Who is a distinct person?

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. 

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:

  • 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 

For example, if XYZ (in Bangalore) has branches in Germany and Uttar Pradesh, the branches in Uttar Pradesh and Germany will both be distinct persons/ entities. If XYZ has another component ABC which is different from XYZ and has obtained a different GST registration, XYZ and ABC will be distinct entities.

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.

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.

Is export of service between distinct persons considered as supply?

Service is said to be exported when the following conditions are satisfied:

  • 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

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.

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