GST On Free Management Services Provided to Cooperatives
The Gujarat GST authority ruled that free management services given to state milk unions do not qualify as transactions between related persons.
- Ruling
- ADVANCE RULING NO. GUJ/GAAR/RULING/2018/11 dated 8.5.2018
- Dated
- 08 May 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- NDDB asked if free management provided to milk unions attracted GST.
- The authority ruled NDDB and milk unions are not related persons.
- Services were provided at state government request without commercial control.
- No GST applies on free support since it is not a deemed supply.
In short
The National Dairy Development Board (NDDB) managed milk cooperative unions for state governments without charging any management fee. Under Goods and Services Tax (GST) rules, transactions between related persons can be taxed even if no money changes hands. The core debate was whether NDDB and these milk unions count as related persons under Schedule I of the Central Goods and Services Tax Act, 2017, which would require paying GST on the market value of the free services.
What has changed
How it worked before
Before ruling order GUJ/GAAR/R/2018/11, organizations managing other entities under government directions worried about tax demands. Businesses feared tax officers might treat operational control as a related party relationship, forcing them to pay GST on estimated service values even when working for free.
What has changed
The Gujarat Authority for Advance Ruling (GAAR) decided in order GUJ/GAAR/R/2018/11 that NDDB and the milk unions are not related persons. Because the management services were requested by state governments and provided without commercial control or profit motives, no GST applies. Since no supply occurred between related persons, calculating open market value under Rule 28 of the CGST Rules was not required.
Who this affects
Non-profit organizations, statutory bodies, and entities managing cooperative societies or public bodies at the request of government authorities without charging a fee.
An example
A public development board enters an agreement with a state government to revive a failing handicraft cooperative without receiving any fee. The board places key managers inside the cooperative to run day-to-day operations. Following the principles in order GUJ/GAAR/R/2018/11, the board acts as an administrator for the government rather than a related commercial party. As a result, it does not need to pay GST on the open market value of its management support.
What you should do
If your organization provides free operational support to another entity, do not assume this ruling automatically covers you. A GST advance ruling binds only the specific business that asked for it and its tax office. Review your management contracts and consider applying for your own advance ruling if tax officers question your setup.
If you do nothing
If you assume this ruling protects your business automatically, your tax officer can take a different view during an audit. If the tax department treats your management arrangement as a supply between related persons, they can demand GST on the market value of those services. You could end up paying tax, interest, and penalties out of pocket for services you rendered for free.
The terms explained
- related persons
- Two parties that directly or indirectly control each other, share common ownership, or have a specific commercial tie defined by GST law.
- Schedule I
- A section of the GST Act listing specific transactions that attract tax even if no money or consideration is charged.
- open market value
- The full price a commercial customer would normally pay for a similar product or service in an arms-length transaction.
- input tax credit
- The tax a business pays on its business purchases that it can use to reduce the tax it owes on sales.
The ruling in detail
Authority for Advance Ruling
M/s. National Dairy Development Board
ADVANCE RULING NO. GUJ/GAAR/RULING/2018/11 dated 8.5.2018 · Gujarat
Questions before the authority
- (i) By virtue of tripartite agreement between NDDB, State Government & Unions, whether the arrangement between NDDB and Unions would be considered as supply between 'related persons' in accordance with Schedule 1 of the Central Goods & Service Tax Act, 2017?
- (ii) Assuming answer to above point is affirmative, whether the applicant would be required to determine value of activities undertaken by them in accordance with Section 15(5) of CGST Act, 2017 read with Rule 28 of the CGST Rules, 2017?
Facts
The applicant, National Dairy Development Board (NDDB), entered into agreements with the State Governments of Assam and Jharkhand to revive and manage milk producers' cooperative unions (WAMUL and JMU). Under these agreements, NDDB manages operations, deploys key personnel, and provides end-to-end management support without charging any fee or consideration. The issue arose whether NDDB and the milk unions are 'related persons' under GST, making free management services taxable under Schedule I at open market value.
Ruling
| Question | What the authority ruled |
|---|---|
| Whether management arrangement between NDDB and Unions constitutes supply between 'related persons' under Schedule I | Not to be considered as supply between 'related persons' Agreements are between NDDB and State Governments; Unions are merely beneficiaries. |
The Authority ruled that the managerial services provided by NDDB to the milk unions pursuant to agreements with the State Governments are **not supply between related persons** under Schedule I read with Section 15 of the CGST Act, 2017. Since the first question was answered in the negative, the Authority held that there was no need to evaluate the second question regarding valuation under Rule 28.
Reasoning
The Authority observed that actual services are provided at the instance of and received by the respective State Governments, while the Unions are merely beneficiaries of the arrangement. NDDB manages the Unions as an Administrator pursuant to statutory obligations and agreements with State Governments without any commercial motive or control of a related party nature under Section 15(5) of the CGST Act. The situation specified in clause 5 of Section 15(5) (one directly or indirectly controlling the other) does not exist between NDDB and the Unions. Consequently, the arrangement does not constitute a supply between related persons without consideration under Schedule I.
Provisions relied on
- Section 7 of CGST Act, 2017
- Section 15(5) of CGST Act, 2017
- Schedule I of CGST Act, 2017
- Rule 28 of CGST Rules, 2017
- Gujarat Goods and Services Tax Act, 2017
For the practitioner
This ruling establishes that statutory or public bodies deputed by State Governments to manage sick or developing cooperative entities without consideration do not become **related persons** under GST merely due to operational control. It protects non-profit administrative interventions from being subjected to deemed supply tax on open market value under Schedule I. However, it does not apply where commercial management fees or consideration are charged.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/guj.gaar.r.2018-11dt_8.5.18_nddb-gujarat.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.