Taxability of Cross-Supplies : End of ‘Barter’ Argument?

Commercial transactions are complex. More complex are the price–setting negotiations. In a commercial world cross-supplies are not uncommon and equally common is the trend of price adjustment wherein one lump-sum price is agreed as a final measure after offsetting different price components attributable to the supplies made by the contracting parties. How does the taxing provisions take measure of this complexity and in particular how are cross–supplies to be taxed under the Value Added Tax (VAT) legislations is a complex issue. This complexity is further compounded by the involvement of transactions which either in whole or in part involve a ‘barter’ of goods. Traditionally the argument that no sales tax / VAT is leviable as the transaction amounts to a barter has been sparingly accepted by Indian courts. Off late, however, is the change in the statutory provisions and the reluctance of the courts to accept the barter argument. This has been compounded by the replacement of the sales tax / VAT structure by the Goods and Services Tax (GST) regime. A recent decision of the European Court of Justice (ECJ) has also examined [in A Oy (C-410/17): ECLI:EU:C:2019:12] and sheds light on these aspects to opine upon how cross–supplies are to be taxed under the VAT laws and rejects the argument of barter. In the light of these developments this article examines the taxability of cross-supplies under the different indirect tax laws to position the extent of the barter argument and its continued availability and strength, if at all, to contend against levy of tax. The structure of the article is multifold. After (A) the Introduction, the article examines the (B) Legal position regarding ‘barter’ under sales tax / VAT regime. Thereafter is notes the (C) Reflections from legal position under service tax regime. The article then proceeds to examine the (D) dispute before the ECJ and its decision. An attempt has been made to also discuss the (E) Common law concept of ‘set-off’, undertakes (F) Examining the legal position in GST regime, and thereafter sets out (G) the Conclusion