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2022 (1) TMI 660 - AAAR - GST


Issues Involved:

1. Classification of Engine manufactured by Appellant.
2. Levy of GST on facilitation of common input services, necessity of registering as an 'Input Service Distributor' (ISD), and determination of assessable value.

Detailed Analysis:

1. Classification of Engine Manufactured by Appellant:
- This issue is not discussed in the present appeal and is therefore not addressed in the judgment.

2. Levy of GST on Facilitation of Common Input Services, Necessity of Registering as an ISD, and Determination of Assessable Value:

A. Supply and Levy of GST:
- The Appellant's activities of providing facilitation services to their branch offices/units by way of availment/procurement of common input services from third-party vendors on behalf of their branch offices/units qualify as "supply" under Section 7(1)(a) of the CGST Act, 2017. These activities attract GST as they are provided by the Head Office to its branch offices/units for a consideration in the course of business.

B. Eligibility to Utilize ITC:
- The Head Office is not entitled to avail and utilize the credit of tax paid on the common input services received on behalf of the branch offices/units. These services are used or consumed by the branch offices/units in the course or furtherance of their business, not by the Head Office.

C. Necessity of ISD Registration:
- The Head Office must register as an ISD according to Section 24(viii) of the CGST Act, 2017, if it intends to distribute the credit of tax paid on the common input services received on behalf of the branch offices/units. The issuance of prescribed documents by an ISD is mandatory for the distribution of ITC.

D. Valuation of Services and Employee Salary Cost:
- The assessable value of the services provided by the Head Office to the branch offices/units can be determined as per the second proviso to clause (c) of Rule 28 of the CGST Rules, 2017, which deems the value declared in the invoice as the open market value of the services.
- The allocation and recovery of the employee's salary cost from the branch offices/units will attract GST. The services performed by employees for one distinct unit for another are not covered by the employer-employee relationship and are thus taxable under GST.

Order:
1. Availment of common input supplies from third-party vendors on behalf of branch offices/units qualifies as supply and attracts GST. However, the cost incurred by the Head Office in the capacity of a pure agent shall be excluded from the value of supply.
2. The assessable value can be determined as per the second proviso to clause (c) of Rule 28 of the CGST Rules, 2017.
3. The Appellant must register as an ISD if it intends to distribute the credit of tax paid on common input services to the branch offices/units.

 

 

 

 

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