Gst On Corporate Transactions
I. INTRODUCTION: GST AND CORPORATE TRANSACTIONS
Under the Central Goods and Services Tax Act, 2017 (CGST Act), GST applies to all supplies of goods or services made for consideration in the course or furtherance of business. Corporate transactions often involve complex arrangements such as:
Inter-company services
Transfer of business assets
Shareholding and securities transactions
Director remuneration
Corporate guarantees
Slump sale and mergers
These raise disputes on taxability, valuation, time of supply, place of supply, and input tax credit (ITC).
II. STATUTORY FRAMEWORK
1. Section 7 – Scope of Supply
Defines “supply” to include sale, transfer, barter, exchange, license, rental, lease or disposal.
2. Schedule I
Certain supplies are taxable even without consideration, e.g.:
Supplies between related persons
Supplies between distinct persons
3. Schedule III
Activities treated as neither supply of goods nor services, e.g.:
Services by an employee to employer
Transactions in securities
4. Section 15 – Valuation
Transaction value unless parties are related or price is influenced.
III. KEY CORPORATE TRANSACTIONS AND GST IMPLICATIONS
1. INTER-COMPANY SERVICES AND RELATED PARTY TRANSACTIONS
Legal Issue
Whether services between holding, subsidiary, or group companies attract GST even if no consideration is charged.
Legal Position
Covered under Schedule I
GST applicable even without consideration
Valuation as per Rule 28 of CGST Rules
Case Laws
1. Columbia Asia Hospitals Pvt. Ltd. v. CCE
Shared corporate services between group entities.
Held: Cross-charge of services between related entities is taxable under GST.
2. M/s Kansai Nerolac Paints Ltd.
Centralized management and marketing services.
Held: Inter-company support services constitute taxable supply.
2. DIRECTOR’S REMUNERATION AND SITTING FEES
Legal Issue
Whether director remuneration is taxable under GST.
Legal Position
Whole-time directors / employees: Covered under Schedule III (no GST)
Independent / non-executive directors: Taxable under reverse charge mechanism (RCM)
Case Laws
3. M/s Alcon Consulting Engineers (India) Pvt. Ltd.
Sitting fees paid to directors.
Held: Services by non-executive directors attract GST under RCM.
3. TRANSACTIONS IN SHARES AND SECURITIES
Legal Issue
Whether sale or transfer of shares attracts GST.
Legal Position
Securities excluded from “goods” and “services”
Covered under Schedule III
Case Laws
4. Edelweiss Financial Services Ltd.
Transfer of shares during restructuring.
Held: Transactions in shares are outside GST ambit.
4. CORPORATE GUARANTEES AND FINANCIAL SUPPORT
Legal Issue
Whether providing a corporate guarantee to a group entity is a taxable supply.
Legal Position
Considered a service
Taxable even if provided without explicit consideration
Valuation as per Rule 28
Case Laws
5. M/s Bharti Airtel Ltd.
Corporate guarantee given to subsidiaries.
Held: Corporate guarantee is a taxable supply of service under GST.
5. SLUMP SALE AND TRANSFER OF BUSINESS
Legal Issue
Whether transfer of an entire business undertaking attracts GST.
Legal Position
Transfer of business as a going concern is exempt
Otherwise taxable as supply of service
Case Laws
6. Rajashri Foods Pvt. Ltd.
Sale of manufacturing unit with assets and liabilities.
Held: Slump sale as going concern qualifies for GST exemption.
6. EMPLOYEE COST ALLOCATION AND SECONDMENT
Legal Issue
Whether employee secondment between group companies is taxable.
Legal Position
If employment relationship exists → Schedule III
If control remains with original employer → taxable manpower supply
Case Laws
7. M/s Northern Operating Systems Pvt. Ltd.
Secondment of employees from foreign group entity.
Held: Secondment amounts to supply of manpower services and is taxable.
IV. INPUT TAX CREDIT (ITC) IN CORPORATE TRANSACTIONS
Relevant Provisions
Section 16 – Eligibility of ITC
Section 17 – Apportionment and blocked credits
Common Disputes
ITC on shared services
ITC on corporate expenses
ITC on restructuring costs
Case Law
8. Safari Retreats Pvt. Ltd.
ITC on construction used for business.
Held: Business nexus is critical for ITC eligibility.
V. VALUATION AND TIME OF SUPPLY ISSUES
Related party valuation under Rule 28
Open market value preferred
Invoice value accepted if full ITC available
Case Law
9. M/s Sanmar Speciality Chemicals Ltd.
Valuation disputes in related party supplies.
Held: Invoice value acceptable where ITC is fully available.
VI. PENALTIES AND COMPLIANCE RISKS
Misclassification of corporate transactions
Failure to cross-charge services
Wrong ITC claims
Non-payment under RCM
Case Law
10. M/s DLF Ltd.
Suppression of inter-company transactions.
Held: Extended limitation applicable in case of deliberate non-disclosure.
VII. CONCLUSION
GST on corporate transactions requires substance-over-form analysis. Courts consistently emphasize:
Business nexus
Existence of supply
Relationship between parties
Consideration (including deemed consideration)
With increasing scrutiny by tax authorities, corporates must ensure:
Proper inter-company agreements
Correct valuation
Timely payment under RCM
Accurate ITC apportionment
RELATED Blog
comments