Circular No. 35/9/2018-GST1
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
The Principal Chief Commissioners/Chief Commissioners/ Principal
Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All)
Subject: Joint Venture —taxable services provided by the members of the JointVenture (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 clarifiedthat if cash calls are merely transaction in money, then they are excluded from the definitionof service provided in Section 65B (44) of the Finance Act, 1994. Whether a cash call ismerely a transaction in money and hence not in the nature of consideration for taxableservice, would depend on the terms of the Joint Venture Agreement, which may vary fromcase 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 jointventure(JV); and that payments made out of cash calls pooled by a JV towards taxableservices received from a member or a third party is in the nature of consideration and henceattracts Service Tax. The Circular further stated that JV being an unincorporated temporaryassociation 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, therecould be number of inter se agreements between members of the JV) holds the key tounderstanding of the taxation of transactions involving taxable services between the JV andits members or inter-se between the members of a JV. Therefore, officers in the fieldformations 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 personfor another for consideration [Section 65B(44) of the Finance Act 1994]. Explanation 3 tothe said definition stated than an unincorporated association or a body of persons as the casemay be, and a member thereof shall be treated as distinct persons.
Circular No. 35/9/2018-GST2
3. GST is levied on intra-State and inter-State supply of goods and services. Accordingto section 7 of CGST Act, 2017, the expression “supply” includes all forms of supply ofgoods or services or both such as sale, transfer, barter, exchange, licence, rental, lease ordisposal made or agreed to be made for a consideration by a person in the course orfurtherance 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 orany other consideration) of the facilities or benefits to its members. The term person isdefined in section 2(84) of the CGST Act, 2017 to include an association of persons or abody 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 unincorporatedassociation or body of persons to a member thereof for cash, deferred payment or othervaluable consideration shall be treated as supply of goods. A conjoint readingof the aboveprovisions of the law implies that supply of services by an unincorporated association orbody 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 isanalogous to and draws strength from the provision in Article 366(29A)(e) of theConstitution according to which a tax on the sale or purchase of goods includes a tax on thesupply of goods by any unincorporated association or body of persons to a member thereoffor cash, deferred payment or other valuable consideration.
4. Therefore, the law with regard to levy of GST on service supplied by member of anunincorporated joint venture (JV) to the JV or to other members of the JV, or by JV to themembers, essentially remains the same as it was under service tax law. Thus, it is clarifiedthat the clarification given vide Board Circular No. 179/5/2014 – ST dated 24.09.2014 ibidin the context of service tax is applicable for the purpose of levy of GST also. It is reiteratedthat 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 joinventure on other members in proportion to their participating interests in the jointventure(unincorporated) to meet the expenditure on the operations to be carried out as perthe approved work programme and budget. Taxability of cash calls can be further explainedby the following illustrations:
Illustration A: There are 4 members in the JV including the operating member andeach one contributes Rs 100 as part of their share. A total amount of Rs 400 iscollected. The operating member purchases machinery for Rs 400 for the JV to beused in oil production.Illustration B: There are 4 members in the JV including the operating member andeach one contributes Rs 100 as part of their share. A total amount of Rs 400 iscollected. The operating member thereafter uses its own machine and performsexploration and production activities on behalf of the JV. Circular No. 35/9/2018-GST3
4.1 Illustration A will not be the subject matter of ‘ST/GST’ for the reason that theoperating member is not carrying out an activity for another for consideration. In IllustrationA, the money paid for purchase of machinery is merely in the nature of capital contributionand is therefore a transaction in money.
4.2 On the other hand, in Illustration B, the operating member uses its own machineryand is therefore providing ‘service’ within the scope of supply of CGST Act, 2017. This isbecause in this scenario, the operating member is recovering the cost appropriated towardsmachinery 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 noticeof the Board.
Technical Officer (TRU)