Types of Joint Ventures
Accounting Standard AS-27 envisages three types of joint ventures – (a) Jointly controlled operations (b)
Jointly controlled assets (c) Jointly controlled entities.
In all these, contractual arrangement and joint control are essential.
Incorporated Joint Venture – In case of ‘jointly controlled entity’, a separate legal entity is constituted (either as company or a partnership firm). This can be termed in Incorporated Joint Venture (IJV). In such case, any service provided by any member of the ‘jointly controlled entity’ to the IJV (or vice versa), should be liable to service tax, since the member of joint venture and the ‘jointly controlled entity’ are two separate legal entities.
Similarly, if one member of IJV provides some service to other member of IJV, it should be liable to service tax.
In IVCRL Infrastructures and Projects Ltd. v. CC 2004 (166) ELT 447 (CESTAT), it was held that a joint venture is a form of partnership between two entities with joint and several responsibilities. It is a legal entity in nature of partnership – followed in Techni Bharathi Ltd. v. CC 2006 (198) ELT 33 (CESTAT). (However, this is not ‘partnership’ as per Partnership Act, since there is no ‘mutual agency’.).
Unincorporated Joint Venture – In case of ‘jointly controlled operations’, there is no formation of a separate legal entity. Responsibilities and authorities of each joint venturer are demarcated. In case of jointly controlled operations, each joint venture partner does his part of work and gets his share of remuneration as agreed (either as share of profit, income or revenue). This can be termed in Unincorporated Joint Venture (UJV).
In such case, issue is whether any goods or service supplied by any member of the ‘jointly controlled operations’ to the UJV (or vice versa), are liable to GST. Similarly, whether it can be said that one member of UJV is supplying goods or service to other member of UJV when each member is only doing his part of work.