Common Services received at Head Office

[Kaustubh Karandikar]

XYZ having manufacturing unit cum Head Office in Maharashtra and other units outside Maharashtra. Certain common services are received at Maharashtra on which 100% credit is taken at Maharashtra. In this situation, they can raise monthly invoice in the name of other units under the category of ‘Business Support Service’ based on the value mentioned in the invoices of the service provider for common services received at Maharashtra and by adding certain percentage of mark - up on it. Once this figure is arrived at, the same needs to be apportioned in the name of each unit based on cost centre wise expenses maintained by company on monthly basis. Will this be allowed or Maharashtra should necessarily obtain ISD Registration and then distribute the credit to other units?

[KASTURI SETHI]

Regarding manufacturing activity each unit has to be registered and for for service Maharashtra should obtain ISD registration.

[Ganeshan Kalyani]

In my view, ISD i.e. Input Service Distributor registration need to be taken by the Maharashtra Head Office. The input tax credit invoice received by head office can be distributed to respective States based on turnover ratio. This is the provision which ia given in the GST law.

However , say, if legal expense is incurred by the Head Office in seeking opinion on an issue which is benefiting to all the branches located in various States then first challenge is reverse charge liability cannot on legal service cannot be paid under ISD registration. Thus for compliance the liability has to be paid under regular registration taken for Maharashtra . For doing this payment the invoice ahould be in the address of office/factory having regular registration number.

Then a cross charge invoice is to be raised from regular registration number to the ISD registration number . And the credit gets populated to ISD number then it can distribute the credit .

In order to overcome such challenges company is instead of taking ISD registration raises cross charge invoices to other branches in other States. First full credit is being taken in Maharashtra .Even though this method seems easy in comparison to ISD but it has its own drawback. When Maharashtra shall raise a tax invoice to a branch in another State then along with the proportionate credit its corresponding expense is also needs to be transferred. As per accounting standards the expenses are to be accounted at the office which is having its budget.

The common expense are budgeted at Maharashtra so the liability shall also get accounted in Maharashtra. The branches primarily will not accept the expense part though it will accept the credit part.

I went thru an article long back on the subject wherein the author has opined that the proper procedure is to obtain ISD registration and distribute the credit. However, he also emphasized on the point that credit can also be distributed thru cross charge method. However, he put a disclaimer that litigation may arise on cross charge distribution method.

[mk Jain]

Yes, I am agree. Head office should obtain ISD registration and distribute the ITC on behalf of turn over.

M Jain

[Ganeshan Kalyani]

Sir, cross charge is an alternate option for common input tax credit . However, the first preference should be to opt for ISD registration .

AI Summary

Input tax credit distribution: ISD registration preferred; cross-charge alternative carries accounting and litigation risk for common services.
Head office may take full input tax credit on common services and either obtain ISD registration to distribute that credit to other units apportioned by turnover or cost centre, or raise cross-charge invoices adding markup to allocate costs. ISD distribution is the preferred compliance method; certain payments under reverse charge cannot be directly distributed via ISD and require payment under regular registration with subsequent cross-charge to ISD. Cross-charge allocation risks accounting mismatches and potential litigation.