1. Basic Provisions:
i. Section 25(4) of CGST Act, 2017 provides that, a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.
ii. In other words, a distinct person is any taxable person who has either obtained or is required to obtain multiple registrations (more than one) within the same state or in different states.
iii. For example, if person has one place of business in Maharashtra for which registration is obtained and another place of business of the same person in Gujarat for which registration is obtained then such place of businesses will be considered as distinct person.
iv. Every distinct person is liable to pay GST and will be treated as a separate taxable person.
2. Meaning of establishment of distinct persons:
i. Section 25(5) of CGST Act, 2017 provides that, where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.
ii. Further, Explanation1 to section 8(1) of IGST Act reads as follows:
For the purposes of this Act (i.e. IGST Act)- (i) an establishment in India and any other establishment outside India, or (ii) an establishment in a State and any other establishment outside that State or (iii) an establishment in a State and any other establishment being a business vertical within the State, shall be treated as establishments of distinct persons.
3. Export of services – Section 2(6) of IGST Act states as follows –
“Export of services” means the supply of any service when- (a) the supplier of service is located in India (b) the recipient of service is located outside India (c) the place of supply of service is outside India (d) the payment for such service has been received by the supplier of service in convertible foreign exchange, and (e) the supplier of service and recipient of service are not merely establishments of a distinct person in accordance with explanation 1 of section 8 of IGST Act
What is meant is that branch and HO of same taxable person shall not be treated as two distinct persons for this provision. Thus, there cannot be export of service to own branch office outside India.
4. Registration requirement for distinct person in GST
i. Distinct person u/s 25(4), Separate GST Registration is required even if PAN is same.
ii. Distinct person u/s 25(5), even if the establishment in another State is not registered under GST then such establishments shall be treated as establishments of distinct persons.
iii. A person having a unit(s) in a Special Economic Zone or being a Special Economic Zone developer shall make a separate application for registration as a business vertical distinct from his other units located outside the Special Economic Zone-Proviso to Rule 8 of Registration.
5. Accounts and records for distinct person in GST
i. It is clear that every distinct person will have to keep the separate records for their place of business – Section 35(1) of CGST Act, 2017.
ii. Every taxable person is also required to get his accounts audited on crossing threshold limit. This provisions also indicate that every distinct person will have to go for audit in their respective states – Section 35(5) of CGST Act, 2017.
6. Time limit for issuing tax invoice for an insurer or a banking company or a financial institution, including a non banking financial company, or a telecom operator – Second proviso to Rule 47
An insurer or a banking company or a financial institution, including a non banking financial company, or a telecom operator, or any other class of supplier of services as may be notified by the Government on the recommendations of the Council, making taxable supplies of services between distinct persons as specified in section 25, may issue the invoice before or at the time such supplier records the same in his books of account or before the expiry of the quarter during which the supply was made.
7. Liability in case of amalgamation or merger of companies. Section 87(2)
Notwithstanding anything contained in the said order, for the purposes of this Act, the said two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.
8. Supply even if made without consideration – Section 7(1)(c) read with Clause II of Schedule I of the CGST Act:
Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business shall be treated as Supply even if made without consideration.
9. Taxable value in case of distinct person in GST:
Section 15 provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
10. Determination of Value of Supply in case of distinct person in GST:
i. Rule 28 of Determination of value of supply provides the 3 scenarios:
8.1.A. Supply of goods / Services other than where the supply is made through an agent–
Option 1: Open Market Value of such supply
Option 2: If Open market value is not available, be the value of supply of goods or services of like kind and quality
Option 3: If Option 1 and 2 is not applicable, then be the value as determined by application of Rule 30 or Rule 31
8.1.B. If goods are intended for further supply as such-
In addition to the options as described in I above, at the option of the supplier, value can be an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
8.1.C. Where the recipient is eligible for full input tax credit-
Value declared in the invoice shall be deemed to be the open market value of goods or services.
ii. Price charged to distinct persons with same PAN will be accepted if it is open market value or price of like kind of goods or services.
iii. The value of taxable services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in paragraph 2 of Schedule I between distinct persons as referred to in section 25, where input tax credit is available, shall be deemed to be NIL – Rule 32(7) of Determination of value of supply.
11. Illustrative list of transactions between distinct person without consideration which may lead to probable tax litigation in upcoming years in case GST liability has not been discharge:
i. Processing fees paid for loan availed by the head office.
ii. Head office incurs expenditure to set up a branch office.
iii. License fees paid by head office for entire company.
iv. Management cost incurred at head office to manage the operations of branches.
v. Head office support the marketing expenses of Branches.
vi. Head office control the management functions of Branches.
vii. Head office support for the petty expenses of Branches.
12. Key Takeaways
Every distinct person is liable to pay GST and will be treated as a separate taxable person. Separate GST registration is required even if PAN is same but if the establishment in another state is not registered under GST then such establishment shall be treated as establishment of distinct persons. Further, every distinct person will have to keep the separate records and to get his accounts audited. Most important, supply of goods or services or both between distinct persons shall be treated as supply even if made without consideration. As mentioned in the point number 10, illustrative list of transactions between distinct person without consideration which may lead to probable tax litigation in upcoming years in case of GST liability has not been discharged.
(The author is a member of the ICAI who may be contacted at firstname.lastname@example.org or email@example.com)
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