Distinct persons are persons with different GSTINs belonging to one legal entity (single PAN) situated within the same state or in two different states or in a different country.
In this article, we shall see instances when a taxpayer is considered as a distinct person and what provisions in GST applies to them with regard to taxability, treatment of stock transfers, export of such services and whether a transaction between them would constitute a supply.
1. Who is a distinct person?
As an exception, business verticals within a state can obtain multiple GST registrations if required business verticals have a risk, returns and functions different from that of the other components considerably.
Therefore, 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 apply to both of them separately.
Hence, Distinct persons can be :
- Every person with a valid PAN who is liable to be registered shall apply for GST registration in every state or union territory within 30 days of being liable to be registered. A person shall apply for one registration for all units within the same state.
For example, if A (in Bangalore) has branches in Germany and Maharashtra, the branches in Maharashtra and Germany will both be distinct persons/ entities. If A has another component B which is different from A and has obtained a different GST registration, A and B will be distinct entities.
- 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
2. Would a supply made to a distinct person constitute a supply under the GST Act?
The supply stated above is covered under Schedule I of the GST Act and as per this schedule, 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.
Example- stock transfers made between distinct units, even if without a consideration will be a taxable supply. Earlier regime, any interstate or intra-state stock transfers were subjected to levy of Excise Duty on removal of Goods from factory. The same was however not subject to VAT/ C
3. Taxability under GST for a distinct person
As we have seen above, the supply made between distinct persons shall be a taxable supply and it shall be taxed on a value determined by Rule 2 of the Valuation Rules. 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 transactions.
4. Is export of service between distinct persons considered as supply?
Service is said to be exported when the following conditions are satisfied:
So, if a unit in India provides services to a branch outside India, it will not be an export of service as the 5th condition mentioned above does not get satisfied. Since this supply will not be an export, it will also not be a zero-rated supply. Hence the above transaction which was exempt before the GST will now be taxable.
- 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
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For further reading and understanding, check out:
Cases when Supply without consideration between some persons is taxable