[Opinion] Services given by Branch Employees to its Head office is under GST Purview

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CA Shivam Sharma & CA Akhil Aggarwal – [2023] 149 taxmann.com 437 (Article)

Introduction

In the recent decision by the Authority for the Advance Rulings (AAR) in case of M/s Profisolutions Private Limited held that the Services provided by the Common Employees of Company to its Head office or to its branch office will be liable to GST @ 18% as this will be considered as Supply of Service by two distinct Persons.

Brief Facts of the Case

The M/s Profisolutions Private Limited having its headquarters in the state of Karnataka and branch office in the state of Tamil Nadu. The assessee was engaged in the business of engineering services. The branch office is providing engineering, accountancy and designing services by its employees situated at the branch office to the head office and that no Invoice is Issued and no GST is paid on the said services.

The contention of the assessee was that the employees are not separate for branch or head office rather they are working for the company as a whole at their respective appointed places. The assessee contended that the services by employees are covered by the Schedule III Para I of the CGST Act, 2017. Hence no GST will be charged in case of Cross Charge of Services given by Branch office employees to its head office.

Legal Stance in the Issue

1. As per Section 25(4) and 25(5) of the CGST Act, 2017

“Distinct Person” means.

25 (4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

25 (5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

2. As per Section 7 of the CGST Act, 2017 read with Schedule 1 of the CGST Act, 2017

“Supply made without Consideration”.

7 (1) (c) the activities specified in Schedule I, made or agreed to be made without a consideration.

Schedule 1 Para 2: Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.

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