The Central Board of Indirect Taxes & Custom (CBIC) has said it is examining the issue related with taxability of activities performed by the office of an organisation in one State to the office of that organisation in another State.
Technically, it is called cross charges and 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.
These 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 BusinessLine, 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
This matter has been under litigations for some time. AAR rulings have been in favour of tax department. In fact, the issue was included in the 35th GST Council meeting in 2019. A draft circular was circulated for the meeting 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. However, the draft did not get the go-ahead at the officer-level meeting and it was suggested that the matter be further examined by the Law Committee. This was approved by the GST Council.
Since then, the matter is yet to move forward. Experts feel a clarification needs to be issued further. According to Harpreet Singh, Partner, Indirect Tax, KPMG, 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. “Accordingly, 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,” he said.
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