Our Take on the provisions of GST linked to services exchanged between the head office and the branch office

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Our Take on the provisions of GST linked to services exchanged between the head office and the branch office
Apr, 2023
By Vikash Dhanania

Namaskar Dost

I write this email amidst a lot of discussions and confusion in the business community pertaining to GST being levied on the exchange of services between the head office and branch office of any company. This discussion actually started because of an Advance Ruling given by the Tamil Nadu ARA.

This has also created confusion and tension for businesses, however, understanding all the perspectives is important before coming to a conclusion.

What is the matter all about?

This situation traces its roots from the Advance Ruling by the Tamil Nadu ARA, sought by M/s Profit Solutions Pvt Ltd regarding GST being levied on the exchange of services between the head office and branch office of any company.

The company had submitted that when an employee is hired, he/she is not hired specifically for the head office or the brand office, but is rather hired for operations in both the offices.

Since the head office and the branch office is recognised separately as per the GST framework, the employee can be termed as a common employee. The company also submitted that an employee is never dedicated to just one office and can also change the office where he/she works based on the quantum of demand of work of a specific office.

The employee might have to work in the Tamil Nadu office at a specific time and might have to shift to the Karnataka office for work at another time. Another case was of employees working in the Tamil Nadu office (doing product technical design and accounting work) for the factory located in Karnataka.

What do the authorities have to say about it?

The submission by the company was that the services rendered to the company by the employee do not come under the purview of GST. However, the authorities completely ignored this fact for this ruling.

Although, the authorities stated that since the employee and the employer come under the definition of “Related Persons as specified in GST Regulatory Framework”, the services rendered would come under the purview of GST even if we do not consider the situation of the head office and the branch office. Schedule 1 of CGST Act attracted and accordingly leviable to GST even if consideration not involved.  Consideration defined based on Valuation Rules.

Our request and suggestion for the applicant company

We suggest the applicant (M/s Profit Solutions Pvt Ltd) to submit an appeal to the Appellate Authority at the earliest.

They should prepare thoroughly for the appeal and present all the facts and situations in a clear manner that explains the situation to get relief from the earlier order.

The way this situation is being mentioned in social media and different news outlets is the wrong way and will lead to numerous court cases in the future. So avoid to forward in WhatsApp.

Our suggestions for you

We suggest employers to re-review their employee agreements and make special provisions for employees who would have to work in multiple states. Generic clauses that state that an employee can work anywhere should be avoided


Thank you for reading (It means a lot)

Vikash Dhanania,

T: 90 8888 2000

E: support@gstdost.com

 

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