The Kerala Bench of the Authority for Advance Ruling, in the case of IN RE: M/S. CHOICE FOUNDATION – 2023 (7) TMI 570 – AUTHORITY FOR ADVANCE RULING, KERALA, ruled that because the assessee and the joint venture are two separate entities in the means of taxation, the supply of services to the joint venture by the assessee would be subject to GST as per Notification No. 11/2017 Central Tax (Rate) dated June 28, 2017 (the Service Rate Notification).
Specific Points:
The applicant, M/s Choice Foundation is a nonprofit society running educational institutes in the state of Kerala. In order to jointly run an educational institution from the property owned by M/s Choice Estates and Constructions Pvt. Ltd. (CECPL), the applicant intends to engage in a joint venture agreement with CECPL.
In accordance with the terms of the joint venture agreement, the applicant and CECPL will share the educational institution’s revenue in a fixed ratio that will be set later.
To get more information on whether the assessee’s income from educational institutions is taxable, the applicant filed an appeal with the Kerala AAR.
What is the Matter:
Whether the applicant’s revenue accumulated from student fees at an educational institute would attract GST?
Kerala AAR Ruling:
The Kerala AAR Bench, in IN RE: M/S. CHOICE FOUNDATION – 2023 (7) TMI 570 – AUTHORITY FOR ADVANCE RULING, KERALA held under:
It should be clarified that the contract between the applicant and CECPL is not an independent contract between the two entities as the parties will share the joint venture’s risk/revenue/profit and responsibility by cooperating for a shared goal and sharing the joint venture’s profit/loss.
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It should also be emphasized that when two or more separate, autonomous entities engage in a contract with the intention of sharing revenue or profits, a new entity separate from its constituents forms. The transaction between the new entity and other entities, particularly the applicant and its counterpart, may also constitute a taxable service, when applicable, as the new entity acquires the character of “person.”
Declared that the agreement between the applicant and its counterpart is a joint venture in the sense that both parties have come together to carry out a particular economic venture using a revenue-sharing model.
The service in question is considered under SAC code 9983: Other professional, technical, and business services, which is taxable at an 18% GST slab rate as per the service rate notification as the applicant would be furnishing input services to the educational institution in exchange for a share of the profit.
It was concluded that GST would apply to the applicant’s educational services given to the educational institution.
Our Views
In this matter, the applicant became the owner of the educational institution since they agreed to share the risk/revenue/profit/loss/liability. On the grounds that, the owner’s share of the profit is in the nature actionable claim, which is neither the supply of goods nor the supply of services, the services provided by the owner to the business entity are not similar to those provided by the third party. Subsequently, GST shouldn’t be imposed on the applicant’s share of profits.
| Applicant Name | M/s Choice Foundation |
| GSTIN | 32AAATC1588P1ZG |
| Citation | KER/10/2023 |
| Date | 10.03.2023 |
| Authorized Representative | Adv Jose Jacob |
| Kerala GST AAR | Read Order |
