UJA Research Team
We hereunder providing brief update to all of you regarding some recent updates in GST.
Taxability of cost sharing between corporate office & it’s branches/ divisions in other states:
An Advance ruling given by Karnataka AAR in the matter of “Columbia Asia Hospital” held that 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 other states as well i.e. distinct person as per section 25(4) of CGST Act, 2017 shall be treated as supply as per Entry 2 to the Schedule I of the CGST Act.
Explains that services provided to employer. i.e. corporate office by persons employed by corporate office are in nature of employee-employer relationship, falling under Entry 1 of the Schedule III
However, since corporate office and units (having separate registrations) are distinct persons, there is no such relationship between the employees of one distinct entity with another distinct entity, at least as per GST Act, even if they are belonging to same legal entity; As regards applicability of Entry 2 of Schedule I to activities of accounts and management done by corporate office for individual units located both within and outside the State.
The employee cost also needs to be taken into account at the time of valuation of goods/ services provided by one distinct entity (i.e corporate office) to other distinct entities.
Taxability of Intermediary service under GST:
The ABC company based in India imports steel and supplies to their customers in India. Sometimes, the customers wants to buy directly from ABC company’s international supplier in US dollars. In such trade practice, ABC company take some sales commissions from the international supplier and quote prices to the end customer. Whether ABC company will have to pay GST under reverse charge mechanism for the commission received from the international supplier in their bank account after completion of shipment.
The service provided by ABC is that of an intermediary. As per 2(13) of the IGST Act, 2017, “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both, or securities on his own account.
The following aspects need to be noted:
i) An intermediary arranges or facilitates supply of goods or services or both, or securities between two more persons.
ii) Two supplies are generally involved:
a. Supply between the principal and the third party; and
b. Supply of his own service to his principal – generally for a fee or commission;
iii) An intermediary cannot alter the nature or value of supply, which he facilitates on behalf of his principal;
iv) The consideration for an intermediary’s supply is separately identifiable from the main supply that he is arranging and is in the nature of fee or commission charged by him;
v) The test of agency must be satisfied between the principal and the agent i.e. the intermediary;
An advance ruling is given by AAR West Bengal. In the GST Act, export of service is required to qualify five basic conditions. One of those conditions is that place of supply should be outside India. Section 13 of IGST Act provide for the place of supply in case of services when any of recipient or provider of service is located outside India. Section 13(8) (b) enumerates the instances when the place of supply will be the location of the supplier. In case of intermediary services, the location of the supplier will become the place of supply.
Treatment of commission income of the intermediary:
An intermediary shall charge commission from the principal for the services rendered on his behalf. The commission will be subject to GST.
For e.g. – Mr A is an intermediary, registered under GST, and charges commission from the principal for the supply of services on behalf of the principal. In that case, Mr A will have to make a tax invoice in the name of the principal at the end of every month and charge GST. If in a particular month total value sale is Rs. 2,00,000/- and Mr A’s sharing with the main principal is in the ratio – 80 : 20, then Mr A will get commission of Rs. 40,000/- plus GST @ 18%. Invoice will be raised for Rs.40,000/- plus GST @ 18%.
Request all of you kindly note the same, pls revert for any doubts.