In re Cummins India Limited (GST AAAR Maharashtra)
Salary cost to be included in valuation for cross charge for supply of services between head office and branch office or vice versa
The AAAR, Maharashtra in the matter of M/S. Cummins India Limited [Advance Ruling No. MAH/AAAR/AM-RM/01/2021-22 dated December 21, 2021] held that head office using all its human resources to facilitate the operational requirements of the branch offices/units by way of procuring common input services on behalf of the branch offices/units thereby, providing the services, therefore, allocation and recovery of any amount including its employees salary cost from the branch offices/units will be subject to GST. Hence, the allocation and recovery of the salary of the employees of the head office from the branch office/units will be subject to GST.
Facts:
M/s. Cummins India Limited (“the Appellant”) is engaged in manufacture and sale of a variety of diesel engines, parts thereof, and related services, and undertake all day-to-day activities required therefore. The branch office/units as well as the head office of the Appellant, receives certain common input supplies on behalf of multiple/all of its units registered distinctly under GST and are procured on payment of GST and credit thereof is availed by receiving unit/head office. The Appellant sought the advance ruling on the issues w.r.t. classification of engine manufactured by the Appellant and Levy of GST on facilitation of common input services, necessity of registering as an ‘Input Service Distributor’ (“ISD”) and determination of assessable value.
This appeal has been filed against the ruling passed by the AAR, Maharashtra in Advance Ruling No. GST-ARA-66/2018-19/B-162 dated December 19, 2018 holding availment of Input Tax Credit (“ITC”) on common input supplies on behalf of other unit / units registered as distinct person qualifies as supply and attracts GST. Further, it was held that, the assessable value shall be arrived in terms of Rule 30 of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) i.e. 110% of the cost of provision of such services) and the Appellant is required to obtain registration as ISD.
Issues:
1. Whether availment of ITC on common input supplies on behalf of other unit/units registered as distinct person, and further allocation of the cost incurred for same to such other units, qualifies as supply and attracts levy of GST?
2. Whether the allocation of the cost of the employee’s salary by the Head Office to the branch offices would attract levy of GST?
Held:
The AAAR, Maharashtra in Advance Ruling No. MAH/AAAR/AM-RM/01/2021-22 dated December 21, 2021 held as under:
