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Clarification of ISD vs Cross charge

Kusum Gandhi , Last updated: 01 August 2023  
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Clarification on taxability of transactions between an office of an organization in one State to the office of that organization in another State, both being distinct persons vide Circular No. 199/11/2023 dated 17-July 2023

There was need of clarification on the taxability of activities between distinct persons under section 25 of CGST Act, 2017. As in the ruling of Columbia Asia Hospitals, it was ruled that the cost of an employee of the head office will have to be cross charged to other branch offices created disputes, particularly where BOs cannot avail credit.

Clarification of ISD vs Cross charge

1. Distribution of ITC of common Input services procured from 3rd Party

Issues

Clarification

Whether HO can avail 'ITC' of common input services procured from a 3rd party but attributable to both HO & BOs / exclusively to one or more BOs, and issue tax invoices u/s 31 to the said BOs for the said input services & BOs can then avail ITC for the same?

OR

Whether it is mandatory for the HO to follow ISD mechanism for distribution of ITC in respect of common input services?

HO has an option to distribute ITC in respect of such common input services by following ISD mechanism as in Section 20 of CGSTAct read with rule 39 of the CGST Rules.

As per the present provisions of the CGST Act & CGST Rules, it is not mandatory for the HO to distribute such input tax credit by ISD mechanism.

In case, the HO distributes or wishes to distribute ITC to BOs through the ISD mechanism. HO is required to get itself registered mandatorily as an ISD u/s 24(viii) of CGST Act.

Distribution of ITC in respect of common input services through ISD mechanism or cross charge can be done only if the said input services are attributable to the said BOor have been provided to the said BO.

 

2. Full input tax credit available to the concerned BOs for internally generated services

Issues

Clarification

Whether the HO is mandatorily required to issue invoice to BOs u/s 31 of CGST Act for such internally generated services?

whether the cost ofsalary of employees of the HO involved in providing said services to the BOs, is mandatorily required to be included while computing thetaxable value of the said supply of services provided by HO to BOs. ?

In respect of supply of services by HO to BOs, the value of the said supply of services declared in the invoice by HO shall be deemedto be OMV of such services, if the recipient BO is eligible for full input tax credit. irrespective of the fact whether cost of any component of such services, like employee cost etc., has been included or not in the value of the services in the invoice.

If HO has not issued a tax invoice to the BO in respect of any particular services being rendered by HO to the BO, value of such services maybe deemed to be declared as Nil by HO to BO, and may be deemed as OMV in terms of second proviso to rule 28 of CGST Rules .

 

3. Full Input Tax Credit not available to BOs for internally generated services

Issues

Clarification

Whether the cost ofsalary of employees of the HO involved in providing said services to the BOs, is mandatorily required to be included while computing the taxable value of the said supply of services provided by HO to BOs?

Cost of salary of employees of the HO, involved in providing the said services to the BOs, is not mandatorily required to be included while computing the taxable value of the supply of such services.

Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. No part of this article should be distributed or copied without the express written permission of the author.

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Published by

Kusum Gandhi
(AGM)
Category GST   Report

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