CBEC sheds light on the GST applicability on the mutual services in a Joint Venture
Undeniably, the GST registration has emerged as a solution to abridge legal as well as financial exigencies for all business forms, enhanced mobility of goods and has simplified the tax liabilities. All in all, it has augmented the ease of doing business in India. However, the fiscal reforms are still underway as regards certain business forms where the ultimate boon of GST is yet to be accomplished. In this respect, the Central Board of Excise and Customs (CBEC) is rigorously working on easing the tax compliances for the joint venture businesses.
Lately, the CBEC has issued a clarification on the applicability of GST on the services of the Joint Venture to its members or vice-versa. In this regard, the department has elucidated about the GST application on the mutual services of the members of a Joint Venture.
As per the earlier notification issued by CBEC dated 24th September 2014, that was issued much before the passing of GST bill, if the ‘cash calls’ are purely in monetary form, then they are to be excluded from the purview of ‘services’, according to the Finance Act, 1994.
What are cash calls?
Here, the Cash calls refer to the requests for settlement of a payment for predictable or future capital and working expenditure, sent by the operating members of a joint venture to the dormant or non-operating partners. As these are yet to be adjusted, they are mostly done in the form of bills of exchange or promissory notes. Mostly, there is a requirement of a joint operating agreement (JOA), which also includes a provision that allows the operating members of a joint venture to issue cash calls to non-operating partners.
Now, as per the recent notification, such cash calls are not to be treated as services.
Applicability of GST on the mutual services in a Joint Venture
The law with respect to the imposing of GST on services rendered by the member of a joint venture that is yet to be incorporated (JV) to that JV or to the fellow members of the JV, or vice-versa will, however, remain the same as it continued to be under the erstwhile service tax regime.
Hence, all the aforesaid services will continue to be applicable for GST. This mandate will be applicable for those companies that have Import Exports code and have tied with overseas companies.