GST Applicability on Supply of Employees Services to Inter State Units
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Facts
- The Company is operating in six different states with Corporate office at Karnataka;
- The employees employed at Corporate Office i.e. Karnataka do certain activities with respect to accounting, administration and maintenance of IT system etc. for all other units situated in other states;
- The company admits that activities carried out by employees from its corporate office for other units amount to supply of services between distinct persons without consideration as per Entry 1 of Schedule I.
- It should not be treated as supply due to specific relaxation provided in Entry 1 of Schedule III which states that “services by an employee to the employer in course of or in relation to his employment shall be neither treated as a supply of goods not a supply of services.
- These employees belong to company as a whole and cannot be confined to location of registered person in one state only from where the said employee renders services.
With these facts and understanding of GST law, the company went to the Authority with the following question on which advance ruling was sought:
Ruling by Authority
The Authority, after considering & examining the facts and hearing the learned representative of the company has held that:-
- The employees employed in the Corporate Office are providing services to the Corporate Office and hence there is an employee-employer relationship only in the Corporate Office.
- The offices in other states are distinct persons and therefore the employees in the Corporate office have no employer employee relationship with other offices.
- Further, since the corporate office and the units are distinct persons under the Act, there is no such relationship between the employees of one distinct entity with another distinct entity, at least as per the Goods and Service Tax Acts, even if they are belonging to the same legal entity.
- Accordingly, it is held that 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.
Take away from this ruling
In cases, where a legal entity has multiple state GST registrations, the services rendered by employees of one state GST unit / Head Office to other States GST units would amount to supply and accordingly businesses need to assess the GST tax implications on such supplies based on valuation u/s 15 of CGST Act.
CA Sanjay Jain
Disclaimer:-
This article is authored for general awareness purpose and do not represent any financial, legal or professional opinion or advise in any manner for any purpose whatsoever.
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