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Gst applicability on capital assets contribution by partner in firm

vinod garg (CA Assistant) (29 Points)

09 July 2018

is gst applicable on capital asset contribution by partner.

If partner is unregistered under GST , what will be the situation

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11 Replies

RAJA P M ("Do the Right Thing...!!!") (127362 Points)
Replied 10 July 2018

I think No...

But,
Explain Your query clearly...

Vinod Babu (24191 Points)
Replied 10 July 2018

I also think that gst is not applicable.

vinod garg (CA Assistant) (29 Points)
Replied 10 July 2018

RAJA P M my query is if a partner brings capital asset as capital contribution in the partnership firm, is this contribution a deemed supply under GST law further note that the partner is unregistered under GST,if it is a deemed supply should i disclose it in GST return as supply from unregistered person and issue invoice for such supply

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Pankaj Rawat (GST Practitioner) (55037 Points)
Replied 10 July 2018

Yes ,.. it will be treated as exempted supply from URD (partner), the firm cannot take ITC on the same as No Tax Invoice will raise

It will be treated as Exempted supply as the RCM on purchase from URD is deferred to 30/09/2018

1 Like

Shivam Chomal (498 Points)
Replied 10 July 2018

Moreover, if the nature of the business is of 'Partnership', there will be no 'supply' when partner brings certain capital asset into the business, as under partnership, partners and partnership firm are not distinct persons as in the case of a company. So, since supply requires existence of 2 separate persons, this situation will not even be termed as supply.

Similar will be the case when partner will leave the firm and will take capital asset along as settlemet of dues or whatsoever.'No Supply'

Pankaj Rawat (GST Practitioner) (55037 Points)
Replied 10 July 2018

BOTH ARE DISNTICT PERSON (DIFFERENT PAN) THAT WHAT IAM SAYING IT WILL CONSIDER AS SUPPLY

Shivam Chomal (498 Points)
Replied 11 July 2018

But, according to Partnership Act, Partnership is a collection of partners and is not a separate legal entity having identity different from its partners.This is true even for taxation purpose which is held true time and again in numerous judgements. Moreover, in the service tax regime too, this transcation was not leviable to tax and there too Partners and firm were not considered as distinct persons.

Further if we look here, there is no concept of 'consideration' in this transaction.Section 5 of the Indian Partnership Act, 1932 declares that the relationship of partnership arises from a contract. Thus, the entry of a new partner in a partnership is the result of a contract between the existing partners and the new partners. Admission into partnership is not an 'act/work done' or 'facility provided' : neither by the firm nor by the partners. The sacrifice, if any, is made by the existing partners, however, the sacrifice/admission is not for the benefit of any existing/new partner but is for the benefit of the objectives of the partnership. Thus, by admitting a new partner in the firm, no "service" is provided to the "new partner". The new partner is merely acquiring a financial holding/interest in the firm.

Similarly, any capital asset provided by the partner for the benefit of the firm, involves no consideration for the partner.

Thus, in my view, similar to service tax regime, this transaction will not be termed as supply even under GST.

Irfan Ali (10 Points)
Replied 12 September 2018

It attracts gst as per section-7 of GST Act, as supply includes transfer and as per schedule-1 of GST Act transfer of asset without consideration by a partner in the course of business will be a supply If partner is URD it comes under RCM