TN AAR: Services by Authorize Branch to Head Office & Vice Versa Are Liable Under GST

The Tamil Nadu Authority for Advance Ruling (AAR) has ruled that the services offered by a branch office to the head office or vice versa are liable for GST. However, each is required to have a separate GST registration. The services must be provided by common employees of the person.

The applicant has a branch office in Chennai that is registered in the state of Tamil Nadu under the GST Act for the purpose of offering engineering services for industrial and manufacturing projects. The applicant is a company established under the Companies Act 2013 in the state of Karnataka.

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The bench comprises two judges, R. Gopalsamy and N. Usha has noted that even the services of employees established from a registered place of business to another registered entity of the same person will be liable to GST because as per the explanation to Section 15 and treated as supplies under the Schedule I (2) to the CGST Act, 2017, the employees are considered as related persons.

The applicant’s branch office is registered in the state of Karnataka under the GST Act and offers several services to the applicant’s head office in Bangalore, including engineering, design, and accounting services.

The assessee requested a prompt decision on the issue of whether the Goods and Services Tax (GST) will be liable in the case of giving from a branch office in one state to the head office in another state where the hired employees are shared by the company, which constitutes a supply of service under Section 7 of the Act.

The applicant explained that the employees are designated and working for the company as a whole and are not hired to work for the head office or branch specifically while acknowledging the legal stance that under GST, the head office and branch offices are separate individuals. It was expected that the service of an employee working in a branch would flow only through the branch to the head office or customer. The employee’s services that are contributed directly to the head office will be in his representative capacity as an employee of the branch until he is positioned in a branch of an entity.

It has been observed by the AAR that Schedule 1(2) to the CGST Act, 2017 makes clear that the supply of goods or services, or both, between related persons or distinct persons, even if it is made without consideration, must be viewed as a supply. It is specified in Section 25 when it is made in the course or furtherance of business.