CBIC examining the issue related with Cross Charge i.e. taxability of activities performed by the office of an organisation in one State to the office of that organisation in another State.
The Central Board of Indirect Taxes & Custom (CBIC is examining the issue related with Cross Charge i.e. taxability of activities performed by the office of an organisation in one State to the office of that organisation in another State.
Cross charges mainly involves remuneration paid to Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Experience Officer (CXO), besides other top management officials and also related to officials and employees of departments such as human resources and accounting officials sit in company headquarters, but provide services to all the offices set up in other places. The issue here is how tax can be calculated according to place of supply.
In an interview to Business Line, CBIC Chairman Vivek Johri said the issue is whether it is taxable because under the GST law if any payment is made under an employer-employee relationship, then it is not chargeable to GST. This part is clear. It is not treated as supply of service for the purpose of GST because of employment contract.
“The issue here also happens to be that CEO, CXO or CFO is employed by main entity and not by a particular GSTent. So, the main entity may have registration across several states and the problem is the attribution of that liability across different registrations. This issue needs clarification and we are examining it,” he said.
A long-drawn confusion
CBIC has received many representations seeking clarifications on the taxability of activities performed by the office of an organisation in one State to the office of that organisation in another State which are regarded as distinct person under section 25 of the CGST Act 2017 and of the supply of services between such distinct persons.
The Law committee had proposed to clarify the issues regarding distribution of Input Tax Credit in respect of input services procured by the Head Office but attributable to the Head Office and / or various branch offices, treatment of expenses incurred by the Head office on the procurement, distribution and management of common input services, treatment of services provided by Head Office such as common administration or common IT maintenance to its branch offices and its valuation thereof etc.
A draft circular was annexed to agenda in the 35th GST Council meeting in 2019 for the meeting clarifying the doubts on the subject to seek approval of the GST Council for the issuance which said GST law considers head office located in one State and branch office located in another as a distinct person. It reiterated that where a taxpayer registered in different States is a distinct person: “An employee of a Head Office (registered as a separate entity) does not provide any service to a Branch office, rather the Head Office provides service to the Branch Office.”
Accordingly, it is not just the salary of an employee sitting in Head Office and providing services like administrative work by top management. Accounting, IT, human resource, branch offices in other States that will attract 18 per cent GST, but overall cost incurred by the Head Office in providing the service, which includes the salary.
The Principal Commissioner (GST Policy Wing), CBIC, stated in the 35th GST Council meeting that during the Officers meeting held on 20th June, 2019, there was no agreement on this Agenda item. The State of Punjab had expressed apprehension that by issuance of this circular, almost 90% taxpayers might become non-compliant for their past practice as the CGST Act did not make Input Service Distributor (ISD) provision compulsory. He also expressed that revenue implication was not much as input tax credit would be availed except where the taxpayers were dealing in exempted goods, such as Food Corporation of India. He further informed that the State of Karnataka had suggested not to issue any circular where the Authority for Advance Ruling had given a ruling. He stated that in this view, during the officers meeting on 20th June 2019, it was recommended to defer this agenda item for further examination by the Law Committee. The Secretary suggested that the Council could agree to this suggestion. The Council agreed to the same.
The Council approved to defer its consideration and the Law Committee to examine it further.
Since then, the matter is yet to move forward. Experts feel a clarification needs to be issued further as any employee, for all practical purposes, is always considered as an employee of the entire company/organisation. This is true under labour law and other employment regulations as well. Further, there is a strong view that just because the GST law recognises offices of same company in different States as separate entities, it cannot be construed that an employee sitting at one location is rendering services to other locations liable to GST.
Source: Business Line
