Distinct Person & its Tax treatment in GST.


Distinct Person & its Tax treatment in GST

In this article we will see the concept of distinct person, when it is applies? & what value should be taken for transaction taken place between such people?

According to GST act, when two units of the same business have taken different registration, then they will be considered as a distinct entity/ person as per the GST law. The laws relating to filing of returns and other compliance procedures shall equally apply to both of them separately.

Following combination may be possible:

  • An establishment in India and an establishment outside India
  • An establishment in one state or a union territory and an establishment in another state or union territory

Transactions between Distinct person shall be treated as Supply? 

In the, Schedule I of the GST Act, when a supply is made between distinct persons during the course of business, it is considered as a supply even when there is no consideration. Therefore these transactions are considered as a taxable supply.

Accounts &Books Provisions:

  • Every distinct person will have to keep the separate recordsfor their place of business – Section 35(1) of CGST Act, 2017.
  • Every taxable person is also required to get his accounts auditedon crossing threshold limit. It means that every distinct person will have to go for audit in their respective states – Section 35(5) of CGST Act, 2017. 

Valuation under GST:

Valuation of the transactions taken between distinct person can be done by according Rule-2. As per these rules, the value of the transaction shall be the following:

  • Open market value of such supply
  • If open market value is unavailable, value of goods/ services of like kind and quality
  • If the above two are not possible, then as per Rule 4 (value shall be equal to 110% of cost of production) or Rule 5 (residual value)
  • When recipient is eligible for full input tax credit, then the value declared in the invoice shall be the open market value for such

If transaction taken place between distinct person out of India then whether it is treated as Export?

If following conditions are satisfied then it is called export of services.

  • Supplier of services is located in India
  • Receiver of services is located outside India
  • Place of supply is outside India
  • Payment for such service is received in convertible foreign exchange
  • Supplier and receiver of service are not merely establishments of a distinct person.

So, if a unit in India provides services to a branch outside India, it will not be an export of service. As the last condition mentioned above does not get satisfied.

-CA Monika Rathi