Holding Shares in a Subsidiary by a Holding Company is not ‘Supply of Service

Yonex India Private Limited Vs Union of India (Karnataka High Court)

Introduction: In a landmark judgment, the Karnataka High Court addressed a significant issue concerning the Goods and Services Tax (GST) implications on holding shares in subsidiary companies. Yonex India Private Limited vs. Union of India case brought to light the complex intersection of corporate holdings and GST laws. The court’s decision, based on recent clarifications from both the Central and State Governments, has profound implications for companies operating within this legal framework.

Detailed Analysis: The crux of the dispute centered on whether the holding of shares by a parent company in its subsidiary qualifies as a “supply of service” under the GST regime. The petitioner, Yonex India Private Limited, challenged Notifications issued by the GST authorities, which were interpreted to tax the equity held in subsidiary companies as a service supply. The Karnataka High Court’s decision hinged on Circulars issued by the Central and State Governments in July 2023, which clarified that such shareholding does not constitute a supply of services under the GST Acts.

Key Points from the Judgment:

1. Clarification by Government Circulars: The Central and State Governments issued Circulars on 17th and 21st July 2023, respectively, clarifying that holding shares or securities in a subsidiary does not constitute a supply of goods or services. This clarification played a pivotal role in the court’s decision.

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