Shivam Ltd. dealsin the transportation of goods as well as transportation of passengers by road. It has branches in the states of Goa, Maharashtra, Kerala, Punjab,and head office in Gujarat. Let’s say the Goa-based branch sends a bus for repair and maintenance to Gujarat where all the repair work is carried out. The Gujarat branch does not charge any fees to the Goa branch. The bus was purchased 2 years ago at Rs. 20,50,000. The issue arises here is “whether such movement of a bus is treated as an inter- state of supply between a distinct person?”. If yes, whether GST would be levied on the price of the bus?
Note: All sections in this article relate to CGST Act, 2017 unless otherwise specified.
Somewhere at the back of our mind, we all can understand that GST should not be levied just because a bus of transport is moving from one state to another. Let take a base of legal provisions as follows:
Section 24(1)(i) of the CGST Act specifies thatthe persons making any inter-statetaxable supply of goods shall be required to be registered under this Act. Thus, Shivam Ltd should have the basic registrationof GST first. But whether registration required under each state? Yes. He needs to apply for separate GSTINs for different states [Section 22(1) of the CGST Act, 2017]. This means that the premises located in different states are treated as separate distinct persons under section 25(4).
Section 25(4) of the Act specifies 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 this Act.
Once the branches in different states are treated as distinct persons, the transaction between them should ideally be treated as supply. Further, we haveSchedule I of the Act which applies in case the business activities are made without consideration. Para c of the Schedule I specifies that if a transaction has been made between a related or distinct person, it shall be treated as supply even if there is no consideration involved and such activity is made in the course of business. So, here we analyzethe situation:
- Whether the bus was sent for repairs inter-state? Yes
- Whether the two branches are distinct persons? Yes
- Whether the buswas sent in the course or furtherance of business? Yes. (Furtherance of business means the bus will be used for transportation after repairs.)
Hence, as per the analysis up till here, the movement of a bus is treated as a supply of goods under GST. This simply means that every time a bus is transported for repairs from one state to another, GST would be levied on the entire bus value. Sounds a little weird! Isn’t it? This was surely not the purpose of the law. So, here is a catch. Whenever such inefficiencies are observed in the making of law, the Government issues circulars to clear the inefficiencies.
The very first circular of the GST was issued in the year 2017. Circular 1/1/2017 simply stated that if the inter-state movement of goods such as mode of conveyance between distinct persons as specified under section 25(4) shall not be treated as supply if such movement does not involve the further supply of such conveyance including trains, buses, trucks, tankers, etc.
This circular clarifies that the result of the above analysis was never the purpose of the law. Hence, such transfer is not treated as a supply. The circular states that if the bus would have been sold after repairing at the Gujarat branch, then GST would be levied on the sale price of the truck after such repairs. Our case study does not focus on sales after repairs.
What about the repair service for which the Gujarat branch did not charge anything? The circular further states that IGST would be levied for the repairs and maintenance charges for the conveyance.
After a complete analysis of the facts of the case and considering the circular issued by the Government, we can fairly conclude that:
- If Bus is sent for repairs from one state to another, it won’t be treated as a supply of bus and hence, GST would not be levied on the value of the bus.
- However, GST would be levied on the repairs and maintenance charges of the conveyance.
If fixed assets are transferred inter-state for repairs purposes, the transaction would not be treated as supply (Circular 1/1/2017). However, IGST would be levied on the repair charges, even if the branch does not charge to another branch.