2021 (9) TMI 949 - AAR - GST

Classification of supply - supply of service or not - managerial and leadership services provided by the Registered/Corporate Office to its Group Companies - lump sum amount charged by the Registered/Corporate Office on its Group Companies - levy of GST under Section 8 of CGST Act, 2017 - related persons or not - charging certain lump sum amount for expenses incurred by Registered/ Corporate Office for supplying the services - method of valuation under Rule 31 of CGST Rules - input tax credit of GST paid. Supply of service or not - HELD THAT - Section 7(1)(c) of the CGST Act states that the activities specified in Schedule Ito the CGST Act, shall be treated a supply of goods or services, even if made without consideration. As per Schedule I, Entry No. 2, Supply of goods or services or both between related persons or between distinct persons, as provided in Section 25, when made in the course or furtherance of business will be activities to be treated as supply even if made without consideration - In the subject case the site offices/group companies cannot be treated as persons who are employed by the applicant. The site offices are independent offices separately registered under the GST Laws. Similarly the group companies are also separately registered under the GST Laws and since both the site offices as well as the group companies cannot be treated as employees, the applicant cannot get the benefit of Entry No. 1 to Schedule III. The supply of services by the applicant will be covered under Entry No. 2 to Schedule I and is therefore taxable under GST Laws. Whether the lump sum amount charged on its Group Companies would be liable to GST under Section 8 of CGST Act, 2017? - HELD THAT - The applicant will have to pay GST on the lumpsum amount charged by them to their Group Companies. Whether the Applicant can continue to charge certain lump sum amount, as has been done in the past, in terms of second Proviso to Rule 28 of CGST Rules, 2017? - HELD THAT - Applicant may resort to valuation under Rule 28 of the CGST Rules, in respect of transaction with related/distinct persons who are eligible for full input tax credit as per the second proviso to Rule 28 of the CGST Rules, 2017. If the method of charging certain lump sum amount is not permissible, whether the Applicant can adopt the valuation in terms of the provisions of Rule 31 of CGST Rules, 2017, by arriving at a proportional ratio, based on total expenses incurred by Registered/ Corporate Office for supplying the aforesaid services and turnover of each of the distinct and related persons? - If the aforesaid method of valuation under Rule 31 of CGST Rules is also not permissible, whether the Applicant can adopt valuation in terms of Rule 30 of CGST Rules, 2017, by allocating related expenses at the Registered/Corporate Office in a reasonable proportion to the distinct and related persons considering turnover of each of them and adding ten percent, which would be at par with 110% of cost of provision of such services? - HELD THAT - Since it is held that the applicant may resort to valuation under Rule 28 of the CGST Rules, the said questions are not taken up for discussion. What alternative feasible workable method of valuation can be suggested by this Authority considering the nature of industry in which the Applicant is engaged in? - HELD THAT - This question does not relate to determination of value of supply of goods or services or both, rather the question is asking this authority to suggest procedures to be followed by the noticee. The question does not fall under the purview of Section 97 of the CGST Act, 2017 and is therefore not answered.

Summary

Issues Involved:
1. Whether managerial and leadership services provided by the Registered/Corporate Office to its Group Companies are considered as "supply of service" under Section 7 of the CGST Act, 2017.
2. Whether the lump sum amount charged by the Registered/Corporate Office on its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.
3. Whether the Applicant can continue to charge a lump sum amount as per the second Proviso to Rule 28 of the CGST Rules, 2017.
4. Whether the Applicant can adopt valuation in terms of Rule 31 of the CGST Rules, 2017, if the lump sum method is not permissible.
5. Whether the Applicant can adopt valuation in terms of Rule 30 of the CGST Rules, 2017, if Rule 31 is not permissible.
6. Feasible alternative methods of valuation suggested by the Advance Ruling Authority.
7. Admissibility of input tax credit of GST paid by the Applicant to each of the distinct and related persons.

Detailed Analysis:

1. Managerial and Leadership Services as "Supply of Service":
The applicant argued that the services provided to its group companies and branch offices should not be treated as "supply of service" due to the specific relaxation provided in Entry 1 of Schedule III of the CGST Act, which states that services by an employee to the employer in the course of employment are not treated as supply of goods or services. The applicant contended that their group companies and site offices should be considered as employees.

The Authority determined that site offices and group companies, being distinct and related persons respectively, cannot be treated as employees. Therefore, the services provided by the applicant fall under Entry No. 2 of Schedule I, making them taxable under GST laws.

2. GST Liability on Lump Sum Amount Charged:
Given the conclusion that the services are taxable, the Authority held that the lump sum amount charged by the Registered/Corporate Office to its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.

3. Charging Lump Sum Amount under Rule 28:
The applicant can continue to charge a lump sum amount as per the second Proviso to Rule 28 of the CGST Rules, 2017, since most recipients are eligible for full input tax credit. The value declared in the invoice would be deemed the open market value of the services.

4. Valuation under Rule 31:
Since the applicant can resort to valuation under Rule 28, the question of adopting valuation under Rule 31 was not addressed.

5. Valuation under Rule 30:
Similarly, since Rule 28 is applicable, the question of adopting valuation under Rule 30 was not addressed.

6. Alternative Methods of Valuation:
The Authority did not provide any alternative methods of valuation, stating that the question does not fall under the purview of Section 97 of the CGST Act, 2017.

7. Admissibility of Input Tax Credit:
The question regarding the admissibility of input tax credit of GST paid by the Applicant to each of the distinct and related persons was not answered, as it should be raised by the concerned recipient of the supply of services.

Order:
1. Managerial and leadership services provided by the Registered/Corporate Office to its Group Companies are considered as "supply of service" under Section 7 of the CGST Act, 2017.
2. The lump sum amount charged by the Registered/Corporate Office on its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.
3. The Applicant can continue to charge a lump sum amount in terms of the second Proviso to Rule 28 of the CGST Rules, 2017.
4. Questions regarding valuation under Rule 31 and Rule 30 were not answered.
5. No alternative feasible workable method of valuation was suggested.
6. The question on the admissibility of input tax credit was not answered.