Supply is a taxable transaction for the purposes of taxation under GST. The obligation to pay tax occurs as the time goods or services are supplied. As a result, identifying whether or not a transaction comes under the meaning of supply is important in determining whether or not GST applies.

CONCEPT PRIOR TO GST

There was no definition of supply in the previous indirect tax system. Under various tax laws, the point at which indirect taxes were levied differed. When goods were carried out of the warehouse, they were subject to an ‘excise duty.’ For service provided, a ‘Service Tax’ was imposed based on a set of laws known as the ‘point of taxation rules. A VAT will be imposed on the number of goods sold or services rendered. To retain a single taxable activity, the current scheme has combined all taxes.

SUPPLY UNDER GST

Section 7 of the CGST Act was revised in the Union Budget of 2021 to provide a new provision under the scope of supply. Activities or transactions in which a person, other than an individual, provides goods or services to its members or constituents in exchange for cash, deferred payment, or other beneficial consideration. Previously, this supply may have been treated as the sole supplier of commodities under Schedule II. As a result, the scope has been widened.

According to an order released by the Authority for Advance Ruling’s Karnataka bench (AAR). Under the GST rule, the operations between the two offices are considered supplies. It stated that all expenses, including employee expenses incurred by one distinct entity to other distinct entities, would be included in the supply valuation. 

Salary for services such as accounting, IT, and human resources rendered by a company’s head office to its branch offices in other states would be subject to 18% GST.

“According to AAR, “accounting, other administrative, and IT system management activities performed by employees at the corporate office in the course of or in relation to employment for units based in other states, i.e. distinct persons as defined in Section 25(4) of the Central Goods and Services Tax Act, 2017 (CGST Act), shall be treated as supply as defined in Entry 2 of Schedule I of the CGST Act.”

According to experts, the decision would force businesses with offices in several states to raise GST invoices for services done by staff in the head office which helped subsidiaries in other states. While the GST paid on such materials can be used as an input tax credit (ITC), companies that are not subject to GST will not be entitled to do so.

RECENT DECISION BY AAR

Any expenses incurred by Indian employees and then claimed from the holding firm should be taxable under GST, according to a recent decision by the Tamil Nadu Appellate Authority for Advance Ruling (AAR). 

Employees of an Indian subsidiary’s credit card expenses would be subject to the Goods and Services Tax (GST). The AAR mandated the imposition of GST on the Holding Company’s repayment of expenditures. According to AAR, the offer made on behalf of the subsidiary business amounts to advance consideration for services rendered by the subsidiary company.

ICU Medical India LLP, a subsidiary of ICU Medical Inc., was involved in the case.

According to the facts of the case, the holding company-issued credit cards to the subsidiary’s employees for business-related expenses both within and outside India. The Indian branch will then claim it as part of the holding company’s reimbursements.

The concern was whether those reimbursements are subject to GST. The AAR determined that the holding company is supplying credit services to the Indian arm for the purpose of expanding industry, which falls under the definition of supply in GST. Moreover, since the above services count as imports of services, the subsidiary is responsible for paying 18% GST.

CONCLUSION

According to the AAR, the holding company is providing credit services to the Indian subsidiaries for the purpose of expanding business, which comes under the concept of supply in GST, and the subsidiary is responsible for paying 18 percent GST as imports of services.

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