Clarification on taxability of shares held in a subsidiary company by the holding company - GST - States - 12039(31)/60/2023

GOVERNMENT OF ANDHRA PRADESH COMMERCIAL TAXES DEPARTMENT PROCEEDINGS OF THE CHIEF COMMISSIONER OF STATE TAX ANDHRA PRADESH :: GUNTUR PRESENT: SRI. M.GIRIJA SHANKAR, I.A.S. CCST s Ref. CIRCULAR Computer No: 2148254 File No: REV03-12039(31)/60/2023-COMM, Date. 20/07/2023 Sub : Clarification on taxability of shares held in a subsidiary company by the holding company -Reg. Ref : Circular No.196/08/2023-GST, dated 17.07.2023 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs. Representations have been received from the trade and field formations seeking clarification on certain issues whether the holding of shares in a subsidiary company by the holding company will be treated as supply of service under GST and will be taxed accordingly or whether such transaction is not a supply. 2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law across the field formations, the Chief Commissioner, in exercise of his powers conferred by section 168 (1) of the Andhra Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as APGST Act ), hereby clarifies the issues as under: S. No. Issue Clarification Taxability of share capital held in subsidiary company by the parent company 1. Whether the activity of holding shares by a holding company of the subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not. Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of APGST Act and the definition of services under clause (102) of the said section. Further, securities include shares as per definition of securities under clause (h) of section 2 of Securities Contracts (Regulation) Act, 1956. This implies that the securities held by the holding company in the subsidiary company are neither goods nor services. Further, purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services. For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 of APGST Act. It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry 997171 in the scheme of classification of services mentioning; the services provided by holding companies, i.e. holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest. , unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of APGST Act. Therefore, the activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST. 3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular. 4. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Chief Commissioner. M Girija Shankar I A S Chief Commissioner