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The cost of healthcare and education, among others, is likely to go up if a ruling by the Authority on Advance Rulings (AAR) in Karnataka becomes a reference point.
The AAR has ruled that employees’ services in the corporate office for managing units located in other States will attract GST.
The ruling was given in response to an application filed by Columbia Asia Hospitals. The Bengaluru-based applicant sought advance ruling on whether the activities performed by its employees at the corporate office — such as accounting, IT or other administrative duties — for the units located in other States shall be treated as supply or not.
It shall be treated as supply, the AAR ruled. It means GST can be levied on the salary cost of employees working at the head office.
Columbia operates a chain of hospitals in Asia with 11 in India across six States. The company has its India Management Office (IMO) in Karnataka and some of the activities for all the units are carried out by employees at the IMO, which forms part of the ‘registered person’ in Karnataka.
GST on expenses
Further, GST on certain expenses, such as rent paid on immovable property and other equipment, travel costs, consultancy services and communication, which are incurred towards services used by the IMO, are availed by the registered person in Karnataka.
Subsequently, the registered person in this State is discharging IGST on the expenses proportionately attributable to the other units located outside the State, treating the same as taxable supplies.
Applicable to all
Commenting on the ruling, Anita Rastogi, Indirect Tax Partner at PwC, said this ruling has very wide ramifications. It is applicable to even those enterprises that are not required to pay GST on their core activities.
“This tax would become a cost as anyway such organisations do not have any output tax. The Centre should immediately address it by issuing appropriate notification,” said Rastogi.
Bimal Jain, Chairman, Indirect Tax Committee with the PHD Chamber of Commerce, said a clarification on inter-company supply of services has to be made immediately.
Else, it will create chaos in multi-State operational companies, he observed. “The situation will worsen if the recipient unit is engaged in the supply of exempted goods or services, as it will not be entitled to avail credit of GST charged by the supplier unit of the company,” he said.
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