Distinct Person under GST – Importance, Taxability

Who is a Distinct Person Under GST?

Every person with a valid PAN who is required to be registered has to apply for GST registration in every state or union territory, within 30 days of becoming liable for registration.

However, business verticals in a state can obtain multiple GST registrations, if they have different risks, returns, and functions differently from its other components. Therefore, when the same business’s two units have taken different registrations, then such units are considered distinct persons/entities under the GST law.

Distinct persons can be -

• Any establishment in India or outside India
• Any establishment in one state or union territory or in another state or union territory.

Who is a Related Person Under GST?

A related person under GST has been defined under explanation to section 15(5) of the CGST Act. A person is a related person if -

• Such a person is an officer or director of one another’s business
• Such a person is an employee or employer
• Such persons are legally recognized business partners.
• One person has indirect control over the other.
• Both are indirectly or directly controlled by a third party.
• Directly or indirectly control the third person.
• Any person holds more than 25% shares of both of them either directly or indirectly.
• Members of the same family.

Is the Supply made to a Distinct Person Considered Supply Under the GST Act?

As per Schedule 1 of the GST Act, when a supply takes place between distinct persons, it is termed a supply, even if there is no consideration involved in such supply. Therefore, these transactions are termed taxable supplies.

What is the taxability of a Distinct Person under GST?

As previously mentioned, a supply between distinct entities is considered a taxable supply, and its taxation is determined by Rule 2 of the Valuation Rules. According to these rules, the transaction's value is as follows:

• The open market value of the supply.
• In cases where the open market value is unavailable, the value of goods or services of a similar kind and quality.
• If the above options are not feasible, then the value is determined either by Rule 4 (equal to 110% of the cost of production) or Rule 5 (residual value).
• It's important to note that when the recipient is eligible for a full input tax credit, the value declared in the invoice becomes the open market value for such transactions.

Is an Export of Service Between Distinct Persons Considered as Supply?

The export of a service is deemed to occur when the following criteria are met:

• The service provider is situated in India.
• The service recipient is located outside India.
• The place of supply is outside India.
• Payment for the service is received in convertible foreign exchange.
• The service provider and recipient are not simply establishments of the same entity.

Therefore, if a unit in India furnishes services to a branch located outside India, it does not qualify as an export of service because the fifth condition is not fulfilled. As a result, this supply is not considered an export and does not fall under zero-rated supplies. Consequently, the transaction, which was previously exempt before the introduction of GST, is now taxable.

Understanding distinct persons under GST is vital for businesses located in different regions. Examining tax implications, especially for supplies between distinct persons can be complicated. Tax2win’s tax experts can help you navigate the complex tax landscape and guide you throughout the process.

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