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As per clause 2 of Schedule I of the CGST Act Supply of goods or services or both between distinct persons as specified in section 25, when made in the course or furtherance of business will be treated as supply even if made without consideration.

As per section 25(4) of the CGST Act, 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.

As per section 25(5) of the CGST Act, 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.

For example if a company ABC Ltd. which has the head office in Kolkata and branch office in Chennai transfers goods worth Rs. 25 Lakhs from the HO to branch office without consideration it would constitute a taxable inter-state supply and be subject IGST. Even though both the HO and the branch office are the part of the same legal entity and one person only but for the purpose of levy and collection of GST they would be considered as distinct persons.

Suppose in the above example ABC Ltd. has two distinct business divisions paint and shipping. Paint division of the company supplies paints worth Rs 1,000 to the shipping division. Both the supplier division and the recipient division and the place of supply is Kolkata. It would still be considered as intra state taxable supply and be subject to CGST and SGST if the both divisions have obtained separate registrations as different business verticals even though they are a part of the same legal entity.

These provisions of law are going to increase the working capital requirements of the business and the related finance costs because under existing laws branch transfers are non- taxable subject to satisfaction of the prescribed conditions but they will be a taxable event under the GST.

The purpose of this article is to spread awareness about the soon to be implemented Goods and Service Tax in India.

(The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com Mobile No.  91 9007909221 or Twitter @CARKBarmecha.)

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