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VAGARIES OF CROSS CHARGE & ISD – THE GST COUNCIL NEEDS TO INTERVENE Analysis of Ruling of the AAAR (Karnataka) in M/s COLUMBIA ASIA HOSPITALS PVT LTD.)

Goods and Services Tax - GST - By: - AttnVivek Jalan - Dated:- 3-1-2019 Last Replied Date:- 19-1-2019 - Recently The Appellate AAR in Karnataka has opened a Pandora s box in the case of M/s COLUMBIA ASIA HOSPITALS PVT LTD [ 2018 (12) TMI 1604 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA ]. In the ruling it has held that the services of the employees at the Corporate Office in so far as they are benefiting the other registered units of the Appellant are to be considered as a 'supply of .....

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The fact that the branch and head office are distinct entities for the purpose of GST is not a matter of dispute. The legal fiction of service/ goods supplied by distinct persons is to ensure that the respective consuming states get the revenue from GST. A commercial organization establishes its branches to further the commercial activity that the principal body is engaged in. Commercial feasibility mandates that such branches exist to render services or to facilitate placement of goods. Therefo .....

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survival of the branch is also entirely dependent on finances provided by the head office. Its mortality is entirely contingent upon the will and pleasure of the head office. The employees of the HO as well as the branches are the employees of the organization itself. The benefit of activities of the HO Employees will, undoubtedly, accrue to the branches. Similarly the benefit of activities of the Branch Employees will also accrue to the HO. Further, incase of need the employees of the branches/ .....

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e legal entity is requires the employee to perform duties at any deputed place and is not confined to the location of the registered person from where the said employee renders services. Entry 2 in Sch I cannot disregard the contract and change the supplier of service from the employee to the HO/ Branch. On the contrary, even seen from the angle of GST, it is the service by an employee to various distinct persons as is the case of Joint Employment where staff is employed by one or more employers .....

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ason for entering into such an arrangement is not difficult to see as employees may not be willing to sign contracts with several branches who collectively do not even constitute a separate legal entity. Not only for this reason, but even for the sake of convenience in contracting and accounting, contracts of such employment may be signed by only at one place and not by all. This, however, cannot make a difference to the taxability or otherwise of the employment contract. Another arrangement cou .....

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s) is a supply. 2 activities are covered in Entry 2 of Sch I for taxability of supply without consideration - Supply of services between related persons (Employees to Employers) Supply of services between distinct persons u/s 25(4) (between HO and Branch) The Entry 2 in Sch I which seeks to tax the services without consideration between distinct persons, cannot change the nature of the service itself from related persons (employer-employee) to some other service. The Nature of the service remain .....

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he instant case of M/s COLUMBIA ASIA HOSPITALS PVT LTD certainly needs attention of the GST Council. It may be noted that the GST Council has been very proactive in deciding a unique rate of GST in the case of SOLAR PLANTS in its 31st GST Council Meeting and this matter is a fit case for the GST Council to take up. CROSS CHARGE INSTEAD OF TAKING ISD REGISTRATION: In the instant case it is also seen that the entity M/s COLUMBIA ASIA HOSPITALS PVT LTD in the instant case is not registered as an IS .....

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ces as they are not paying consideration for such services as envisaged u/s 2(93) of The CGST Act. Since the other branches are not recipients and the supplier is also a person other than the actual supplier, the condition u/s 16(2)(b) of the CGST Act to avail such ITC may not be fulfilled and hence, in our view, may come up for departmental questioning in future. It is to overcome such procedural irregularity that ISD mechanism specifically finds a place in the CGST Act 2017. Hence, in our view .....

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Chartered Accountants of India and Institute of Cost Accountants of India.] - Reply By KUMAR JAGADEESAN - The Reply = The Article on Advance Ruling in Columbia Asia Hospitals Limited = 2018 (12) TMI 1604 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA throws open many controversial decisions on which clarity is required. The appellants had submitted that they were charging some HO expenses in proportion to their various regsitered (under GST) entities ( distinct persons) and were are also p .....

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