Maharashtra Authority for Advance Ruling (‘AAR’) in the case of M/s B.G. Shirke construction Technology Pvt. Ltd. has ruled that Managerial or leadership services provided by the head/ corporate office to its group of Companies and branches are taxable in the hands of head/ corporate office as service provided to distinct entities/related persons. Captioned ruling has been analyzed in this update.
A. FACTS OF THE CASE
B. QUESTIONS BEFORE THE AAR (relevant extracts)
C. CONTENTION OF THE APPLICANT
D. RELEVANT LEGAL PROVISIONS REFERRED
E. OBSERVATION AND RULING BY THE AAR
Y. Our comments
AAR resonates the view that provision / usage of services rendered by employees of one GST registration to another would qualify as a supply. Similar view was also taken in the ruling of Columbia Asia Hospitals Pvt. Ltd in which it was ruled that the activities performed by the employees at the corporate office in relation to centralized functions such as accounting and other administrative and IT system maintenance for the units located in the other states shall be treated as supply and GST would be chargeable on all such services.
The above ruling would majorly impact the conglomerates in India as it will lead to levy of 18 per cent GST on the inter-company services in the form of managerial and leadership services irrespective of whether consideration has been charged for the same or not. Though there is merit in the argument that leadership/ managerial employees are for the whole legal entity and does not belong to any office in particular. Further since, the services by employee to employer is outside the preview of GST, requirement to cross-charge salary costs is unwarranted. In view of aforesaid ruling, it is imperative for the government to clear the air through clarificatory circular.
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