Managerial and leadership services to site offices/group companies taxable under GST: MAAR

Shishir Sinha New Delhi | Updated on September 22, 2021

Ruling poses challenges for corporates with offices and employees in various cities

The managerial and leadership services by a Corporate Office to its Group Companies and other construction sites registered in different States is considered as supply of service and would be taxable under GST, the Maharashtra Authority for Advance Ruling (MAAR) has said.

This ruling appears to be taking a step forward from Karnataka’s AAR ruling in the matter of Bengaluru-based Columbia Asia Hospitals where it was said that services by staff in main office for branches in other States will attract GST. This was upheld by the Appellate Authority and is now pending before the Karnataka High Court, which has listed the matter on September 27.

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Although AAR rulings are binding only upon applicant and jurisdictional officer they can be referred to in similar matters. Also, the Tax Department takes cognizance of such rulings in changes of rules and regulations. Experts feel that the MAAR ruling poses serious challenges for corporates having offices and employees in various cities.

‘Separately registered’

In the latest instance, Pune-based BG Shirke Construction Technology Private Limited supplies managerial and leadership services to its branch office and group companies, which are distinct and related persons, respectively, and receives fixed monthly charges from each of them. Now the key questions on which ruling was sought were whether the managerial and leadership services provided by the registered/corporate office to its group companies can be considered as supply of services and whether lump sum amount charged by the head office will be liable for GST.

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AAR noted that the only reason the applicant feels that such services are not taxable is because they are treating their group companies as well as their site offices as employees. However, this was not accepted.

“The site offices are independent offices separately registered under GST laws. Similarly, the group companies are also separately registered under GST laws since both the site offices as well as group companies cannot be treated as employees,” it said while ruling that the services by applicant are taxable under GST laws. “The applicant will have to pay GST on the lump sum charged by them to their Group Companies,” it said.

A practical challenge

Rajat Mohan, Partner with AMRG & Associates, said that this pronouncement is on the lines of the previous Karanataka AAAR ruling on Columbia Asia, extending the logic a little further to group companies. “This ruling will have severe repercussions for corporates operating through a network of multiple companies, whereby tax is payable on managerial and leadership services supplied from the corporate office to all group companies. Accurate valuation and estimation of such administrative and leadership services on a monthly/quarterly basis will be a practical challenge,” he said.

Published on September 22, 2021

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