Advance Authority for Rulings: Inter-state office services to attract 18% GST

Advance Authority for Rulings, Karnataka Bench: The Bench in a ruling sought by Bengaluru-based Columbia Asia Hospitals, held that employer-employee relationship in a corporate office exists only in the office concerned and not with other office units, even if they are part of the same legal entity and that, as far as the GST law is concerned activities between two offices are to be treated as supplies, and the activities performed by employees at the corporate office in course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in other states as per Section 25(4) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) shall be treated as supply as per Entry 2 of Schedule I of the CGST Act. The Bench further held that, the salary for such above mentioned services provided by head office will attract 18 % GST, and that the valuation of supply will include all costs, including the employee cost provided by one distinct entity to the other distinct entities. The Bench directed the companies with offices in multiple states, to raise the Goods and Services Tax (GST) invoice for functions performed by employees in the head office for inter-state services provided to other state branches, which in turn shall increase the compliance burden. Furthermore it was held that, although the GST charged on such supplies can be claimed as input tax credit (ITC), companies which are exempt from GST will not be able to claim any credit.

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