Question And Answer
Subject: Applicability of GST
Querist: Sethiya
Answered by:
Tags: ,
Date: May 27, 2022
Query asked by Sethiya

Assessee is a partnership firm having Diagnostic services under his brand.  Now for the purpose of growth and expansion of business, has decided to invite investors and has formulated the proposal.  As per the proposal, the new diagnostic center with the brand will be open in various part of city, state and other state.  Entire set up of diagnostics center as well as running the said center will be responsibility of assessee firm. Investor will be paid 15% pa. of their Investment or 10% of Gross receipts of the diagnostics center in which he has invested, which is higher.

Is there any implication under GST Act on this model.  Can we say that it is Revenue sharing agreement and therefore,  no GST applicable.  Guide.

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Answer given by

Under GST transactions of supply are liable to tax. The scope of ‘supply’ as given in section 7 is very wide. Normally, the receipts from any party will amount to receipts towards supply, may be supply of goods or service. The investor is making investment for return on the investment made. It appears that there is no intention of revenue sharing like Joint venture or any other such business form. If there is earning of interest, one can claim exemption. However, there is also calculation as per percentage of gross receipt which is not fitting into concept of interest. Therefore, the authorities will take the receipt in the hands of investor as towards supply of services which may fall in residuary category.
The agreement should be made proper if it is revenue sharing intention.

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