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TMI Blog2021 (9) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be liable to GST under Section 8 of CGST Act, 2017? 3. If the aforesaid activities are treated as supply of service between distinct and related persons and GST thereon is held to be payable, 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, as most of the recipients of such services are eligible for full credit, barring one or two related persons, who would comply with the provisions of Section 17 of CGST Act, 2017, at their respective ends? 4. If the aforesaid 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 the total expenses incurred by Registered/ Corporate Office for supplying the aforesaid services and turnover of each of the distinct and related persons? 5. 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/Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be considered as supply of service , in terms of Section 7 of CGST Act, 2017. 2.5 As per Section 7(I)(c) of the CGST Act, 2017, the term supply includes the activities specified in Schedule I, made or agreed to be made with or without a consideration . As per Section 7(2) of the CGST Act, activities or transactions specified in Schedule III would not be treated as supply of goods or supply of services. As per Entry 2 of Schedule 1 of the CGST Act, supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business, would treated as supply , even if made without consideration. However, as per Entry 1 of Sch. III of the CGST Act, services by an employee to the employer in the course of or in relation to his employment would be neither treated as a supply of goods not a supply of services. 2.6 The activities carried out by the applicant with respect to other Group Companies, to supply of services between distinct persons without consideration as per Entry 1 of Schedule I. However, the said activities would not be treated as supply of services by virtue of specific rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and the entirety of transactions of the head office and branches as well are reflected by the head office as one unit. The infrastructure for the maintenance and running all the branches flows from the same capital source and the streams of business by all the units will be ultimately pooled. It is not in dispute that the branches carry on the identical business and transactions. Each branch is a component of the main office and all the branches are miniatures of the main office and as such cannot be considered as separate and independent entities. (c) Hon ble Tribunal in the case of Milind Kulkarni - 2016 (44) STR 71 (Tri) held that employees of a branch are the employees of a company-establishment. (d) Similarly, in the case of Franco Indian Pharmaceutical (P) Ltd. [2016 (42) STR 1057 (Tri)], t he Tribunal held that activities carried by the employees deputed from one group-company to other group-company cannot be considered as provision of services of promotion or marketing of the goods manufactured (Business Auxiliary Services) by other group-company. Further, it has been held that if the employer-company who takes employee in its own rolls does not insist on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation 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 can be compared to 110% of cost of provision of such services, as arriving at actual cost of provision of such services is almost impossible. ADDITIONAL SUBMISSIONS DATED 11.09.2020 2.12 The lump sum amounts charged by the applicant to various group companies depends upon the quantum of work involved and the turnover of each of the group companies to whom such supplies are made. 2.13 Applicant has classified its supply under Heading (SAC) 9983, which covers Other professional, technical and business services . However. classification of the services has got nothing to do with the valuation of the same. Applicant's charging of any amount in the invoices to its group companies/sister units, on lump sum basis, without resorting to any specific calculation method is proper and legal. 2.14.1 Applicant relies on the decision of the Authority for Advance Ruling, Tamil Nadu, in the case of Specsmakers Opticians Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as supply even if it is made for without any consideration. 3.3 From the provisions of Section 25 of the MGST Act, it is clear that, in the instant case the Registered or corporate office and various other group companies, its various establishment offices situated in various state for carrying out the business operation of the company are distinct and related persons in light of the aforesaid legal provision and any supply of services made between them whether for any remuneration or not is considered as supply. 3.4 Answer to the applicant's second question depends upon the valuation under the MGST/CGST Act. 3.5 With respect to question number 3, Rule 28 is specifically related to determine the value of supply of goods or services or both between distinct or related persons. As per the second proviso to Rule 28, if the recipients are eligible for full ITC, the invoice value shall be deemed to be the open market value of the goods or services. 3.6 Applicant has also sought clarification regarding method to be adopted for determining the value of supply. In this regard the tax payer has the option to determine the value of supply as per Rule 30 or 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having head office at Secunderabad in the State of Andhra Pradesh, is covered by the sweep of the Act, automatically employees working in its branches, may be anywhere in India, including the branch at Bombay would get covered by the sweep of the Act . But no such provision regarding employer or employee is made under the MGST/CGST Act. Hence this judgment is not applicable to this case. 3.9.4 Thus in view of the above, managerial and leadership services provided by applicant to its Group Companies can be considered as supply of service . Value of the supply can be determined as per the Rules as explained above, i.e. either by way of second proviso to Rule 28 or Rule 30 or 31 which shall be in consistent with the principles and the general provisions of section 15 and the provisions of this Chapter: Additional submissions made on 26.02.2020 3.10 Chapter IV of the CGST Act consisting of Rules 27 to 33 deals with the determination of value of supply. Looking at the nature of transaction as referred in the subject case of applicant, Rules 29, 32 or 33 are not relevant. Rule 28, 30 and 31 are relevant and any of them can be applied in the instant case, as discussed be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services of like kind and quality is defined as per explanation to this Chapter, which is as under. (b) supply of goods or services or both of like kind and quality means any other supply of goods or services or both made under similar circumstances that, in respect of the characteristics, quality, quantity, functional components, materials, and the reputation of the goods or services or both first mentioned, is the same as, or closely or substantially resembles, that supply of goods or services or both. 3.15 If the tax payer cannot determine the value by the both above methods then value can be determined as per Rule 30 or 31. But before that, there are two proviso to this Rule, hence the tax payer can determine the value of supply in accordance with any one of the proviso. 3.16 The first proviso to this Rule is not applicable to this case as there is no further supply of these services. As per the second proviso to this Rule in this case, if the recipients are eligible for full ITC, the value declared in the invoice shall be deemed to be the open market value of the, goods or services. In this case the branch offices of the applicant are eligible for full set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 3.20 And as per the proviso to Rule 31 in case of supply of services the supplier may opt Rule 31 for determination of value of service by ignoring Rule 30 i.e it can be determined by using reasonable means consistent with the principles and the general provisions of section 15 and the provisions of this Chapter. 04. HEARINGS 4.1 Preliminary hearing was held on 17.12.2019. Shri M. H. Patil, Shri Kiran Chavan and Ms. Manada Biradare, Advocates and Consultants from M/s. CEN-EX SERVICES, duly authorized representatives, appeared and requested for admission of their application. Jurisdictional Officer Sh. V. K. Magar, Deputy Commissioner of S.T.(E-623) LTU, Pune 'alto appeared and made written submissions. 4.2. Application was admitted and called for final hearing on 03.03.2020. Shri M. H. Patil, Shri Kiran Chavan Advocate and Consultants from M/s. CEN-EX SERVICES authorized representative and Shri K. M. Thatte, Senior Vice President (Finance) appeared, made oral and written submissions. Jurisdictional Officer Shri V. K. Magar, Deputy Commissioner of S.T. (E-623) LTU, Pune appeared and made written submissions. Hearing was also held on 08.12.2020. The authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct 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. 5.3.2 The only reason, the applicant feels that such services are not taxable because they are treating their group companies as well as their site offices as employees. 5.3.3 As per the Merriam Webster Dictionary an Employee is a person employed by another usually for wages or salary. As per the Cambridge Dictionary, an employee is someone who is paid to work for someone else. 5.3.4 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. 5.3.5 The applicant has cited a few case laws in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged by them to their Group Companies. 5.5 Question Nos. 3 raised by the applicant pertains to 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, as most of the recipients of such services are eligible for full credit, barring one or two related persons, who would comply with the provisions of Section 17 of CGST Act. 2017, at their respective ends. 5.5.1 Chapter IV of the CGST Rules, consisting of Rules 27 to 35 has been framed to determine the Value of Supply in certain cases. We find that Rules 27, 29, 31A to 35 are not applicable in the subject matter. 5.5.2 Rule 28 is applicable to arrive at the value of supply of goods or services or both in case of such supplies between distinct or related persons, other than through an agent. Rule 28 is reproduced as under:- 28. Value of supply of goods or services or both between distinct or related persons, other than through an agent .-The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sixth question raised by the applicant is, 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. 5.7.2 We observe that, as per the provisions of Section 97 of the CGST Act, the matters on which advance ruling can be sought includes determination of time and value of supply of goods or services or both. The sixth question actually is asking this authority for suggestions regarding the method of valuation to be adopted by the applicant. We find 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. 5.8.1 Finally, the applicant has also asked whether input tax credit of GST paid by the Applicant is admissible to each of the distinct and related person, in a case where their supply of goods or service or both are taxable under GST law. 5.8.2 Such questions may be raised only by the concerned recipient of supply of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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