The government is set to make it clear that services provided by an office of an organisation in one state to another office in another state will face goods and services tax. A circular to this effect, endorsed by the GST Council, will be issued soon, a government official told ET. This is in line with the view taken by Karnataka Authority for Advance Rulings (AAR) that in-house functions such as human resources and payrolls, if carried out from a centre in one state for offices in other states, will face GST, for which invoice will have to be issued. The circular will also lay down that emoluments offered to service personnel will have to be included under this, the official said. Companies can claim input tax credit for this, but for certain exempt sectors such as power, healthcare, liquor, and education, it will become a cost as credit of tax charged would not be available, the person said.
The circular follows representations from the industry, seeking clarification on taxability of activities performed by an office of an organisation in one state to office of the same organisation in another state, regarded as distinct persons under the GST law and treated as supply of services between distinct persons. The law committee under the GST Council has sought to clarify via the circular the issues dealing with distribution of input tax credit in respect of input services provided by the head office, but attributable to head office or various branch offices, treatment of expenses incurred by the head office on the procurement, distribution and management of common input services, treatment of services provided by head office such as common administration or common IT maintenance to its branch officers and their valuation. The circular, which is in the form of frequently asked questions, will lay down as to how the input tax credit will be distributed between head office and branch officers as also that value of service will be equal to employee cost and establishment cost of supplying that service, said the official cited earlier. Expenses will need to be apportioned using valuation principles laid down under the GST Law and generally accepted accounting principles.