18.04.2023: GST would be leviable on services by a branch office to head office or vice versa, provided through the common employees: Tamil Nadu AAR

The Tamil Nadu Authority for Advance Ruling (AAR) in the case of Tvl.Profisolutions Private Limited vide Advance Ruling No. 07/ARA/2023 dated 31.03.2023, has ruled that the services, including those of common employees of a person, provided by branch offices to the head office and vice versa, each having a separate GST registration, would attract GST.

In this case, the applicant is registered under the Companies Act 2013 in the state of Karnataka has a branch office in Chennai which is registered in the state of Tamil Nadu under the GST Act for providing engineering services for industrial and manufacturing projects.

The branch office of the applicant is providing support services like engineering services, design services, accounting services, etc. to the head office in Bangalore and is also registered in the state of Karnataka under the GST Act.

The applicant sought an advance ruling on the issue of whether providing service from a branch office in one state to the head office in another state through employees who are common to the company constitutes a supply of service in terms of Section 7 of the Act and, if so, whether such services attract GST liability.

The applicant stated that the employees are appointed and working for the company as a whole and not employed for the head office or branch specifically, while recognizing the legal position that the head office and branch office are distinct persons under GST. It is obvious that the service of an employee working in a branch flows only through the branch to the head office or customer. As long as the employee is deployed in a branch of an entity, his services that are rendered directly to the head office will be in his representative capacity as an employee of the branch. 

The AAR noted that comprehensive reading of the provisions of section 25(4), Section 7 read with Schedule I (2) and Section 15 of the CGST Act, 2017, any supply of service between two registrations of the same person in the same State or in different States would be treated as supply and attract GST, as the employees would be treated as related persons in terms of explanation to Section 15.

The AAR noted that Schedule I (2) to the CGST Act, 2017 states that ‘supply of goods or services or both between related persons or between distinct persons, as specified in Section 25, when made in the course or furtherance of business, is to be treated as a supply even if made without consideration. 

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