1. Introduction to Multi-Locational Entities :

a) As per the provisions of section 22(1) Every supplier shall be liable to be registered under GST Act in the State or Union territory, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds prescribed limit.

Prescribed limit form 1st April 2019:

Aggregate Turnover

Registration Required if

For Sale of Goods

Normal Category States

Exceeds Rs.40 lakh
Special Category States Exceeds Rs.20 lakh

For Providing Services

Normal Category States Exceeds Rs.20 lakh
Special Category States Exceeds Rs.10 lakh

For the purposes of this sub-section, a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

GST Audit

How the Aggregate Turnover is calculated?

The expression “aggregate turnover” has been discussed in detail under section 2(6) of the CGST Act which may please be referred for the scope and coverage of the term “aggregate turnover”. Aggregate Turnover is PAN based and Not State/ Union Territory based.

 In the below table, illustrations have been provided to understand how aggregate turnover is calculated and what will be the requirement of registration in case of sale of goods-

 Illustration 1

State Turnover Registration Requirement
Maharashtra 37,00,000 Since the turnover of the entire entity exceeds 40,00,000, (37,00,000+5,00,000) registration will be required in both the States
Delhi 5,00,000

Illustration 2

State Turnover Registration Requirement
Maharashtra 17,00,000 Since the entity has presence in special category State, the threshold limit is only Rs.20,00,000. Since the entity crosses such limit, registration will be required in both the States.
Manipur 5,00,000

b) Separate registration for multiple places of business within a State or a Union territory can also be taken separately if the conditions specified in rule 11 are satisfied.

Therefore, it is important to note that there are more than one kind of multi-location entities:

  • Registered branches in two different States / UTs;
  • Registrants within the same State, as business verticals or otherwise;
  • Business locations outside India;
  • Branches in a State that are found liable to register but are not registered

A proper reading of section 22 read with section 25 helps us to understand that a State is the smallest registrable unit in GST.

2. Operation of the schedule I :

Due to the operation of the schedule I of the CGST Act, it is possible that a transaction that takes place between two branches of the same ‘Entity’ becomes liable to tax.

a) Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business even if made without consideration.

b) Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business made without consideration.

3. Audit requirement :

When an Entity has registrations in more than one State / UT, each unit/branch is treated as a distinct person in terms of Section 25(4) and 25(5) of the CGST Act and each of these units is required to get its records audited under the GST Laws. (If falling under GST audit criteria).

However, the following taxable person are not required to be audited:

  • Input Service Distributor
  • A person paying tax under Section 51 or Section ( i.e. TCS and TDS)
  • A casual taxable person
  • A non-resident taxable person

4. Important aspects that should keep in mind while doing audit of Multi-Locational Entities:

a) According to Section 35 of CGST Act, every registered person is required to maintain books of accounts, records and other documents. However, problem may arise when the principal place of business holds or maintains all the books and records because it will be very difficult to find specific transactions and file those in returns or statements. For example: Physically Goods transferred from Maharashtra to Gujrat but the same has not been recorded in books of accounts. In this case, it has to find out from other sources like Delivery challan, E-way bill or any other documents maintained.

b) Where common costs are incurred by the one unit of multi-locational entity in respect of all units, required to be allocated between the units based on the turnover of each distinct person, or based on manpower deployed, or any other suitable cost-driver. However if any special cost is incurred by the unit then it should be allocated to that unit only. For example: GSTIN-wise allocation of staff cost, Cost incurred commonly at or by the Head Office, such as Marketing and Brand Building Costs.

c) Many enterprises use infrastructure facility available in a centralized location, back-office or support office either in respect of Information Technology, Finance, Accounting, Human Resource or Personnel, Corporate Management, etc. These costs are required to be allocated based on ‘end use’ instead off on the basis of turnover. Such allocation should also be a subject matter of valuation under the GST law. For example: Head Office could be providing support to branches, such as Centralized Accounting Services; HR Services etc.

d) Where the transaction has been made by the registered office with the branch which fails to obtain registration under GST, it’s become a very difficult to ensure completeness of reporting by the registered head office.

e) The accounts must be specifically examined for understanding how the accounts have been derived by the Registered Person and ensuring their correctness as there could be errors/ mistakes/ accounting mismatches. For example: Turnover of one registrant could be accounted as turnover of another registrant. Though the financial statements would not have any impact for the entity as they are mutually cancelling each other.

f) The auditor has to ensure that the inter-unit / branch accounts are reconciled at the end of the year for verifying their correctness and completeness. For example: Ensuring relevant GSTR 1 are matched with GSTR 2A and required to identify and obtain confirmation letters form the management where GSTR 1 and GSTR 2A remain unmatched.

g) Many times transactions that are inter-branch supply of services or cross-charge of services, they are often treated as ISD supplies and credit is distributed with same HSN.

h) In case where GSTN wise trial balance is not maintained for the entity, even though it has multiple GSTINs, the Auditor is required to ensure that the data of GSTIN wise turnover is extracted matches with the audited financial statements.

i) Auditor is required to obtain communication from the other Auditors of the Registered Person furnishing above reconciliation for other States/UTs.

j) Valuation of inter-locational transactions should be in accordance with Rule 28 where an input tax is restricted in the hands of the recipient, Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

k) There are many contracts which may be undertaken by a Legal Entity with a third party, whereas, its execution may require ‘supply’ from different locations. The inter play of supplies between branches is required to answer the correct tax payable or input tax credit availment / available for a taxable person.

l) Identification of branches in a State that are liable to register but are not registered.

m) As the AAR and the Appellate Authority have been instituted under the respective State / Union Territory Act and not the Central Act, the ruling given by the AAR and AAAR will be applicable only within the jurisdiction of the concerned state or union territory. For example: An advance ruling in case of an applicant in Kerala cannot be made applicable to another division of the same company located in Karnataka.

 5. Conclusion:

Lot many issues may arise in a real time business environment, points covered in the article are just illustrations. Adequate checks and balances must be employed to exercise caution and care while reporting such transactions.

Note: The views expressed are personal and contents of this document are solely for informational purpose. Any suggestions, rectifications, amendment or further clarifications in regard of this article will be accepted on daga.sandeep92@gmail.com.

Author Bio

Qualification: CA in Practice
Company: S R Daga and Associates
Location: Aurangabad, Maharashtra, India
Member Since: 24 Apr 2020 | Total Posts: 4

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  1. Parth shah says:


  2. KUSUM JAIN says:


  3. Mohit says:

    Very well explained and nice drafted section wise covered all points related to it… very good brother …. looking for more articles …

  4. Kallesha Murthy K N says:

    Your effort in explaining in a simple way towards auditing points is appreciable.
    Thanks for the same.
    Here I wish to note that you have taken the revised threshold limit from April 2019 and in the explaining under illustration -2, that the registration limit for Maharashtra at Rs. 17,00,000-00 and stated as it is under special category State. Is Maharashtra has been classified as special category State!. It is coming under normal category State. This may confuse the readers.

  5. manoj kumar says:

    good article but it would be more better because after reading, the reader not reached somewhere.
    as like
    1. what precaution should do
    2.what should be filled with columns and what precaution required in reconciliation

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