CBIC clarifies on ITC claims on services provided by head office to branches in other states

New Delhi: The CBIC on Monday issued a clarification with regard to availment of input tax credit (ITC) on services provided by the head office (HO) to its branch office (BO), a move which will benefit multilocational businesses operating in sectors like manufacturing, IT services and transportation.

In respect of the supply of internally generated services by HO to BOs, where full input tax credit (ITC) is available to a BO, the value declared on the invoice by HO to the said BO may be declared as 'Nil', and thereby there would be no need for any tax compliance in such cases. The Central Board of Indirect Taxes and Customs (CBIC) said it had received various representations seeking clarification on the taxability of activities performed by an office of an organisation in one State to the office of that organisation in another State. AMRG & Associates Senior Partner Rajat Mohan said with this clarification, multi-locational businesses that operate in the manufacturing sector, IT services, consulting, transportation, logistics, exports, or any other taxable sector would not be required to raise any invoice for internally generated services. KPMG in India Partner & National Head (Indirect Tax) Abhishek Jain said clarification that salary cost of employees is not mandatorily required to be included for services provided by HO to BO even in cases where full input tax credit is not available is a major relief specially to the sectors not included or exempt under GST as this could have become an unwarranted cost for these industry players. In another clarification with regard to applicability of TCS compliance of players on Open Network for Digital Commerce (ONDC), the CBIC said the supplier side ecommerce entity would be responsible for deducting TCS under GST. In a situation where multiple ecommerce operators (ECOs) are involved in a single transaction through ECO platform, the TCS compliances is to be done by the supplier-side who finally releases the payment to the supplier, the CBIC clarified.

In a separate circular, the CBIC also clarified that holding of shares in a subsidiary company by the holding company will not be treated as ‘supply of service' under GST law. "The activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST," the CBIC said in reference to representations received from trade and field formations. Commenting on the circular, EY Tax Partner Saurabh Agarwal said it is a "big relief to the industry and would help in reducing the litigation with the tax department"