The Authority of Advanced Ruling (AAR) in Karnataka has held that services rendered by a central office of a company to its other units located in different states would be classified as supply under the goods and services tax (GST).
Tax experts said the ruling would require changes in accounting methods of conglomerates, leading to possible credit accumulation.
The application for an advanced ruling was filed by Columbia Asia Hospitals, which operates in six different states with a corporate office in Karnataka. This office renders services like accounting, administration and maintenance of IT system to other units. The GST paid on certain services used by the corporate office is attributed proportionately to other units, the company said in its application.
It argued that the GST law doesn’t consider services rendered by employees to the employer as supply if it occurs in the course of employment, and the same shouldn’t attract GST.
“When an employee renders any services to other registered persons, that is, distinct persons of the same legal entity, the nature of activities still assumes the character of services by an employee to the employer in the course of or in relation to his employment as he is an employee for the legal entity as a whole and not for any one registered person,” the applicant said.
However, the AAR said since the corporate office and other units are registered in different states, their relationship is covered under ‘related persons’. The ruling said any supply of goods and services from corporate office to the separately registered units would amount to supply of goods and services, even if made without consideration.