2018 (8) TMI 932 - AAR - GST

Levy of GST - Supply or not - mere deposit of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) - conversion of EVR (representing receipt for diamonds deposited) into e-Units (securities) - e-Units - derivative contracts in e-Unit and settlement thereof - conversion of e-Units into diamonds. Whether mere deposit of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) would be treated as supply for the purpose of levy of GST? - Held that - There is only a transfer of possession of diamonds and the Safe Vault holds the diamonds as a bailee of the depositor, i.e the applicant and is under the obligation to return the same back to the depositor on submitting the EVR. Further, there is no consideration involved in this transaction and hence this transaction does not amount to supply of goods, i.e. diamonds. Whether conversion of EVR (representing receipt for diamonds deposited) into e-Units (securities) would be treated as supply liable to GST? - Held that - The EVRs being documents to the title of 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 and hence transactions in e-Units would remain out of the scope of levy of tax under Goods and Services Tax Act. Whether the derivative contracts in e-Unit and settlement thereof would be treated as transaction in securities and thereby would remain out of scope of the levy under GST? - Held that - Any e-Units which have diamonds as underlying goods shall have to be treated as securities as per the definition of securities under the clause (101) of section 2 of the Central Goods and Services Act, 2017 and consequently, any transaction in securities are not covered under the GST Acts for taxation as they are neither covered under the definition of goods or services. Hence transactions of e-units are not taxable under Goods and Services Tax Acts. Whether conversion of e-Units into diamonds would be treated as supply liable to GST? - Held that - When the e-Units are surrendered to obtain the diamonds, there is a supply of diamonds by the Exchange to the applicant for a consideration in the form of e-Units surrendered and this constitute a supply under the provisions of section 7(1) of the CGST Act. Ruling - The mere deposit of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) does not constitute of supply of diamonds for the purpose of levy of GST. The conversion of Electronic Vault Receipts representing the diamonds held in the Vaults to e-Units would constitute a supply of diamonds liable to tax under the Goods and Service Tax Act. The e-Units are securities under the clause (101) of section 2 of the Central Goods and Services Tax Act and hence transactions in e-Units would remain out of the scope of levy of tax under Goods and Services Tax Act. The derivative contracts in e-Units and settlement thereof would be treated as transactions in securities in case it involves only e-Units without any involvement of physical diamonds and thereby would remain out of the scope of levy under GST. The conversion of e-Units into diamonds would constitute a supply of diamonds liable to tax under the Goods and Services Tax Act.

Summary

Issues Involved:
1. Whether the deposit of diamonds with safe vaults acknowledged by Electronic Vault Receipts (EVR) constitutes a supply for GST purposes.
2. Whether the conversion of EVR into e-Units constitutes a supply liable to GST.
3. Whether e-Units are treated as securities and thereby transactions in e-Units remain outside the scope of GST.
4. Whether derivative contracts in e-Units and their settlement are treated as transactions in securities and thereby remain outside the scope of GST.
5. Whether the conversion of e-Units into diamonds constitutes a supply liable to GST.

Detailed Analysis:

1. Deposit of Diamonds with Safe Vaults (EVR):
The applicant proposes to deposit diamonds in a safe vault, receiving an EVR as an acknowledgment. The EVR represents the deposited diamonds, and the depositor can retrieve the same diamonds upon surrendering the EVR. This transaction involves merely the transfer of possession, not ownership, and lacks consideration. Therefore, it does not constitute a supply of goods under GST.

2. Conversion of EVR into e-Units:
The conversion of EVR into e-Units involves surrendering the EVR (representing ownership of diamonds) in exchange for e-Units (securities). This transaction involves the transfer of title to the diamonds, thus constituting a supply of diamonds. The consideration for this supply is in the form of e-Units, making it subject to GST.

3. Treatment of e-Units as Securities:
e-Units are defined as securities under Section 2(101) of the CGST Act, adopting the definition from the Securities Contracts (Regulation) Act, 1956 (SCRA). As e-Units are commodity derivatives, they fall under the definition of securities. Transactions in securities are excluded from the definitions of goods and services under GST, thus remaining outside the scope of GST.

4. Derivative Contracts in e-Units:
Derivative contracts in e-Units are treated as transactions in securities. Since these contracts involve only e-Units without physical diamonds, they are not considered a supply of goods or services under GST. Consequently, such transactions remain outside the scope of GST.

5. Conversion of e-Units into Diamonds:
When e-Units are surrendered to obtain physical diamonds, there is a supply of diamonds by the Exchange. The consideration for this supply is the e-Units surrendered. This transaction constitutes a supply of diamonds under GST, making it liable to tax.

Ruling:
1. The mere deposit of diamonds with safe vaults acknowledged by EVR does not constitute a supply for GST purposes.
2. The conversion of EVR into e-Units constitutes a supply of diamonds liable to GST.
3. e-Units are treated as securities, and transactions in e-Units remain outside the scope of GST.
4. Derivative contracts in e-Units and their settlement are treated as transactions in securities and remain outside the scope of GST.
5. The conversion of e-Units into diamonds constitutes a supply of diamonds liable to GST.