Now GST applicable on in-house services delivered by one office to branches across states

The Karnataka Authority of Advance Rulings has ordered that the services offered by one office to branches in other states will be treated as “ supply” and shall attract goods and services tax (GST). The ruling emphasises that the companies with branches in various cities need to raise invoices and pay GST for in-house services. The ruling is likely to increase the compliance burden for businesses spread across states. According to the rule, a large office with its head office that has the entire finance, IT and HR functioning in a centralised manner for offices in other states, would be required to raise invoices charging GST for providing support services to other locations. The Authority of Advance Rulings (AAR) has stated that the activities rendered by the main head office shall be treated as per Entry 2 of Schedule I of the Central Goods and Services Tax (CGST) Act. It has also been held that the employee cost incurred at the corporate office should be considered while arriving at the value of goods and services provided by such offices to other locations. The ruling has led to a lot of confusion especially for those businesses that are into exempt or non-GST supplies, such as healthcare, education, petroleum, and liquor, as these companies may be required to charge GST on notional head office employee costs as well, with credit for such GST not being available to the recipient branch or company.