GST AAR ruling in the Columbia Asia judgment - needs reconsideration!

[pranav deshpande]

Brace for more hiccups.

The AAR have given a ruling in the case of Columbia Asia Hospitals Pvt. Ltd. =  2018 (8) TMI 876 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA

Before we analyze the ruling, let us look at some facts:

Columbia Asia Hospitals Pvt Ltd (hereafter, referred to as "applicant") is a private company, rendering health care services. They are operating in 6 States, with 11 hospitals or units. They have 6 units in Karnataka alone. They have their corporate office in Karnataka. Accounting, administration and IT systems are maintained from this office, by employees appointed for this purpose. 

The applicant wanted to know whether the services of these employees, which also benefited other offices, would amount to a supply under GST or not. Especially because other units would be treated as 'related persons' however services by employees to employers are not a 'supply' under GST. 

The AAR has ruled that employees employed in the Corporate Office are providing services to the Corporate Office and hence there is employer-employee relationship only in the Corporate Office. Employees have no employer-employee relationship with other offices". Hence, under GST laws, even if the employees belong to the same legal entity, they have no employer-employee relationship with other offices. (As per AAR). 

Instead of becoming emotionally agitated by this ruling, which would doubtless have far reaching consequences, it may be useful to analyze certain definitions of 'employer' and 'employee'.

The fact is - 'employer' 'employee' and 'in the course of employment' are not defined under CGST Act.

But they are defined, elsewhere. 

'Employer' is defined under section 2(1)(e) of Employees' Compensation Act and Section 2(e) of the Minimum Wages Act and in both these definitions, employer as a general entity, has a separate existence and location is not relevant. 

Similarly, 'Employee' is defined under section 2(f) of the Employees' Provident Fund Act, 1952 and there too, the employment is with 'employer' as the general entity. 

One thing is clear, employer is a legal person and employee is a legal person. The only difference is that 'employer' can be an individual or any form of body corporate, whereas an employee would always be 'individual'. 

Secondly, for determining whether a relationship between two persons as employer-employee exists or not, one has to look only at labour laws. GST laws do not determine this relationship and certainly have no right to override or contradict labor laws. 

Thirdly, the exemption under GST to services provided by employee to employer in the course of employment, should apply qua the entire establishment itself. The employee earns income from 'salaries' under Income tax Act and TDS is deducted accordingly. To hold that he is also partly acting as a 'consultant' to the employer's branch offices would change the character of his income and other related obligations, as well. 

Further, nowhere in the labour laws, is the employment location-based. Because if that logic is applied, even the MD or CEO of a company, who is technically the company's employee, would be regarded as a 'consultant' to other offices, in the performance of his executive duties. 

I have the highest regard and respect for the august offices of the AAR and the judiciary. However, with all due respect, I believe that in light of the above, the ruling needs reconsideration.