*In the Favour of Department*
Whether the HO is compulsory required to take registration as an ISD where the common services are received by it? Whether the HO is required to charge GST on the employee expenses allocated by it to the branches/Unit? If yes, what would be the assessable value, and whether HO can avail ITC on the common services billed in the name of HO?
H’ble AAAR, Maharashtra in case of Cummins India Limited held that it is not the choice of the HO whether to take registration as ISD or not. Instead, if the HO receives the Common services which is consumed or utilised by the Branches/Units, HO is mandatorily required to take registration as ISD.
Ruling further pronounced that though services by an employee to employer are not chargeable to tax as per Schedule III, but in the case of appellant, it was the HO who was rendering services to the Branches, hence it is taxable under GST in terms of Schedule I.
On the question of assessable value for services rendered by the HO to Branches/Units, it held that the value charged on the invoice shall be treated as the value of services in terms of Second proviso to Clause (c) of Rule 28 of the CGST Rules 2017. The Ruling reversed the original ruling to the extent that the value shall not be treated as 110% of the cost as per Rule 30, instead it shall be the value as declared in the tax invoice in cases where the recipient is eligible to claim full Input Tax Credit.
The judgement is ill-drafted which will have large repercussions on the trade and industry. At the first place, it will be highly difficult for business to earmark it employees between HO and Branches. Their location will make a huge difference as far as tax planning is concerned. The cost of compliance at the HO level shall spike. The law is clear that a person is required to take registration as ISD only when he receives common services *and* issues prescribed documents. The Ruling misinterpreted the provision to the advantage of the department, by making it compulsory to take registration as ISD solely on the ground that HO has received common services whereas the law prescribes that both the conditions of availing such services *and* issuance of prescribed documents is necessary to qualify as an ISD.
Though the ruling has correctly held that since common services are not wholly consumed by HO itself, it should not be permitted to claim entire ITC in terms of section 16. But on the other hand, the ruling neglected the fact that the said ITC is utilised by HO against the output GST charged on the expenses allocated by them to the Branches/Units. The HO merely acts as a cost of centre which otherwise does not have any taxable output supplies.
It would be interesting to see how the business would adjust to this proposition and ensure correct compliance of the law.
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