GST applicable on services provided by branch office employees to head office

NEW DELHI: The issue of GST on salaries paid to employees in a branch office rendering services to head office or vice versa refuses to die down with the Tamil Nadu advance ruling authority recently ruling that services provided by common employees in a branch office to the head office is liable to GST.

The AAR argued that the services of employees deployed in one registered place of business to another registered premise of the same company will attract provisions of GST.

It is to be mentioned here that each branch of a company has to be registered separately in its respective state.

The order from TN AAR came on the advance ruling application of The Chennai branch of Profisolutions Pvt Ltd, a Bengaluru headquartered firm.

The company wanted clarity on whether services provided to the head office would attract GST liability.

“The current ruling specifically mentioning the services of common employees being subject to GST is bad in law as in principal employer–employee relationship is outside the ambit of GST,” says Ankur Gupta, practice leader, Indirect Tax at SW India.

He further said that there are already challenges in the valuations of such services as there is no prescribed methodology, and the latest ruling will lead to a new set of litigations if authorities start to demand GST on employee costs as there are already diverse rulings on this matter.

Abhishek Jain, partner and national head, of Indirect Tax, KPMG in India says: “This ruling could open another Pandora’s box on the already existing debate of there being a supply of service from the head office to its branch offices and related valuation.  The Ruling upholds the identification of common human resources and there is a provision of intra-entity services accordingly by these common resources.  Such identification itself would be a challenge for companies and could open a new series of litigation on services from branch offices to head office as well.”