In this article, you will learn:
CGST Act, 2017 includes Actionable Claims as part of ‘Goods’ defined in Section 2(52) of the Act. Since GST Law does not define Actionable Claim separately under the Act, the definition for an actionable claim is taken as the one defined in section 3 of the Transfer of Property Act.
As per English Law, an Actionable Claim is called a ‘Chose in Action’ or a ‘Thing in Action’. This means a claim or a debt for which one can take an action. In other words, there exists a claim (debt in this case) and one can approach the court for the enforcement of such a claim.
Therefore, the person holding actionable claims can seek court’s assistance in order to recover that debt. The word ‘Chose in Action’ or ‘Thing in Action’ is different from ‘Chose in Possession’ which means a thing which is in physical possession of a person.
Under the Actionable Claim, the holder of such claims has the following rights:
- Right to the properties in his possession
- Right of action on the properties without possession
In this article, you will learn what are Actionable Claims under GST, examples of Actionable Claims, Non-Actionable Claims and Transfer of Actionable Claims.
What are Actionable Claims Under GST?
Section 2(1) of CGST Act, 2017 defines Actionable Claims as the one having the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882.
As per the Transfer of Property Act, Actionable Claim means:
- a claim to any debt other than a debt secured by mortgage of immovable property or hypothecation or pledge of movable property or
- Claim to any beneficial interest in the movable property not in the possession, either actual or constructive, of the claimant.
Further, such actionable claims are recognized by the civil courts as affording grounds for relief. This is irrespective of the fact whether such debt or beneficial interest is existent, accruing, conditional or contingent.
In a nutshell, there are two parts to the definition of actionable claims:
- A claim to unsecured debt or
- Any interest in the movable property which is not in the possession of the claimant.
Actionable Claims are applicable only for goods and not for services. Section 2(52) of the CGST Act defines goods as every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to land which are agreed to be severed before supply.
It is important to understand the law relating to Actionable Claims under GST because the transfer or assignment of Actionable Claims may attract GST. This is because the term ‘Goods’ under GST Law includes Actionable Claims.
For instance, when it comes to the Banks and Non-Banking Financial Companies, these transfer their claims or portfolio of loans to a Special Purpose Vehicle (SPV) in lieu of huge sums of money.
Since, such a transfer of actionable claims could be large revenue for the government, the government may keep a close watch on the Banks and NBFCs undertaking such transfers.
Thus, it is important for such Banks to know the law of Actionable Claims in GST as such transfer claims shall be subject to GST under the GST Law.
Examples of Actionable Claims
Considering the definition of Actionable Claims as per section 3 of the Transf of Property Act, following could be the examples of Actionable Claims:
- Right to claim arrears of rent
- Money payable under a contract for price or advance
- Right to claim benefit of contract
- Insurance claim except marine insurance
- Lottery ticket
- Right to credit in a provident fund
- Dividends on shares, debentures, negotiable instruments such as bills of exchange etc.
- Share in a partnership property
- A right under a license
- Rights shares or option to purchase shares
- Bank guarantee
Examples of Non-Actionable Claims
Following shall not be taken as Actionable Claims under GST. These include:
- A Decree for debt
- Right to claim damage in the event of breach of contract
- Right to sue
- Coupons and Vouchers
Transfer of Actionable Claims Under GST
It must be noted that Actionable Claims are transferable. The provisions related to transfer of Actionable Claims are covered in Section 130 to 137 of the Transfer of Property Act.
As per these provisions:
- Actionable Claims can be transferred only via an instrument in writing. Such an instrument must be signed by the transferor or by his authorized agent. Further, it must be complete and comes into effect only when the instrument is executed. Upon execution, all the rights and the remedies of the transferor shall lie with the transferee.
- The Actionable Claim can be transferred in the form of sale, exchange, gift, mortgage etc.
- Actionable Claim can be assigned via an endorsement that is made at the back of the document. Such an endorsement contains that the actionable claim is sufficient and that no separate or additional document is required.
- The transfer of the Actionable Claim is effective from the date on which such an assignment is made.
- Post the transfer, the transferee is subject to all the equities and liabilities to which the transferor was liable at the date of transfer.
- The transferee for his own purpose must provide the notice of transfer to the debtor. On receiving such a notice, the debtor becomes liable to pay such a debt to the transferee.
- Lastly, the notice provided to the debtor must be in writing and should specify the name and address of the transferee.
To conclude, transfer of actionable claims shall be subject to GST as these are included in the definition of goods under GST. However, there are certain doubts whether Actionable Claims should be treated as goods and that there can be issues around the same.