2024 (3) TMI 1314 - HC - GST

Parent company holding equity capital in subsidiary cannot be classified as supply of service for GST purposes under Section 5 IGST Act Section 7 CGST Act

Karnataka HC held that a parent company holding equity capital in its subsidiary cannot be classified as supply of service for GST purposes under Section ... Levy of GST - activity of holding equity capital by the parent Company in the Petitioner - ultravires Section 5 of the IGST Act, 2017 read with Section 7 of the CGST Act, 2017 or not - HELD THAT:- In the instant case, the parent company is M/s. Metro Cash and Carry International GmbH of which the petitioner herein i.e., M/s. Metro Cash and Carry Pvt. Ltd., is a subsidiary and merely because the parent company – M/s. Metro Cash and Carry International GmbH holds shares in its subsidiary i.e., the petitioner herein, the said circumstance cannot be classified, treated or construed as ‘supply of service’ for the purpose of GST. Since the issue in controversy involved in the present petition is directly and squarely covered by the judgment of this Court in M/S. YONEX INDIA PRIVATE LIMITED VERSUS UNION OF INDIA, STATE OF KARNATAKA, COMMISSIONER OF COMMERCIAL TAXES BANGALORE, ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT 2. 8) BANGALORE [2024 (2) TMI 59 - KARNATAKA HIGH COURT], the impugned Show Cause Notices issued are without jurisdiction or authority of law and the same deserves to be quashed. Petition allowed. Issues involved: The issues involved in this case include challenging the legality of levying GST on the activity of holding equity capital by the parent company, seeking to quash show cause notices proposing to demand IGST, and requesting further reliefs as per the circumstances of the case.Challenge to GST Levy on Holding Equity Capital: The petitioner sought to hold that the levy of GST on holding equity capital by the parent company is illegal and without jurisdiction, citing the IGST Act and the CGST Act. The petitioner relied on a judgment in a similar case to support their argument.Circulars Clarifying Holding of Shares: The court referred to Circulars issued by the Central Government and the State Government clarifying that holding shares of a subsidiary company by a holding company does not constitute a supply of service under GST. These Circulars were pivotal in determining the legality of the impugned order.Decision and Disposition: The Court found that the holding of shares by the parent company in its subsidiary does not amount to a supply of service for GST purposes, based on the Circulars and the precedent set by a previous judgment. Consequently, the impugned show cause notices were deemed without jurisdiction or authority of law and were quashed.Final Orders: The petition was allowed and disposed of in line with the precedent set by a previous case. The impugned show cause notices were quashed, affirming that the holding of shares by the parent company in its subsidiary does not constitute a supply of service under GST regulations.