2018 (8) TMI 876 - AAR - GST

Levy of GST - Supply or not - distinct persons - Whether the activities performed by the employees at the corporate office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well i.e. distinct persons as per Section 25(4) of the Central Goods and Services Tax Act, 2017 shall be treated as supply as per Entry 2 of Schedule I of the CGST Act or it shall not be treated as supply of services as per Entry 1 of Schedule III of the CGST Act? Held that - Since the IMO is covered under one registration in the state of Karnataka and the units are covered under different registrations, and the units are controlled by the IMO, they both are related persons. By implication, any supply of goods and services from IMO to the separately registered units would amount to supply of goods and services, even if made without consideration. The services provided to the employer, i.e. the corporate office by the persons employed by the corporate office are in the nature of the employee-employer relationship. Further, since the corporate office and the units are distinct persons under the Act, there is no such relationship between the employees of one distinct entity with another distinct entity, at least as per the Goods and Service Tax Acts, even if they are belonging to the same legal entity. Further, the activities made between the related persons are treated as supplies and the valuation includes all costs, the employee cost also needs to be taken into consideration at the time of valuation of goods or services provided by one distinct entity to the other distinct entities. Ruling - The activities performed by the employees at the corporate office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well i.e. distinct persons as per Section 25(4) of the CGST Act shall be treated as supply as per Entry 2 of Schedule I of the CGST Act.

Summary

Issues:
1. Whether activities performed by employees at the corporate office for units in other states constitute a supply of services under CGST Act?
2. Whether allocation of expenses by the corporate office to other units amounts to supply of services under CGST Act?

Analysis:

Issue 1:
The applicant sought an advance ruling on whether activities by employees at the corporate office for units in other states constitute a supply of services. The applicant argued that such activities should not be considered a supply of services as they fall under the exemption provided in Entry 1 of Schedule III of the CGST Act. The applicant contended that the relationship between the employee and the employer extends to the entire legal entity, not just the specific registered unit. Therefore, the services provided by employees to other units within the same legal entity should be treated as services by an employee to the employer and not as a supply of services. The applicant emphasized that GST should not be applicable to these activities as they do not qualify as a supply of services.

Issue 2:
Regarding the allocation of expenses by the corporate office to other units, the ruling authority examined the provisions of Schedule I and Schedule III of the CGST Act. The authority noted that under Entry 2 of Schedule I, supplies between related or distinct persons, made in the course or furtherance of business, are considered supplies even if made without consideration. The authority determined that the corporate office and the units are related persons, and any supply of goods or services between them, even without consideration, would be considered a supply. Furthermore, the authority clarified that the services provided by employees at the corporate office to the employer are in the nature of an employee-employer relationship, limited to the corporate office. Since the corporate office and the units are distinct persons under the Act, there is no employer-employee relationship between the employees of the corporate office and the employees of other units. Therefore, the allocation of expenses by the corporate office to other units constitutes a supply of services under Entry 2 of Schedule I of the CGST Act.

In conclusion, the ruling stated that the activities performed by employees at the corporate office for units in other states shall be treated as a supply of services under Entry 2 of Schedule I of the CGST Act. The ruling clarified the applicability of GST to such activities and provided a comprehensive analysis based on the provisions of the CGST Act and relevant schedules.