Cross charge, a term coined by the GST professional fraternity, is levied on the transaction between the Distinct persons as defined u/s 25(4) of the CGST Act, 2017. The relevant provisions that give force to this levy are Section-7, Section 25(4), Section 15 read with rule 28 and entry no. 2 of Schedule I to the CGST Act which gives the life to this nuisance of GST laws which is making inroads into the legitimate and intricately related essential activities of an organization such as common accounting services being provided by the staff at corporate office in respect of the working of different branches of a company which, but for such provisions, are not exigible to GST.
Such a wide connotation of GST provisions (pertaining to cross charge) unnecessarily intrudes into the business activities of a concern and categorically shows the desperation on part of the government to extract GST from every nook and corner possible. Although most of the professional may contend that the ITC is duly allowed for cross charge but my humble submission is that it also causes the blockage of working capital of the company. Besides, it also puts unwarranted compliance burden on the company.
Notwithstanding the strong legal backing and approval of the professional fraternity (which might arise due to need to play safe), I would humbly submit that such a forcible penetration of cross charge into usual business transactions as mentioned supra seems exaggerated utilization of legislative powers founded on shrewd tendency to encroach upon unchartered territory and disturbing the sanctity of internal transactions imperative for the smooth conduct of the business and seems offensive to the interest of the taxpayers. Furthermore, the extensive and amplified inference and application of the term “in the course or furtherance of business” has added fuel to the fire as everything that takes place inside the business premises is done in the course or furtherance of the business. However, the entry no. 2 of the Schedule -I seems directed towards such transactions wherein there is apparent intention of the distinct persons to indulge in trade whilst undergoing the modalities of trade as in ordinary course of business with unrelated parties. Such provisions might have been included to avert an untoward situation wherein the taxpayer while indulging in supply with its branches etc. might avoid paying tax in the guise of being branches of the same entity. But the unbridled application of cross charge even on routine transactions between distinct persons by the professionals have created a mist of ambiguity over the issue concerning the scope of cross charge.
One of the pertinent facts to be contemplated in this regard is the doctrine of mutuality i.e no one can do business with himself. Hence, if of an accountant sitting in Delhi also records the transactions of a branch in Mumbai in the books in maintained in Delhi can, by no stretch of imagination, be said to be supplying services to Mumbai branch on behalf of Delhi Branch. As such, barring a few transactions carried out in the ordinary course of business this concept i.e cross charge cannot be extrapolated and applied everywhere indiscriminately. This is not the case of one size fits all.
Moreover, the ratio decendi of the ruling given by the Supreme Court in case of State of West Bengal Vs Calcutta club [2019]110 taxmann.com 47/76 GST614(SC) is pertinent to note crux whereof is that since the member of club and the club itself are one and as such, there can be no sale between them. The same analogy can be imported into matter in hand and to a limited extent it can be logically inferred that since different branches/offices of an entity work hand in hand to achieve a common goal albeit having different registrations due to statutory compulsions, they inevitably continue to be inseparable and constitute one entity undertaking myriad of end number of transactions in its day to day business.
Furthermore, measuring such transactions is an arbitrary, absurd and unjust exercise notwithstanding the rules provided for the pecuniary measurement of such transactions under GST law.
To conclude, it can be said that the time is ripe for professionals to think out of box and derive the purposive construction of the given provisions and to read it more judiciously. We may need to flex the brain muscles to take the stubborn revenue authorities head on to take the matter to its logical conclusion.
I do understand that my humble submission may be subject to severe criticism and is prone to debate or may be ridiculed as well. Nevertheless, it is a gray area due to the dearth of judicial pronouncements on the matter but having scope of different interpretation. Besides, my only endeavor has been to ignite a thought process by simply putting forth a humble contention to nudge our intellectual faculties to ponder over the issue for the benefit of tax payers and to challenge exaggerated application of rigorous provisions of GST law thereby prompting our professional brothers to bring cross charge at the crossroads to settle its rigors once and for all.
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Disclaimer: Above discourse is the product of my study, research, self-analysis and understanding of the bare provisions and perusal of other related resources and is being presented for the simplified understanding of the readers and in no way constitute advise or consultancy. As such, the readers are advised to apply their own discretion and go through the law as prevailing at the time of reading the article and take professional advice, if needed, before taking action based on this discourse.
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Excellent article sir, fully agree with your views