TMI Blog2018 (8) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... goods represent the diamonds in possession of the bailee and any transfer of EVRs amounts to transfer of the title to the goods, i.e. diamonds. Hence there is a supply of diamonds. The consideration need not be in the form of cash, but in the form of securities - this transaction amounts to supply of diamonds as per Section 7 of the Central Goods and Services Act and is liable to tax as per Notification No. 1/2017 –Central Tax (Rate) dated 27.06.2017. Whether e-Units would be treated as securities and thereby transaction in e-Units would remain out of scope of the levy under GST? - Held that:- The transactions of e-Units are in the form of derivatives as they are done on an online – M/s ICEX is approved by SEBI to act as a commodity exchange and it has been permitted by launch Diamond futures. It has also received approval from SEBI permitting the exchange to recommence live trading operations and it has all the necessary infrastructure to handle deposits, grading and sealing, vaulting and deliveries of diamonds as part of its preparation to launch the diamond contracts - The e-Units are securities under the clause (101) of section 2 of the Central Goods and Services Tax Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AL GOODS AND SERVICE TAX ACT, 2017 AND UNDER SUB-SECTION (4) OF SECTION 98 OF KARNATAKA GOODS AND SERVICES TAX ACT, 2017 1. M/s Rajarathnam s Jewels, (called as the Applicant hereinafter), having its registered office at B-12, Devatha Plaza, Residency Road, Bengaluru 560025, having GSTIN number 29AABFR5632E1ZA, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017, KGST Act, 2017 IGST Act, 2017 read with Rule 104 of CGST Rules 2017 KGST Rules 2017, in form GST ARA-01 discharging the fee of ₹ 5,000-00 each under the CGST Act, IGST Act and the KGST Act. 2. The Applicant is a partnership firm engaged in the retail business of gold and is registered under the Goods and Services Act, 2017. He is desirous of entering into a derivative contract in diamonds through Indian Commodity Exchange Limited ( ICEX or the Exchange ) which is a recognized Commodity Derivatives Exchange regulated by SEBI to provide a nation wide online trading platform in commodity derivatives. ICEX has obtained a registration with Securities and Exchange Board of India (SEBI) vide Registration No.33. The applicant has sought advance ruling in respect of the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with the Exchange as a member by depositing a one-time membership fee and a nominal amount as annual subscription fee every year. ii. Further, any person who is not registered as a member with ICEX can also enter into diamond derivative contracts on the online platform through a member who is registered with the Exchange; iii. ICEX would take and/or recover an initial margin amount as deposit, sufficient to cover its potential exposure, from any member desirous of entering into a derivative contract (taking buy or sale position) using the online platform; iv. The diamond derivative contracts are subject to market risk which depends upon the price volatility as influenced by the quantum of trade and the price discovery through market forces; v. In case of excessive market volatility or circumstances where risk element is higher, an additional and/or special margin may also be recovered by ICEX from its member, as deposit; vi. A derivative contract commences on 6th of every month and expires on 5th of third month; vii. Before the expiry of the contract period, such person may square off its position (by taking an opposite position to the previous position, i.e. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with grading agency for grading/ verification; ii. If the diamond stone confirms to the quality parameters specified by the Exchange, grading agency will deliver the stone in blister proof packing with grading report printed on it to the Exchange accredited vault; iii. This grading report will have a unique serial number, which will be inscribed on the stone; iv. The grading report and diamond stone will be deposited with the Exchange accredited vault and an electronic vault receipt (EVR) for the same will be given to such person; v. Such person would have to surrender electronic vault receipt to obtain e-Units; vi. e-Units equivalent to the stone s caratage/ weight in cents will be credited in diamond owner s e-Account. For example if the stone is of 104 cents, such person will get a credit of 104 e-Units. vii. Once the diamonds are converted into e-Units, these diamonds become part of the pool of diamonds maintained by the Exchange and the holder of e-Units would lose its right to obtain the same diamond stone which was deposited; viii. Further, until EVR is converted into e-Units, the holder of EVR would have the right to surrender EVR and get the same diam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through a member who is registered with the exchange. 4. The applicant also submits that Section 9 of the CGST Act inter alia provides that CGST would be leviable on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under Section 15 of the Act and at such rates, as may be notified by the Government. Similarly, Section 5 of the Integrated Goods and Services Tax Act, 2017 inter alia provides that IGST would be leviable on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under Section 15 of the CGST Act and at such rates, as may be notified by the Government. 5. Thus, as per the applicant, it is clear that taxable event under GST is supply of goods or services or both . The term supply has been defined under section 7 of the CGST Act as under: Scope of Supply (1) For the purposes of this Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instruments issued to the investors under any mutual fund scheme; Explanation.- For removal of doubts, it is hereby declared that securities shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938); (ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract shall not be deemed to be a ready delivery contract; 9. The applicant also has submitted that the term consideration has been defined under Section 2(31) of the CGST Act and the term business has been defined under Section 2(17) of the CGST Act. He opines that the term business is widely worded and therefore, the activities proposed to be undertaken on ICEX by the applicant would constitute business. 10. The applicant submits that in light of the above legal provisions, the implications under the GST on the specified transactions are as under: a. Levy of GST on mere deposit of diamond with Safe Vaults in return for Electronic Vault Receipts (EVR) i. In this leg of the transaction, the person hands over the diamonds to the Safe Vault designated by the Exchange and is issued an EVR which is in nature of the acknowledgement of the deposit of the diamond by the Safe Vaults. ii. The Safe Vaults holds the diamond in the capacity of a bailee and is under obligation to return the diamond upon furnishing the EVR by the depositor. Furthermore, the person has the right to obtain the same diamond stored at the vault at any point in time on production of the EVR. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of e-Units from one person to another. The question that requires examination is whether transfer of e-Unit by the transferor would be regarded as transaction in securities at its end and thereby out of scope of GST. vii. The applicant submits that the transaction in securities does not amount to supply of goods or services or both and therby out of GST net. In the instant case, he submits, that e-Unit constitutes securities on the following basis: 1. Section 2(101) of CGST Act adopts the definition of the term securities from SCRA; 2. The definition of the term securities as defined under Section 2(h) of the SCRA include derivatives within its ambit; 3. The term derivative is defined under section 2(ac) of the SCRA to include commodity derivatives; 4. The term commodity derivative has been defined under Section 2(bc) of the SCRA to mean a contract for the delivery of such goods, as may be notified by the Central Government in the Official Gazette, and which is not a ready delivery contract; 5. The Central Government has issued Notification dated 27.09.2016 bearing F.No. 17/2/2016-CD to notify the goods specified in the Schedule for the purposes of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following conditions are fully satisfied at the time of conversion of e-Units into diamonds: 1. The transaction involves supply of diamonds at the end of Exchange 2. Such supply is made against e-Units which constitute consideration under section 2(31) of the CGST Act 3. Supply of diamonds is made in the course or furtherance of business. iv. In view of the above, a position may be taken that even reconversion of e-Units into diamonds would involve the supply of diamonds in exchange to such person against the consideration in the form of e-Units and would be subject to GST at the applicable rate. 11. The applicant submits that in view of the above, a ruling is sought whether the applicant has rightly concluded the following legal positions: a. Mere deposit of diamond with safe vaults in return for EVR would not be treated as supply for the purpose of levy of GST b. Conversion of EVR into e-Units would be treated as supply of diamond liable to GST at the end of person surrendering the EVR c. E-Units would be treated as securities and thereby transactions in e-Units would remain out of the scope of the levy under GST d. The Contracts of diamond derivati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val from SEBI permitting the exchange to recommence live trading operations and it has all the necessary infrastructure to handle deposits, grading and sealing, vaulting and deliveries of diamonds as part of its preparation to launch the diamond contracts. According to the applicant, ICEX is a trading company dealing in commodity futures and is deemed recognized stock exchange under SCRA, 1956 in terms of Section 131(B) of Finance Act, 2015, pursuant to the Central Government Notification dated August 28, 2015 providing a nation-wide online trading platform in commodity derivatives. The ICEX is converting the EVR into e-Units, which are in the nature of securities, as admitted by the applicant. iv. Section 2(101) of the Central Goods and Services Tax Act, 2017 defines securities and they shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. As per Section 2(h) of the Securities Contracts (Regulation) Act, 1956, (SCRA) the term securities include derivatives and as per Section 2(ac) of the SCRA, the term derivatives includes commodity derivatives. v. Section 2(bc) of the SCRA defines the commodity deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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