Service provided to the Distinct person by the employee is Supply: AAR

Service provided to the Distinct person by the employee is Supply: AAR 

Karnataka AAR holds that activities performed by employees at the corporate office in course of or in relation to employment. Such as accounting, other administrative and IT system maintenance for units located in other States i.e. Distinct persons as per Section 25(4) of CGST Act, shall be treated as “supply” in terms of Entry 2 of Schedule I of CGST Act. So, Service provided to the Distinct person by the employee fall under the term of supply.;

Explanation:

Explains that services provided to the employer, i.e. corporate office by persons employed by corporate office are in nature of the employee-employer relationship, falling under Entry 1 of Schedule III;

However, since corporate office and units (having separate registrations) are distinct persons, there is no such relationship between the employees of one distinct entity with another distinct entity, at least as per GST Acts, even if they are belonging to same legal entity; As regards applicability of Entry 2 of Schedule I to activities of accounts and management done by corporate office for individual units located both within and outside the State, AAR observes that said units and corporate office being “related persons” in terms of Explanation to Section 15 of CGST Act, any supply of goods / services by such corporate office would amount to “supply” even if made without consideration;

Accordingly, valuation of such services shall be done as per provisions of Section 15 of CGST Act. If any consideration is charged by the issue of the invoice by the corporate office to respective units. It would amount to transfer and hence supply, as it is in course of business u/s 7(1)(a); Remarks, “…the employee cost also needs to be taken into consideration at the time of valuation of goods / services provided by one distinct entity to other distinct entities…” :

*Karnataka AAR
[TS-368-AAR-2018-NT]*

CA Amresh Vashisht
Meerut
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