Holding Shares Of Subsidiary Company Does Not Amount To ‘Supply’

Facts of the Case:- The Petitioner filed the writ petition before the Hon’ble High Court seeking striking down of the impugned the Impugned Notifications issued by Respondent Nos. 1 and 2 i.e,. Notification dated 28.06.2017 bearing No. 11/2017-Central Tax (Rate) (Annexure-A) at Entry No. SAC 997171, and Notification dated 28.06.2017 bearing No 08/2017-Integrated Tax (Rate) (Annexure- B), at Entry No. SAC 997171, to the extent that they provide for the machinery to tax holding equity of subsidiary companies, as being ultra vires.  Also, to strike down the Explanatory Notes to the Scheme of Classification of Services at Entry No. 997171, to the extent that it provides for the machinery to tax the holding securities of companies and enterprises for the purpose of owning a controlling interest, as being ultra vires.  Lastly, it was prayed to quash the Impugned Order issued by Respondent No. 4 dated 02.11.2022.

Petitioner’s Submissions: –

• On the behalf of the petitioner, referring to the material on record, the attention of the Court was invited to Circulars dated 17.07.2023 and 21.07.2023 issued by the Central Government and the State Government clarifying that the activity of holding of shares of subsidiary company by 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 the GST.
• It was pointed out that the petitioner is a subsidiary company of M/s. Yonex, Japan [a holding company] and mere holding of shares in a subsidiary company by the holding company cannot be construed or treated as “supply of service” in the light of the Circulars issued by the Central Government and the State Government. Therefore, the impugned order dated 02.11.2022 is without jurisdiction or authority of law, and the same deserves to be quashed.

On the other hand, it was submitted on the behalf of the respondents that there is no merit in the petition and the same is liable to be dismissed.  However, the issuance of the Circulars by the Central Government and the State Government was not disputed.

Held: –

• The Hon’ble Court taking note of the submissions from both sides, found that it has been rightly contended on the behalf of the petitioner that according to the Circular dated 17.03.2023 issued by Central Government & Circular dated 21.07.2023 issued by State Government, wherein it has been clarified that ‘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.’ Thus, mere holding of shares by the holding company in the subsidiary company cannot be construed or treated as ‘Supply of Service’, as clearly clarified by both the aforesaid Circulars.
• The Hon’ble Court under the facts and circumstances of the case, held that the petitioner herein at Bengaluru cannot be treated or classified as “supply of service”. The impugned order dated 02.11.2022 passed by the respondent No. 4 which proceeds on the basis that the said holding of shares amounts to “supply of service” is clearly illegal, arbitrary and without jurisdiction or authority of law, and the same deserves to be quashed.

The Hon’ble Court with the above observations and findings, allowed the writ petition by quaging the impugned order 02.11.2022.

To read the complete judgment 2024 Taxo.online 144