2021 (9) TMI 949 - AAR - GST

Managerial services by Registered/Corporate Office to Group Companies held taxable under CGST Act

In Re: M/s. B.G. Shirke Construction Technology Pvt. Ltd.

In Re: M/s. B.G. Shirke Construction Technology Pvt. Ltd. - 2021 (55) G.S.T.L. 174 (A. A. R. - GST - Mah.) Issues Involved:1. Whether managerial and leadership services provided by the Registered/Corporate Office to its Group Companies are considered as 'supply of service' under Section 7 of the CGST Act, 2017.2. Whether the lump sum amount charged by the Registered/Corporate Office on its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.3. Whether the Applicant can continue to charge a lump sum amount as per the second Proviso to Rule 28 of the CGST Rules, 2017.4. Whether the Applicant can adopt valuation in terms of Rule 31 of the CGST Rules, 2017, if the lump sum method is not permissible.5. Whether the Applicant can adopt valuation in terms of Rule 30 of the CGST Rules, 2017, if Rule 31 is not permissible.6. Feasible alternative methods of valuation suggested by the Advance Ruling Authority.7. Admissibility of input tax credit of GST paid by the Applicant to each of the distinct and related persons.Detailed Analysis:1. Managerial and Leadership Services as 'Supply of Service':The applicant argued that the services provided to its group companies and branch offices should not be treated as 'supply of service' due to the specific relaxation provided in Entry 1 of Schedule III of the CGST Act, which states that services by an employee to the employer in the course of employment are not treated as supply of goods or services. The applicant contended that their group companies and site offices should be considered as employees.The Authority determined that site offices and group companies, being distinct and related persons respectively, cannot be treated as employees. Therefore, the services provided by the applicant fall under Entry No. 2 of Schedule I, making them taxable under GST laws.2. GST Liability on Lump Sum Amount Charged:Given the conclusion that the services are taxable, the Authority held that the lump sum amount charged by the Registered/Corporate Office to its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.3. Charging Lump Sum Amount under Rule 28:The applicant can continue to charge a lump sum amount as per the second Proviso to Rule 28 of the CGST Rules, 2017, since most recipients are eligible for full input tax credit. The value declared in the invoice would be deemed the open market value of the services.4. Valuation under Rule 31:Since the applicant can resort to valuation under Rule 28, the question of adopting valuation under Rule 31 was not addressed.5. Valuation under Rule 30:Similarly, since Rule 28 is applicable, the question of adopting valuation under Rule 30 was not addressed.6. Alternative Methods of Valuation:The Authority did not provide any alternative methods of valuation, stating that the question does not fall under the purview of Section 97 of the CGST Act, 2017.7. Admissibility of Input Tax Credit:The question regarding the admissibility of input tax credit of GST paid by the Applicant to each of the distinct and related persons was not answered, as it should be raised by the concerned recipient of the supply of services.Order:1. Managerial and leadership services provided by the Registered/Corporate Office to its Group Companies are considered as 'supply of service' under Section 7 of the CGST Act, 2017.2. The lump sum amount charged by the Registered/Corporate Office on its Group Companies is liable to GST under Section 8 of the CGST Act, 2017.3. The Applicant can continue to charge a lump sum amount in terms of the second Proviso to Rule 28 of the CGST Rules, 2017.4. Questions regarding valuation under Rule 31 and Rule 30 were not answered.5. No alternative feasible workable method of valuation was suggested.6. The question on the admissibility of input tax credit was not answered.