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GST on common expense : Advance ruling

CA Pradeep Kumar Rajput 
on 20 August 2018

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Recently the AAR has delivered something which is common for the GST thinkers and the one working with the corporates with the better accounting practices and not so common for the layman and the small and medium companies.

Yes, I am talking amount the recent pronouncement by the Authority of Advance Ruling Karnataka in response to an application filed by the Columbia Asia Hospitals Private Limited.

If we go one step further then this pronouncement has thrown the light on the apportionment of the common expenses from the one state to the other state which is not so common these days. And also each states GST registered business is a different person.

So what are those expenses that need to be apportioned at the corporate office to the branch or the business unites in one state to the other states. Few of them are as:

1. Salary (Accounting Dept, IT Dept, HR Dept and Admin department if these activities are centralized).
2. Common welfare expenses of the above departments.
3. Common administrative expenses of the above departments.
4. Proportionate rent.
5. Different types of audit fees.
6. Centralised legal expenses.
7. Advertisement & Publicity.
8. Other expense which cannot be attributed to the branch/state specific.

Though this practice is not a new to most of the MNC’s and the big and better tax compliant corporates, as they are already doing this for their MIS and internal reporting in the form of cross charging of the common allocable expenses. But the problem lies at the medium and small corporates who are not very familiars with this kind of accounting practices and having their business presence in the more than one state.

Here are the few steps that are going to help in the allocation of the common expenses among different state units:

1. Prepare the books state and cost center wise even the smallest software allows this facility.
2. Identify the different cost centers which are facilitating the services to the different states.
3. Create a suitable apportionment basis to allocate the cost to the different state and cost center.
4. The apportionment shall be done by way of raising the invoice form one state to the other state.
5. The working note for these invoices shall be very well prepared and reviewed as there types of invoices are going to be reviewed by all the auditors’ i.e Statutory auditors, Internal Auditor, GST Auditors and the departmental auditors.
6. Filing of the GST return and inclusion of these invoice in the form GSTR-1.
7. Payment of the GST on such invoices value in one state and claiming the credit on the other state.
8. Checkpoint shall be developed so that the effect of these invoices should not alter the actual revenue or expenses of the entity as a whole.
9. Separate invoice series shall be maintained for these kinds of the invoices.
10. Proper Placement of these invoices in the GST annual return.


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