Services provided by branch office to HO and vice-versa to attract GST, says TN AAR

Services provided by the branch office to the head office and vice versa, each having separate GST registration, will attract GST, says Tamil Nadu’s Authority for Advance Rulings (TN AAR). Experts say such rulings will result in more and more litigations.

The applicant, Profisolutions Private Limited, is a Bengaluru-based company with the branch office in Tamil Nadu, having registered under GST law in their respective States. The company moved to TN AAR to get advance ruling on whether providing service by 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 GST law. And, if the answer is yes, then whether such services will attract GST, the company sought to know.

In its submission, the company said that employees are appointed and working 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. 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 rendered directly to the head office will be in his representative capacity as an employee of the branch.

Based on the submissions and facts, TN AAR noted that the applicant from the branch office has supplied, apart from accounting services, various technical services to the head office in another State where the factory is located to fulfil the product design requirement of the customers.

The bench took note of Section 25(4) of CGST Act, 2017 which states that “a person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.” It mentioned that this provision, along with other related ones, will be applied to any supply of service between two registrations of the same person in the same State or different States.

Accordingly, it ruled: “Services, including the services of common employees of a person, provided by branch office to head office and vice versa, each having separate GST registration, will attract GST liability under respective Acts, viz IGST Act, 2017 or CGST Act, 2017 and SGST Act, 2017 or UTGST Act, 2017.”

Commenting on the development, Abhishek Jain Partner and National Head (Indirect Tax) with KPMG says this ruling could open another Pandora’s box on the already existing debate of there being a supply of service from the head office to its branch offices and related valuation. “The Ruling upholds identification of common human resources and there being a provision of intra entity services accordingly by these common resources. Such identification itself would be a challenge for companies and could open a new series of litigation on services from branch offices to head office as well,” he said.

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