Source: Alankit GST Team     Aug 18, 2018

The Authority for Advance Ruling (AAR), Karnataka has recently held that the salary for services like accounting, IT, human resource, provided by the head office of a company to its branch offices in other states will attract 18 per cent tax under the present Goods and Services Tax (GST) regime.

The applicant, a private limited company engaged in providing health care services categorizing them as In-patient (IP) and Out-patient (OP) services. The applicant sought for a clarification regarding its tax liability on the activities performed by the employees at the corporate office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states.



The Authority noted that any activities made between related persons made or agreed to be made without a consideration shall be covered under supply of goods or services.

“The valuation of such services is to be done as per the provisions of section 15 of the Central Goods and Services Tax Act, 2017 and if any consideration is charged by issue of invoice by the IMO to the respective units would amount to transfer and hence supply as it is in the course of business under clause (a) of sub-section (1) of section. Further, these activities made between the IMO and the separately registered units are not covered under any of the entries in Schedule III,” the authority said.

According to the authority, the activities performed by the employees at the corporate office in the course of or in relation to employment, the employees employed in the Corporate Office are providing services to the Corporate Office and hence there is an employee-employer relationship only in the IMO. The other offices are distinct persons and therefore the employees in the IMO have no employer employee relationship with other offices.

“The services provided to the employer, i.e. the corporate office by the persons employed by the corporate office are in the nature of the employee-employer relationship. Further, since the corporate office and the units are distinct persons under the Act, there is no such relationship between the employees of one distinct entity with another distinct entity, at least as per the Goods and Service Tax Acts, even if they are belonging to the same legal entity,” the authority said.

“Further, the activities made between the related persons are treated as supplies and the valuation includes all costs, the employee cost also needs to be taken into consideration at the time of valuation of goods or services provided by one distinct entity to the other distinct entities,” it said.