Name of Appellant: Columbia Asia Hospitals Private
Limited
Brief of Order-in-Appeal (OIA) : The appallate authority for advance ruling upheld the rulings passed under section 98(4) of the GST Act 2017 vide NO.KAR ADRG 15/2018 dated 27/07/2018 i.e. wherein the activities performed by the Employees at IMO ( "India Management Office (IMO)" i.e Corporate Office) providing the services in the course of or in relation to employment such as accounting, administrative and IT system management to their distinct units located at other state is treated as taxable supply as per entry 2 of schedule I appended to Act, read with section 7 of the CGST Act 2017
Appeal Order No. & Date: KAR/AAAR/Appeal-05/2018 dated 12-12-2018
AAR Order No. & Date, against which Appeal has
been filed. : KAR/AAR-15/2018 dated 27-07-2018
The appellant filed an application on 1403.2018 before
the Karnataka Authority for Advance Ruling under Section 97 Of CGST/KGST
Act, 2017 read with Rule 104 Of CGST/KGST Rules, 2017 in form GST ARA-01 ,
seeking a ruling on the following question:
Whether the activities performed by the employees at
the Corporate Office in the Course of or in relation to employment, such
as accounting, other administrative and IT System Maintenance for the
units located in the other states as well i.e distinct persons as per
Section 25(4) of the Central Goods and Services Tax Act, 2017 (CGST Act) shall
be treated as supply as per Entry 2 of Schedule I of the CGST act or it
shall not be treated as supply Of Service as per entry I Of Schedule III of the
CGST Act?
However, with respect to employee cost there are no invoices
raised by the management Office treating the same as activities carried out by
employees in the course of or in relation to his employment which does not
amount to supply of service. The Appellant explained before the Authority that,
the activities carried out by employees from the IMO for accounting and other
administrative functions with respect to other units, would amount to supply Of
services between distinct persons Without consideration as per Entry I Of
Schedule I. However, by virtue Of specific relaxation provided in Entry I of
Schedule Ill of the CGST Act, which states that "Services by an employee
to the employer in the Course of or in relation to his employment" shall
not be treated as supply of service. the same shall not be treated as Supply Of
services
As per entry 2 of schedule 1 of the CGST Act, any
supply between distinct persons is to be treated as a “supply” in terms of
Section 7 of the said Act, In view of this deeming fiction in the law, the
service supplied by the IMO to its other units by way of performing activities
which benefits the other distinct persons is liable to be charged to GST. In
accounting terminology this concept is referred to as “cross charge”. The IMO
will cross Charge the other units of the same entity, the cost Of rendering its
services which benefit its other units, by raising a tax invoice and charging
applicable GST. The valuation for the supply of the service rendered by the IMO
to the other distinct persons will be done in terms of Rule 28 or 30 of
the CGST Rules, In arriving at the cost of provision of the service by the IMO,
the cost of employees working in the IMO has to be factored into. This is
because the activities performed at the IMO cannot be done without human
workforce and hence the cost Of such workforce is an integral part of the
service provided by the IMO.
In the case of cross charge, there is an element of
service rendered by the person who cross charges his other units even though
they belong to the same legal entity. On the other
hand, in the case Of ISD, there is no element of Service at all, but a mere
distribution Of Credit Further, certain expenses like rent paid on the
immovable property, housekeeping services, etc incurred in maintaining and
operating the IMO will not be distributable under the ISD route, rather they
are required to be allocated to the Other units only by way Of cross charge.
Therefore, the argument of the Appellant that the ISD mechanism is squarely
applicable to them and not the cross charge method is not legally correct The
ISD mechanism is purely for the purpose of distributing the CGST/SGST/IGST tax
on the receipt of input services by the office of the supplier of taxable goods
or services or both having the same PAN. The ISD mechanism is subject to
certain conditions laid down in Section 20 of the CGST Act, As per the
ISD provisions, the office of the supplier of taxable goods or services Or both
receives tax invoices for input services which are used by all their units
having the same PAN. The ITC on such invoices is distributed to the Other units
having the same PAN
In view of the above discussions, we uphold the Ruling
dated 27.07.2018 passed by the Karnataka Authority for Advance Ruling as under:
The India Management Office (IMO) of the Appellant is
providing a service to its other distinct units by way of carrying out
activities such as accounting, administrative work, etc with the use Of the
services Of the employees working in the IMO, the outcome of which benefits all
the other units and such activity is to be treated as a taxable supply in terms
Of the entry 2 of Schedule I read with Section 7 of the CGST Act
The appeal is disposed off in the above manner,
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