Companies in a bind over GST on inter-state office services

  • 18-Aug-2018
  • Companies in a bind over GST on inter-state office services

Companies are in a fix after the Authority of Advance Ruling (AAR), Karnataka, said that the activities at head office, such as human resources, IT maintenance and accounting, would be treated as supply of service by the corporate office to other units in different states and would attract GST. 

The ruling has raised concerns over how to deal with salaries of stewardship functions such as chief executive, chief financial officer, audit head, legal head and marketing teams. As per the ruling, salaries of these stewards would need to be cross-charged and GST paid. 

“Companies also need to analyse whether cost of assets (such as depreciation, etc.) which are used at the HO (head office) also need to be cross-charged to branches and GST paid on these,” said Abhishek Jain, tax partner, EY. The AAR’s ruling came in a recent case of M/s Columbia Asia Hospitals Private Limited. 

However, the big question that arises is whether these are really services from head office to units in other states or inherent basic stewardship functions of a legal entity. 

The AAR has held that there exists an employer-employee relationship for the employees who are based at the head office, but according to tax laws the other locations are distinct persons. Hence, the employees in the corporate office have no employer-employee relationship with other offices in other states. 

Therefore, the activities undertaken by the company employees for other locations would be treated as ‘supply’ as per the GST legislation. Experts said that the AAR could be appealed against and that the ruling did not set a precedent for any other company. “It could definitely lead to queries being raised by officers of the audit wing or anti evasion wings,” said Waman Parkhi, partner-tax, KPMG. 


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