Levy of GST—In the instant application, the applicant is a partnership firm engaged in the retail business of gold and is registered under the GST Act, 2017. It is desirous of entering into a derivative contract in diamonds through Indian Commodity Exchange Limited.
The question before authority is that
1) Whether mere deposit of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) would be treated as supply for the purpose of levy of GST?
2) Whether conversion of EVR (representing receipt for diamonds deposited) into e-Units (securities) would be treated as supply liable to GST?
3) Whether e-Units would be treated as securities and thereby transaction in e-Units would remain out of scope of the levy under GST?
4) Whether the derivative contracts in e-Unit and settlement thereof would be treated as transaction in securities and thereby would remain out of scope of the levy under GST?
5) Whether conversion of e-Units into diamonds would be treated as supply liable to GST?

Held that— Under this arrangement, a holder of e-Units surrenders such e-Units in exchange for the delivery of actual diamonds. Upon exercising such option, the Exchange would generate a Delivery Order, based on which the vault will hand over the stones to the designated authorised representative.

The applicant proposes to convert diamond to e-Units by depositing them to the safe vault, obtaining an EVR and surrendering the EVR to obtain e-Units. In this transaction, the diamonds are handed over to the Safe Vault and obtain the receipt of such deposit. As per the submissions made by the applicant, it is seen that at this stage, the applicant can surrender the EVR and obtain the same diamond back which were deposited in the Safe Vault. Hence there is only a transfer of possession of diamonds and the Safe Vault holds the diamonds as a bailee of the depositor, i.e the applicant and is under the obligation to return the same back to the depositor on submitting the EVR. Further, there is no consideration involved in this transaction and hence this transaction does not amount to supply of goods, i.e. diamonds.
The applicant, who is in possession of the EVR, would now propose to convert the EVRs, which represent the diamonds in the possession of the bailee, to e-Units. The EVRs being documents to the title of goods represent the diamonds in possession of the bailee and any transfer of EVRs amounts to transfer of the title to the goods, i.e. diamonds. Hence there is a supply of diamonds. The consideration need not be in the form of cash, but in the form of securities. The submission of the applicant that he effectively loses the title to the same goods being diamonds once he surrenders the EVRs pertaining to those diamonds deposited points to the fact there is transfer of title of diamonds to the person who is receiving it and converting the same to e-Units. Hence this transaction amounts to supply of diamonds as per Section 7 of the Central Goods and Services Act and is liable to tax as per Notification No. 1/2017 –Central Tax (Rate) dated 27.06.2017.

Ruling— The mere deposit of diamond with safe vaults acknowledged by Electronic Vault Receipts (EVR) does not constitute of supply of diamonds for the purpose of levy of GST
The conversion of Electronic Vault Receipts representing the diamonds held in the Vaults to e-Units would constitute a supply of diamonds liable to tax under the Goods and Service Tax Act.
The e-Units are securities under the clause (101) of section 2 of the Central Goods and Services Tax Act and hence transactions in e-Units would remain out of the scope of levy of tax under Goods and Services Tax Act.
The derivative contracts in e-Units and settlement thereof would be treated as transactions in securities in case it involves only e-Units without any involvement of physical diamonds and thereby would remain out of the scope of levy under GST.
The conversion of e-Units into diamonds would constitute a supply of diamonds liable to tax under the Goods and Services Tax Act. [2018] 2 TAXLOK.COM 334 (AAR-Karnataka)