Service Tax - Joint Venture - CBEC Clarifies
IT seems certain doubts have been raised regarding:
1. the levy of service tax on taxable services provided by the members of the Joint Venture (JV) to the JV and vice versa;
2. the levy of service tax on taxable services provided inter se between the members of the JV;
3. taxation of cash calls or capital contribution made by the members to the JV and also administrative services provided by a member to the JV.
CBEC Clarifies:
According to Explanation 3(a) of the definition of service, “an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons”. In accordance with the above explanation, JV and the members of the JV are treated as distinct persons and therefore, taxable services provided for consideration, by the JV to its members or vice versa and between the members of the JV are taxable .
Detailed and close scrutiny of the terms of JV agreement may be required in each case, to determine the service tax treatment of cash calls. Some important aspects, by way of illustration, which could be examined in this regard, are:-
1. Taxable service provided by a JV to its members:
Cash calls, sometimes, could be in the nature of advance payments made by members towards taxable services to be received from the JV. For instance, JV which receives the cash call from its members may in return agree to do something of direct benefit either to the member or on the behest of a member to a third party, such as granting of right, reserving production capacity or providing an option on future supplies.
2. Taxable services received by a JV from its members or third party:
Payments made out of cash calls pooled by a JV, towards taxable services received from a member or a third party is in the nature of consideration and hence attracts service tax.
3. Taxable services provided by members to the JV:
Usually responsibility of managing the cash calls of the JV is assigned to one or some of the members of the JV, by way of a contractual agreement, for which he/they may receive a consideration either in cash or kind (say, goods or services).
A member of JV may provide support services (for example, administrative service in the form of setting up/management of a project office/site office) to the JV for a consideration either in cash or kind (say, goods or services).
JV being an unincorporated temporary association constituted for the limited purpose of carrying out a specified project within a time frame, a comprehensive examination of the various JV agreements (at times, there could be number of inter se agreements between members of the JV) holds the key to understanding of the taxation of transactions involving taxable services between the JV and its members or inter se between the members of a JV.
The Board advises the officers in the field formations to carefully examine the leviability of service tax with reference to the specific terms/clauses of each JV agreement.
Circular No., Dated: September 24, 2014