10 Case Studies under GST

10 Case Studies under GST

Case Study 1

GST implications on ICAI membership fees and similar bodies?

What is the supply?

Section 7 of the CGST Act

(1) Supply includes

(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Key Contents of Definition

• Consideration
• Business

What is consideration?

Section 2(31) of the CGST Act

“Consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b)the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

What is a business?

Section 2(17) of the CGST Act

“business” includes––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) the 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;

Judgments

Delhi High Court Judgement in the case of Bureau of Indian Standards v Director General of Income Tax [2012] 27 taxmann.com 127 (Delhi):

In this case, while discussing the income-tax applicability on license fee collected by Bureau of Indian Standards (BIS), the Court held that prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection, etc., cannot be considered as trade, business or commercial activity merely because the testing procedure or accreditation involves charging of certain fees. The Court further held that BIS is a statutory body established under the Bureau of Indian Standards Act, 1986, and is performing sovereign and regulatory functions as laid down in the said Act, in its capacity of an instrumentality of the State. Therefore, the Court held that BIS is not involved in carrying on any activity in the nature of trade, commerce, or business. The House of Lords in the case of Institute of Chartered Accountants in England and Wales vs. Customs and Excise Commissioners [1991] 1 W.L.R. 701:

The court was asked to examine whether VAT is chargeable on the fees received by the Institute in lieu of the licenses granted to the accountants for carrying out the investment business. The House of Lords, in this case, held that performing the licensing function on behalf of the state is not in the nature of carrying on of a business. It should be pointed out that in order to qualify as a business under the UK VAT Act, there must a performance of ‘economic activity’. The House of Lords referred the Tribunal judgment which stated that a regulatory activity carried out under a statutory power for the purpose of protecting the public by supervising and maintaining the standards of practitioners fall on the other side of the line from economic activities and thus, such regulatory activity cannot be considered as a business.

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