QUESTION

A partnership firm is carrying on construction business . A partner is retiring from the firm. The Partner is to be paid in cash and kind. The consideration in kind is in the form of area allotted in the final project. It is a SRA Project. We would like to know the GST implications on the same.

ANSWER

Facts of the case: GST implications on consideration paid to retiring partner in form of allotment of area in the project.

Law Applicable: SECTION 7 OF CGST ACT
(1) For the purposes of this Act, the expression 'supply' includes''

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
SECTION 2 OF CGST ACT
(31) 'consideration' in relation to the supply of goods or services or both includes''

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) 'the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Interpretation: The consideration paid in kind i.e. area allotted to retiring partner is not covered under definition of consideration as defined in Section 2(31) of CGST Act because there is no inward supply from partner in return for consideration paid.
Since it is not covered under definition of Consideration. Accordingly it is not taxable.
Further allotment of area is mere division of property for settlement of share (Capital and profit) in cash or kind at the time of retirement. This transaction is covered under the provisions of Income tax and not under GST.

Conclusion: Consideration paid in kind i.e. area allotted to retiring partner is not covered under definition of supply hence not taxable under GST(Reply dt.9/3/2020)