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TMI Blog2022 (1) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... its branch offices/units for a consideration in the course of its business. Whether the Appellant's Head Office is eligible to utilize the credit of the tax paid for the common input services received on behalf of its branch offices/units? - HELD THAT:- On bare perusal of Section 16 of the CGST Act, 2017, it is revealed that any registered person is entitled to take credit of input tax charged on any supply of goods or services or both, subject to the condition that the goods or services or both received by the registered person should be used or intended to be used in the course or furtherance of business - However, in the instant case, it is observed that the common input services received by the Appellant's Head Office are being used or consumed by the Branch Office/Units in the course or furtherance of their business, and not by the Head Office, as the Head Office receives these common input services on behalf of the Branch Offices/Units. - Head Office is not entitled to avail and utilize the credit of tax paid to the third-party service vendors for the common input services received by it on behalf of the Branch Offices/Units Whether they have to be compulsor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, allocation and recovery of any amount including its employees salary cost from the Branch Offices/Units will be subject to GST - the impugned transaction of facilitation services are not effected between the employees and the employer, but between the Head Office and Branch Offices/Units. which are distinct units in terms of Section 25(4) of the CGST Act, 2017, and the same is clearly taxable under GST in terms of Section 7 of the CGST Act, 2017. Hence the allocation and recovery of the salary of the employees of the Head Office from the Branch Office/Units will be subject to GST. - MAH/AAAR/AM-RM/01/2021-22 - - - Dated:- 21-12-2021 - SHRI ASHOK KUMAR MEHTA AND SHRI RAJEEV KUMAR MITAL MEMBER Present for the Appellant: Shri Rohit Jain. Advocate Shri Vivek Baj. C.A. Shri Deepak Bahirwani, Tax Director (Proceedings under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act ) 5. The Appellant, being a registered person and engaged in the activity of making taxable supply, are eligible to avail Input Tax Credit ( ITC ) of GST paid on all the input, capital goods and input services procured in the course or furtherance of business. 6. Amongst all such procurements, certain common input services are availed by head office of the Appellant located in Pune. Further, the units of the Appellant may also avail common services. Accordingly, the head office or the respective units, as the case may be, avail ITC of the GST paid on such common input supplies subject to provisions of Section 17 of the CGST Act, 2017. 7. The costs incurred by head office/units for procurement of such common input services, is booked by such unit/head office in its own books of accounts. Such cost is then allocated, and recovered proportionately from each of the recipient units to determine the office/plant-wise profitability, which is an internal procedure. 8. Based on these facts, the Appellant herein sought for a Ruling with respect to the following questions:- i. Whether availment of input tax credit of tax on common input supplies on behalf of other unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked the provision of Section 24 of the CGST Act, 2017 to compel the Appellant to obtain registration as an ISD. Relevant portion of the Ruling is reproduced below: ISD is a facility available to persons/businesses having a large share of common expenditure, and where billing/payment is done from a centralized location. The concept of ISD has been introduced to simplify the credit taking process for various assessees/businesses, etc and the facility helps the concerned to have a smooth flow of input tax credit under GST. We refer to provision of Section 24 (viii) of the CGST Act which is as under:- Compulsory registration in certain cases- Notwithstanding anything contained in sub-section (1) of Section 22, the following categories of persons shall be required to be registered under this Act.,- (viii) Input Service Distributor, whether or not separately registered under this Act. We have no doubt that the applicant wants to distribute common CENVAT credit received by the HO for which payments/billings are done by them. If they want to distribute such credit then they will be an Input Service Distributor Once an ISD. then it follows that they must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue the prescribed document to distribute the ITC, and thereby, function as an ISD. As a corollary, where the Appellant opts not to issue the prescribed document to distribute the credit, the Appellant is not required to register itself as an ISD. (f) In view of the above, the Appellant has submitted that registering as an ISD is an option provided to an assessee. Accordingly, if any assessee opts not to utilise the facility of ISD, it is not required to register as an ISD. The Appellant has elaborately put form these submissions before Ld. Authorities, however the Impugned Ruling has completely ignored the discretion provided at the hands of an assessee, and has instead assumed Appellant's willingness to distribute ITC received by head office on common input services. (g) The Appellant submits that it has nowhere deposed or expressed its willingness to operate as an ISD to distribute the ITC of common input services. The Appellant has merely sought for a clarification to ascertain if it is required to obtain registration as an ISD even though its head office discharges the obligation to pay GST on 'supply' of facilitating common input services to distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UNIT: (a) The Impugned order has Ruled that supply made between distinct persons of the Appellant qualifies as 'supply' even in absence of any consideration and therefore Appellant is required to levy GST thereon. The necessity to pay GST on every function performed between distinct persons may also cover in its fold the functions performed by an employee from one distinct unit for another distinct unit. (b) In this regard, the Appellant has submitted that even though employees of the Appellant at one distinct unit provide assistance to other distinct units of the Appellant, the employees are essentially performing functions for the same legal entity. It is settled law that legal relationship of employment is between employee and the Company as a whole encompassing all its establishments. This position of law is also evident from the fact that in case of closure of any manufacturing unit, the right to emoluments/compensation of employees working in such unit survives and the obligation of legal entity to perform its duties as the employer continues. Accordingly, functions performed by the employee from one distinct unit for another distinct unit continue to be cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice shall be deemed to be the open market value of the goods or services. (b) On a bare perusal of Rule 28. it has been submitted that value of supply between distinct persons needs to be determined based on either of the following mechanism which are mentioned in its order of priority: a. Open Market Value b. Value of supply of like kind and quality c. Value as determined by application of Rule 30 or Rule 31 - Rule 30 prescribes for value of supply of goods or services or both based on cost of production or manufacture - Rule 31 prescribes residual method of referring to reasonable means consistent with Section 15 and provisions of CGST Rules. 2017 (c) The Appellant has referred to the second proviso appended to Rule 28 which provides deeming fiction for acceptance of invoice value as an open market value. Accordingly, the Appellant has submitted that where the recipient unit is eligible to avail ITC of the tax charged, then value, as may have been declared on the invoice, is to be treated as open market value for the purpose of Rule 28. It is to be noted that the term value as referred to in the proviso is not qualified by any adjective which means that, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be declared on the invoice, can be treated as assessable value for the purpose of complying with the obligation to discharge GS T liability. 12.4 IMPUGNED ORDER BEING SILENT ON ADDITIONAL SUBMISSIONS WHICH HAS A CLOSE NEXUS WITH THE CLARIFICATION SOUGHT, SUFFERS FROM VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. (a) The Appellant, vide its additional submissions dated November 29, 2018 and December 12, 2018. elaborated following salient grounds in support of the clarification sought by it: i. An ISD is an office which receives the invoices and issues a prescribed document for distribution of credit. Accordingly, if such document is not issued by Appellant, it does not qualify as an ISD, and thus, is also not mandated to register itself as an ISD; ii. Functions of an employee from one distinct unit for another distinct unit cannot be treated as a supply in as much as services of an employee are excluded from the definition of Supply under Schedule III of the CGST Act; iii. If head office of Appellant raises invoice and charges GST to its distinct unit for availing common input services on its behalf, then it is not required to register as an ISD to distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the CGST Act. 2017; (ii) That the Appellant themselves have submitted that the impugned supply of facilitation services is specific to the business model of the Appellant, and the same is not supplied in the open market so as to have open market value of the impugned supply, and that for the same reason the value of the impugned transaction can also not be referenced to the value of supply of 'same kind and quality', therefore, the Department has contended that valuation of the impugned supply cannot be done in terms of Rule 28, rather the same can be done by referring to the Rule 30, which provides that value of such supply shall be 110% of the cost of provision of such supply. (iii) That functions/services performed by the employee of one distinct unit for another distinct unit are not covered by the employer-employee relationship, and hence the same taxable under GST. PERSONAL HEARING 14. A personal hearing in the matter was held on 27.10 2021, which was attended by Shri Rohit Jain, Advocate, Shri Vivek Baj, C.A.. and Shri Deepak Bahirwani, Tax Director, as representatives of the Appellant. The Jurisdictional Officer in the matter was not present du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Whether 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. wherein the tax invoices for the common input services were raised in the name of the Appellant's Head Office and expenses for the same were incurred by the Head Office itself, and subsequently the entire expenses incurred by it including the total cost of the common input services and the other administrative expenses like employee salary cost, etc., were allocated, will be considered as supply or otherwise and whether the same would attract GST or not. (ii) Whether they are eligible to utilize the credit of Tax paid for the common input services received on behalf of its branch offices/units. (iii) Whether they have to be compulsorily registered as an ISD in accordance with Section 24(viii) of the CGST Act, 2017, under the circumstances as detailed above. (iv) What will be the valuation of the services provided by the Head Office to its branch offices/units and whether the allocation of the cost of the employees salary by the Head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility and conditions for taking input tax credit as prescribed under Section 16 of the CGST Act, 2017. which is being reproduced herein under: (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and. in the manner, specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business and the said amount shall be credited to the electronic credit ledger of such person. 21. Thus, on bare perusal of the above provision, it is revealed that any registered person is entitled to take credit of input tax charged on any supply of goods or services or both, subject to the condition that the goods or services or both received by the registered person should be used or intended to be used in the course or furtherance of business. 22. However, in the instant case, it is observed that the common input services received by the Appellant's Head Office are being used or consumed by the Branch Office/Units in the course or furtherance of their business, and not by the Head Office, as the Head Office receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant that the Head office receives tax invoices towards the receipt of common input services on behalf of its branch offices/units. Therefore, the sole and essential condition for the Input Service Distributor has been squarely fulfilled. The main contention of the Appellant as to, the Appellant, in this case, the Head office, does not intend to issue prescribed documents as envisaged in the definition of the ISD. and hence need not be registered as an ISD. it is opined that the issuance of the prescribed documents by an ISD is the way or method for the distribution of the Input Tax Credit, which needs to be adhered to by an ISD. if it intends to distribute the Input Tax Credit of the GST paid on the common input services, as envisaged under the provisions laid under the GST Act. 27. In this regard, the Appellant have contended that since they do not intend to issue any prescribed document for the distribution of ITC. they do not require to take the ISD registration, as the Head office themselves intend to avail the ITC of the Tax paid on common input services received on behalf of the branch offices/units, and utilize the same for setting off their liability as a normal supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST impact of ₹ 32.400(GST of ₹ 18000 calculated as above on the total value of the facilitation services supplied by them to their branch offices/units + GST of ₹ 14,400 paid by the Appellant to the third- party vendors for procuring the common input services on behalf of their branch offices/units), and thereby, have contended that the dual registration will lead to the anomalies which would result in adverse impact on their GST obligation, and on their business overall. They have argued that they have to incur an additional GST of ₹ 14,400/- while operating with both the registrations, i.e.. the normal supplier registration along with the ISD registration. 31. In this regard, it is observed that the aforesaid contention put forth by the Appellant, wherein they have argued that they will have to incur an additional GST to the tune of ₹ 14.400/- in case where their Head office is bound to operate with the dual registrations, i.e.. normal supplier registration along with the ISD registration, is erroneous and specious in as much as the Appellant's Head Office will be very much in a position to recover from their Branch Offices/Units the said GST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts incurred by the Head Office for facilitating the Branch Offices/Units, the Head Office will have to charge from their Branch Offices/Units the GST on the cost of procurement of common input services received from the third - party vendors on behalf of the Branch Offices/Units. In this regard, it is opined that their Head Office is not bound to collect the GST on the said cost of procurement of the common input services as the Head Office is acting as a pure agent of the Branch Offices/Units in terms of explanation to Rule 33 of the CGST Rules, 2017 when it is procuring the common Input services from the third-party vendors on behalf of, and behest of the Branch Offices/Units, and accordingly, the said cost of the procurement of common Input services from the third -party vendors would not be subject to GST In terms of Rule 33 of the CGST Rules, 2017. 33. It is, hereby, further clarified that under the mechanism of ISD, the Appellant's Head Office is eligible to pass on only such credit of tax paid on such common input services which It has procured from third -party vendors on behalf of the Branch Offices/Units, and not the credit of tax pertaining to such input service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the supplier, he an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person: Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. 37. In the instant case, it has been submitted by the Appellant that the open market value of the services as well as the value of the services of the same kind and quality is also not available, then in that situation the second proviso to clause (c) of the Rule 28 of the CGST Rules will apply as the recipient i.e. the branch offices/units of the Appellant is entitled for taking full input tax credit of the GST paid on the impugned facilitation services provided by the Head Office, in accordance with Section 16 of the CGST Act. 2017. as the said facilitation services from the Head Office are received by the branch office in the course or furtherance of business. Therefore, the value declared in the invoice shall be deemed to be the open market value of the services under question. 38. Further, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot effected between the employees and the employer, but between the Head Office and Branch Offices/Units. which are distinct units in terms of Section 25(4) of the CGST Act, 2017, and the same is clearly taxable under GST in terms of Section 7 of the CGST Act, 2017. Hence the allocation and recovery of the salary of the employees of the Head Office from the Branch Office/Units will be subject to GST. In view of the above discussions and findings, we pass the following order: ORDER 40. We, hereby, partially modify the ruling passed by the Maharashtra Advance Ruling Authority vide Order No. GST-ARA-66 2018-19 B-162 dated 19.12.2018. and answer the questions, raised by the Appellant in their Appeal filed before us as under: i. Whether availment of common input supplies on behalf of other unit/units registered as distinct person and further allocation of the cost incurred for same to such other units qualifies as supply and attracts levy of GST? Yes. availment of common input supplies from the third-party service vendors/suppliers on behalf of the Branch Offices/Units, registered as distinct persons, will qualify as supply of services in accordance with the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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