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English | हिंदी | தமிழ்

Levy of GST on Cross charge of inter-branch service is an extra cost where ITC is restricted.

Services by branch to head office to attract 18% GST: AAR rules.

The worst hit of these provisions are those who supplies exempted goods & services because their ITC is restricted. In such cases their output is exempt from GST but cross charge of inter branch service is taxable @ 18%. Accordingly the businesses would not be able to avail ITC on such cross charge.

The recent ruling has been pronounced by the Tamil Nadu AAR which is in line with similar decisions by the Karnataka and Maharashtra AAR.

Services provided by employees of a company’s branch office to the head office and vice versa will attract GST at the rate of 18% if the two are in different states, the Authority for Advance Ruling (AAR) has said. The ruling could lead to more litigations and also increase the compliance burden for companies.

The ruling by the Tamil Nadu AAR comes in the case of Company, which has a branch office in Chennai that provides service through its employees to the registered head office in Bengaluru. The company had approached the AAR on whether services provided to the head office by the branch office would attract GST.

While cross-charging among branch offices and head offices has been a contentious issue since GST was introduced, most companies have made a process to cross-charge common expenses except for the salary cost of employees. “There are already challenges in the valuations of such services as there is no prescribed methodology,”. The ruling could lead to a new set of litigations if authorities start to demand GST on employee costs, as there are already diverse rulings on this matter.

The Chennai branch office, which is registered in Tamil Nadu for GST, provides support services like engineering, design and accounting services to the Bengaluru head office. The latter is regi.......

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