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TMI BlogGST Liability on Payments under Share Purchase Agreement to Old ShareholdersX X X X Extracts X X X X X X X X Extracts X X X X ..... GST Liability on Payments under Share Purchase Agreement to Old Shareholders X X X X Extracts X X X X X X X X Extracts X X X X ..... are certain incomes (such as incentives under PLI or claims from the government) that Company A will receive and subsequently pay to Company S (the old shareholder). Will the amounts paid by Company A to Company S, whether from future receipts or profits, be liable for GST? Reply By Sadanand Bulbule: The Reply: Section 2(52) of the CGST Act reads as under: (52) "goods" means every kind of mov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; So purchase or acquisition of shares, securities etc., is outside the ambit of GST Act. Hence it is not liable to tax. However this is subject to the provision of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 87 governing the amalgamation or merger of companies. Reply By Shilpi Jain: The Reply: There is no supply by Company S for the future receipts/profits earned. No GST liability. Reply By KASTURI SETHI: The Reply: I support the views of both experts. Reply By YAGAY andSUN: The Reply: In this situation, where Company A (the acquired company) is paying certain amounts to Company S (the old sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholder) as per the Share Purchase Agreement, the key question is whether the amounts paid by Company A to Company S would be subject to GST. To address this, let's break it down into relevant aspects: 1. Nature of Payment The payments being made by Company A to Company S are related to incentives under PLI (Production Linked Incentive) or claims from the government. According to the Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Purchase Agreement, these amounts are not related to the sale of goods or services but are likely linked to government schemes and future receipts. 2. GST Applicability GST is typically levied on the supply of goods and services. In this context, we need to understand if the payment from Company A to Company S constitutes a supply of goods or services. * Payment for Incentives/Claims: If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount is being paid as part of an incentive or government claim, it does not represent consideration for the supply of goods or services between Company A and Company S. It is simply a distribution of certain amounts based on a prior agreement and is not an exchange for any service or good. Therefore, this would not be classified as a taxable supply under GST. * Reimbursement or Transfer of Ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts/Benefits: If Company A is merely transferring a share of benefits or amounts that are not in return for a supply of goods or services, it would not be subject to GST. For instance, if the incentives are being received by Company A and passed to Company S based on a pre-existing agreement, it does not form part of a business transaction where GST would be applicable. 3. Is it a Consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a Supply? For GST to be applicable, the payment must be in exchange for a supply of goods or services. In this case, if the payment is merely a transfer of funds due to the earlier arrangement (in the context of incentives and claims), it is unlikely that this payment would qualify as a supply for GST purposes. Therefore, such amounts paid by Company A to Company S will not be liable for GST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Government Incentive Schemes Payments related to government incentive schemes (like PLI) generally do not attract GST, as they are considered non-taxable financial support rather than consideration for the supply of goods or services. Conclusion: The amounts paid by Company A to Company S (the old shareholder) in relation to government incentives, claims, or profits under the Share Purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Agreement are not liable for GST, as these payments do not constitute a taxable supply of goods or services. The payments are based on a pre-existing agreement and do not involve an exchange of consideration for a supply. X X X X Extracts X X X X X X X X Extracts X X X X
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