Services 'Closely Related' to Exempt Services: European Court of Justice Clarifies

Abstract

In its decision rendered recently, the European Court of Justice (‘ECJ’) in the case of Commissioners for Her Majesty’s Revenue and Customs v. Brockenhurst College (C-699/15) has addressed an important issue relating to scope of exempt services and extending such exemption to “closely related” services. While the decision of the ECJ is in the context of the European VAT Directive, it addresses in detail the applicable tests to determine when and how are certain supplies closely related to other supply and thus the tax consequences applicable to the latter must be applied even to the former.

These tests are practical and can be usefully employed to determine as to what supplies are “incidental” or “auxiliary” to the main supplies, which expressions and concepts are commonly employed both under the Service Tax as also the GST legislation in the Indian context, as the paper examines.

Keywords: VAT, GST, exempt supplies, closely related supplies

JEL Classification: H21, H22, H23, H25, K34