terms/clauses of each JV agreement.
2.
In the Service Tax Law, service was defined as an activity carried out by a person
for another for consideration [Section 65B(44) of the Finance Act 1994]. Explanation 3 to
the said definition stated than an unincorporated association or a body of persons as the case
may be, and a member thereof shall be treated as distinct persons.
Circular No. 35/9/2018-GST
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3.
GST is levied on intra-State and inter-State supply of goods and services. According
to section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply of
goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or
disposal made or agreed to be made for a consideration by a person in the course or
furtherance of business, and includes activities specified in Schedule II to the CGST Act,
2017. The definition of “business” in section 2(17) of CGST Act states that “business”
includes provision by a club, association, society, or any such body (for a subscription or
any other consideration) of the facilities or benefits to its members. The term person is
defined in section 2(84) of the CGST Act, 2017 to include an association of persons or a
body of individuals, whether incorporated or not, in India or outside India. Further,
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. A conjoint reading of the above
provisions of the law implies that supply of services by an unincorporated association or
body of persons (AOP) to a member thereof for cash, deferred payment or other valuable
consideration shall be treated as supply of services. The above entry in Schedule II is
analogous to and draws strength from the provision in Article 366(29A)(e) of the
Constitution according to which a tax on the sale or purchase of goods includes 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.
4.
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. It is reiterated
that the question whether cash calls are taxable or not will entirely depend on the facts and
circumstances of each case. ‘Cash calls’ are raised by an operating member of the joint
venture on other members in proportion to their participating interests in the joint
venture(unincorporated) to meet the expenditure on the operations to be carried out as per
the approved work programme and budget. Taxability of cash calls can be further explained
by the following illustrations:
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.
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.
Circular No. 35/9/2018-GST
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4.1
Illustration A will not be the subject matter of ‘ST/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.
4.2
On the other hand, in Illustration B, 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.
5.
Difficulty if any, in the implementation of this circular may be brought to the notice
of the Board.
Yours Faithfully,
Harsh Singh
Technical Officer (TRU)
Email: harshsingh.irs@gov.in
Tel: 011-23095543
