As per Advance Ruling issued by the Karnataka GST AAR in the case of M/s Columbia Asia Hospitals Pvt. Ltd. Bengaluru, 18% IGST is applicable on Invoices raised by Corporate Office (CO)/ Head Office (HO) for expenses attributable to Units/ Branches in Other States, w.r.t. accounting, administration, IT system maintenance, etc., as the same shall be treated as ‘Supply’.
As a result, the companies having units/ branches in various states may be in a fix as now they are supposed to raise Invoice for attributing the cost of support services/ functions performed by the CO/ HO for respective units/ branches on some rational basis and the later can avail ITC benefit in due course, as may be applicable. Besides, companies have to analyse on cost of pooled assets used at CO/HO (like depreciation, etc.).
Yet the Ruling is not final, as the same may be appealed by affected parties, on the grounds whether provision of such facilities by CO/HO for Units/ Branches in other States can really be termed as ‘Supply’?
AAR has issued the Ruling based on the fact that other locations are different entities in the eyes of GST laws and the CO/ HO Employees have no Employer/ Employee relationship vis-a-vis the other units/ branches are concerned. Therefore, the services provided by CO/ HO employees for other branches/ units would be treated as ‘Supply’.
However, we are of the view that separate GST registration for branches/ units in different States should not be considered as a criteria to determine whether they are an independent legal entity or not, specially in view of ‘one nation, one tax’ and ‘simplification’ being at the core of GST.
The AAR (Karnataka GST) has issued a Ruling in the case of M/s Columbia Asia Hospitals Pvt. Ltd. Bengaluru, stating that “The activities performed by the employees at the corporate office in the course of or in relation to employment such as accounting, other administrative and IT system maintenance for the units located in the other states as well, i.e. distinct persons as per Section 25(4) of the Central Goods and Services Tax Act, 2017 (CGST Act), shall be treated as supply as per Entry 2 of Schedule I of the CGST Act.”
Above advance ruling has been issued based on the facts furnished by the Applicant (M/s Columbia Asia Hospitals Pvt. Ltd. Bengaluru), as under:
i) that applicant is a private limited company and is an international heath care group operating as a chain of modern hospitals across Asia. The Company is currently operating across six different states having eleven hospitals out of which six units are in the state of Karnataka. The Hospitals owned by the applicant are engaged in providing secondary and tertiary Healthcare services which in turn categorises as In-patient (IP) and Out-patient (OP) services.
ii) that applicant has its India Management Office (“IMO”) i.e Corporate Office in Karnataka and some of the activities for all the units with respect to accounting, administration and maintenance of IT system are carried out by the employees from IMO which forms part of the registered person in Karnataka. Further, GST paid on certain expenses such as rent paid on immovable property and other equipments, travel expenses, consultancy services, communication expenses etc., which are incurred towards services used by the IMO are availed by the registered person in the state of Karnataka and subsequently, registered person in Karnataka is discharging IGST on the expenses proportionately attributable to the other units located outside the State of Karnataka treating the same as taxable supplies in this regard.
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