Understanding GST Implications on Joint Ventures: Key Takeaways from Circular No. 35/9/2018-GST

2025-03-03 05:53:29 02March

02March

Understanding GST Implications on Joint Ventures: Key Takeaways from Circular No. 35/9/2018-GST

The Ministry of Finance, Government of India, issued Circular No. 35/9/2018-GST on March 5, 2018, clarifying the taxability of services provided by members of Joint Ventures (JV) to the JV, vice versa, and inter se transactions among JV members. This circular provides essential insights into the GST applicability on such transactions. Here are the key highlights:<h2>Key GST Clarifications on Joint Ventures</h2><h3>1. Background: Service Tax to GST Transition</h3><ul><li>Under the Service Tax regime, CBEC had issued Circular No. 179/5/2014-ST on September 24, 2014, clarifying the taxability of cash calls in JVs.</li><li>The circular stated that cash calls (contributions by JV members) are merely transactions in money and not taxable if they do not constitute consideration for a service.</li><li>If cash calls are used to pay for taxable services within the JV, they attract Service Tax.</li><li>Under GST, similar principles continue to apply, as per the clarification in the present circular.</li></ul><h3>2. Applicability of GST on JV Transactions</h3><ul><li>GST is levied on intra-State and inter-State supply of goods and services.</li><li>Section 7 of CGST Act, 2017, defines “supply” to include sale, transfer, barter, exchange, rental, lease, or disposal of goods or services for consideration in the course of business.</li><li>As per Section 2(17) of CGST Act, 2017, “business” includes services or facilities provided by an association, club, or society to its members for consideration.</li><li>Section 2(84) defines “person” to include an unincorporated association or body of individuals.</li><li>Schedule II of CGST Act, 2017, states that supply of goods by an unincorporated association to its members shall be treated as a supply of goods.</li></ul><h3>3. Clarification on Taxability of Cash Calls</h3><ul><li>Cash calls are funds collected from JV members to finance operations based on their shareholding.</li><li>The taxability of cash calls depends on the nature of transactions within the JV.</li><li>Illustration A (Not Taxable):<ul><li>Four JV members contribute ₹100 each (total ₹400).</li><li>The operating member purchases machinery worth ₹400 for the JV.</li><li>No GST is applicable, as it is considered a capital contribution and a mere transaction in money.</li></ul></li><li>Illustration B (Taxable):<ul><li>Four JV members contribute ₹100 each (total ₹400).</li><li>The operating member uses its own machinery and performs exploration & production for the JV.</li><li>GST is applicable, as the operating member recovers costs from other JV members, constituting a service supply.</li></ul></li></ul><h3>4. GST Applicability on Inter-JV Member Transactions</h3><ul><li>If a JV member provides services to the JV or to other members, it is considered a taxable supply under GST.</li><li>The same principle applies if the JV provides services to its members.</li><li>Whether cash calls are taxable depends on the facts and circumstances of each case.<a href="https://cms.plasament.com/storage/shubham-pathak/circularno-35-cgst.pdf">circularno-35-cgst</a>  </li></ul>