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01-01-2019
Gst Impact on inter company supply of services
One such ruling was given by Karnataka Authority for Advance Rulings (AAR) in the case of Columbia Asia Hospitals, which imposed GST on the salary component paid by corporates.
This view was recently affirmed by the Appellate Authority for Advance Ruling (AAAR) also.
In this case, the appellant had its corporate office in Karnataka performing common activities such as accounting, administration and maintenance of IT system, benefit of which flows across the units located in other states.
Now the issue before the authority was whether services provided by the corporate office to other units would be treated as a supply and salary component paid in corporate office needs to be charged across all states with GST?
To this AAR and AAAR both upheld the levy.
This ruling implies that businesses with multi-state offices are required to raise invoices and charge tax on in-house centralised service functions including overall management, policy decisions and execution thereof.
For example, if the functions of human resources and payrolls are carried out from a corporate office in one state for offices in other states, the said transaction will attract GST.
Thereby, it becomes important for any multi-state business entity to identify all the transactions between their distinct entities, which may or may not be apparently identifiable.
This ruling is going to open doors to various litigations if suitable clarification on exact scope of inter-company supply of services is not clarified immediately.
Undoubtedly, any inter-company supply of goods or services is under the tax net of GST but extending the same to cover employee cost has created chaos in multi-state companies.
The law mandates any transaction between two related entities would be chargeable to tax at open market value.
Ideally speaking, employee costs should neither be treated as supply of goods nor supply of services in terms of an entry in Schedule III (services by an employee to the employer in the course of or in relation to his employment).
As employment contract is executed with the legal entity as a whole and not with particular unit of a company, any services provided by an employee to any of the units of the company is to a company itself and should be kept out of the reach of GST authorities.
A suitable clarification should be issued soon so as the sector and business entities should chalk out their planning and strategies and tax payments or legal contracts accordingly. |
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