With respect to the recommendations of the 50th Goods and Services Tax (GST) Council issued circular No. 196/08/2023-GST on 17th July 2023, the Central Board of Indirect Taxes and Customs (CBIC)clarified the taxability of shares held in a subsidiary company by the holding company.
The trade and field formations have submitted representations seeking clarification on whether the ownership of shares in a subsidiary company by a holding company should be classified as a “supply of service” under GST and subsequently subject to taxation, or if this transaction does not qualify as a supply.
To address the matter and establish consistency in the application of the law among field formations, the Board, exercising its authority under section 168 (1) of the Central Goods and Services Tax Act, 2017, hereby provides the following clarifications:
The CBIC clarified that the Securities are considered neither goods nor services in terms of definition of goods under clause (52) of section 2 of CGST 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 CGST 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 CGST Act.
Therefore, the activity of holding of shares of a 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.
The CBIC also requested that suitable trade notices may be issued to publicize the contents of the Circular.
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