VAGARIES OF CROSS CHARGE & ISD – THE GST COUNCIL NEEDS TO INTERVENE Analysis of Ruling of the AAAR (Karnataka) in M/s COLUMBIA ASIA HOSPITALS PVT LTD.)
By: – Vivek Jalan
Goods and Services Tax – GST
Dated:- 3-1-2019
Recently The Appellate AAR in Karnataka has opened a Pandora's box in the case of M/s COLUMBIA ASIA HOSPITALS PVT LTD [ 2018 (12) TMI 1604 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA ]. In the ruling it has held that “the services of the employees at the Corporate Office in so far as they are benefiting the other registered units of the Appellant are to be considered as a 'supply of service' by one distinct person to another, by virtue of the entry 2 of Schedule I, supply of services between distinct persons even if without consideration”
Another issue on which it has not dwelt is the fact “whether Cross Charge can be a substitute for ISD registration”
In this article we will dwell on both the above issues. First the fact whether the ser
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
activity of the head office and branch are thus inextricably enmeshed. There is no independent existence of the branch as a business. The economic survival of the branch is also entirely dependent on finances provided by the head office. Its mortality is entirely contingent upon the will and pleasure of the head office.
The employees of the HO as well as the branches are the employees of the organization itself. The benefit of activities of the HO Employees will, undoubtedly, accrue to the branches. Similarly the benefit of activities of the Branch Employees will also accrue to the HO. Further, incase of need the employees of the branches/ HO travel to other branches/ HO to render services there. Furthermore an employee can also travel to a state where no registration has been obtained and render services in that state of value which can be more than the threshold limit of ₹ 20 Lakhs. However, reasonable intelligence suffices to identify the nature of the service rendered.
M
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
blem in the present case has arisen only because instead of the Branches signing the appointment letter jointly, only one of them has signed the same. The reason for entering into such an arrangement is not difficult to see as employees may not be willing to sign contracts with several branches who collectively do not even constitute a separate legal entity. Not only for this reason, but even for the sake of convenience in contracting and accounting, contracts of such employment may be signed by only at one place and not by all. This, however, cannot make a difference to the taxability or otherwise of the employment contract.
Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later trcouped from the other employers on an agreed basis on actual. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement.
Arguments against the decision of the Appellate AAR in
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
which essentially is the Supply of services between related persons (Employees to Employers).
CONCLUSION: In the above case, we are of the opinion that the decision of the AAAR in the instant case of M/s COLUMBIA ASIA HOSPITALS PVT LTD certainly needs attention of the GST Council.
It may be noted that the GST Council has been very proactive in deciding a unique rate of GST in the case of SOLAR PLANTS in its 31st GST Council Meeting and this matter is a fit case for the GST Council to take up.
CROSS CHARGE INSTEAD OF TAKING ISD REGISTRATION:
In the instant case it is also seen that the entity M/s COLUMBIA ASIA HOSPITALS PVT LTD in the instant case is not registered as an ISD and instead is cross charging certain common expenses. The AAAR has not dwelt is the fact “whether Cross Charge can be an alternate for ISD registration. In this regard, if we look into the provisions of the law we note the following –
* For services Procured from third party (Legal fees, audit fees, professi
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
an of The Indirect Tax Committee of The Bengal Chamber of Commerce and Industry. He is also a visiting faculty for Indirect Taxes in The Bengal Chamber of Commerce and Industry, Institute Of Chartered Accountants of India and Institute of Cost Accountants of India.]
Reply By KUMAR JAGADEESAN as =
The Article on Advance Ruling in Columbia Asia Hospitals Limited = 2018 (12) TMI 1604 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA throws open many controversial decisions on which clarity is required. The appellants had submitted that they were charging some HO expenses in proportion to their various regsitered (under GST) entities ( distinct persons) and were are also paying GST by raising invoices. Since it was not an activity coming under ISD, they had not regsitered as ISD but while the Authority was seized of the issue got themselves regsitered as ISD.
But what I do not understand is their levy of GST on the cross charges apportioned by them to their other branches which was n
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
would not lose its character as serviec by an employee under a contract of employment and thus would be outside the purview of GST in terms of Sch.III.
While the Government and GST council are trying to simplify the tax administartion, rulings such as these would be making doing business in the country more complicated and cumbersome. A rethink is necessary on this aspect.
J.KUMAR
ADVOCATE HYDERABAD
Dated: 7-1-2019
Reply By Ganeshan Kalyani as =
I agree with Sri Jalan Sir and Sri Kumar Sir on the point that service of employee at Head Office to other branches do not quality as a service because employee is rendering service to company as a whole and not statewise.
I would like to seek view on why cross charge would not be a substitute to ISD. I would agree the nature of service will not stand good. As company cannot be providing legal consultancy service or courier service etc. However, it is supporting the other branches outside the State and therefore providing business sup
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
