• Kandivali West Mumbai 400067, India
  • 022 39167251
  • support@email.com
January 22, 2022

Allocation of Salary from HO to Brach and Recovery will attract GST

by Mahesh Mara in Income Tax

Allocation of Salary from HO to Brach and Recovery will attract GST

Fact and Issue of the case

The Appellant i.e. M/s. Cummins India Ltd. are engaged in manufacture and sale of a variety of diesel engines, parts thereof, and related services, and undertake all day-to-day activities required therefore. The Appellant are duly registered under the Central Goods and Services Tax Act, 2017 (“CGST Act”) and Maharashtra Goods and Services Tax Act 2017 (“MGST Act”) bearing GSTIN 27AAACC7258B1ZW.

Post-implementation of GST, the Appellant had analyzed all its business activities and day-to-day operations to ascertain levy of GST and necessary compliance under GST legislature. However, there appeared ambiguity in few of the activities of Appellant vis-a-vis interpretation of GST legislation. Thus, the Appellant had preferred an application to seek a Ruling relating to the following issues:

i. Classification of Engine manufactured by Appellant

ii. Levy of GST on facilitation of common input services, necessity of registering as an ‘Input Service Distributor’ (‘ISD’) and determination of assessable value.

The Present Appeal, however, is limited to the Ruling in relation to necessity of obtaining registration as an ISD, determination of assessable value for facilitation of common input services, based on facts and submissions referred in the ensuing paragraphs.

The Appellant has its presence across various states in India through its manufacturing/service/sales units. These units are located in different states of India. Therefore, in view of Section 25(4) of the CGST Act, 2017 units located in each such state are to be treated as a ‘distinct person’ from units located in other states (“distinct persons”). Accordingly , each such distinct person is duly registered under the Central Goods and Services Tax Act, 2017 (“CGST Act”). The Appellant, being a registered person and engaged in the activity of making taxable supply, are eligible to avail Input Tax Credit (“ITC”) of GST paid on all the input, capital goods and input services procured in the course or furtherance of business. Amongst all such procurements, certain common input services are availed by head office of the Appellant located in Pune. Further, the units of the Appellant may also avail common services. Accordingly, the head office or the respective units, as the case may be, avail ITC of the GST paid on such common input supplies subject to provisions of Section 17 of the CGST Act, 2017.

The costs incurred by head office/units for procurement of such common input services, is booked by such unit/head office in its own books of accounts. Such cost is then allocated, and recovered proportionately from each of the recipient units to determine the office/plant-wise profitability, which is an internal procedure. Based on these facts, the Appellant herein sought for a Ruling with respect to the following questions:-

i. Whether availment of input tax credit of tax on common input supplies on behalf of other unit/units registered as distinct person, and further allocation of the cost incurred for same to such other units, qualifies as supply and attracts levy of GST?

ii. if GST is leviable, whether assessable value can be determined by arriving at nominal value?

iii. Once GST is levied and ITC thereof is availed by recipient unit, whether the Applicant is required to register itself as an Input Service Distributor for distribution of ITC on common input supplies?

RULING PASSED BY AUTHORITY FOR ADVANCE RULING

i. Availment of input tax credit on common input supplies on behalf of other unit / units registered as distinct person qualifies as supply and attracts GST.

ii. Assessable value shall be arrived in terms of Rule 30 of the CGST Rules, 2017 (i.e. 110% of the cost of provision of such services). iii. The Appellant is required to obtain registration as ISD.

The Appellant, being aggrieved by the part of the impugned Ruling passed by the Maharashtra Authority for Advance Ruling, have preferred the present Appeal before the Maharashtra Appellate Authority for Advance Ruling

Observation and Ruling by the Authority

The Authority hereby, partially modify the ruling passed by the Maharashtra Advance Ruling Authority vide Order No. GST-ARA-66 2018-19 B-162 dated 19.12.2018. and answer the questions, raised by the Appellant in their Appeal filed before us as under

i. Whether availment of common input supplies on behalf of other unit/units registered as distinct person and further allocation of the cost incurred for same to such other units qualifies as supply and attracts levy of GST?

Yes. availment of common input supplies from the third-party service vendors/suppliers on behalf of the Branch Offices/Units, registered as distinct persons, will qualify as supply of services in accordance with the provision of Section 7(1)(a) of the CGST Act, 2017. However, the cost of the said common input services availed on behest of Branch Offices/Units and allocated to the Branch Offices/Units by the Head Office will not attract the leys of GST as the said costs have been incurred by the Head Office in the capacity of a pure agent of the Branch Offices/Units and as such, the said cost incurred by the Head Office shall be excluded from the value of supply of the facilitation services.

ii. If GST is leviable, whether assessable value can be determined by arriving at nominal value?

The assessable value of the services provided by the Head Office to the branch offices/units can be determined as per the second proviso to clause (c) of Rule 28 of the CGST Rules, 2017. which provides that value of the tax invoice will be deemed as the open market value of the services.

iii. Once GST is levied and ITC thereof is availed by recipient unit, whether the Applicant is required to register itself as an Input Service Distributor for distribution of ITC on common input supplies?

Since, the Head Office is not entitled to avail and utilize the credit of tax paid to the third-party service vendors for the common input services received by it on behalf of the Branch Offices/Units as the said common input services received by the Appellant’s Head Office are being used or consumed by the Branch Offices/Units in the course or furtherance of their businesses, and not by the Head Office. Therefore, the Appellant is bound to take the ISD registration as mandated by section 24(viii) of the CGST Act, 2017 and comply with all the provisions made in this regard, if it intends to distribute the credit of tax paid on the common input services received by it on behalf of the branch offices/units to the branch offices/units.

Read the full order from below

Allocation-of-Salary-from-HO-to-Brach-and-Recovery-will-attract-GST

Enter your email address:

Subscribe to faceless complainces