Service provided by employee to Multy State registered Organisation

[Mandar Sathe]

This is with reference to Section 7 read with Schedule I and Schedule III. Also Refer AAR ruling and AAAR ruling in the case of M/s. COLUMBIA ASIA HOSPITALS PVT. LTD. = 2018 (8) TMI 876 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA

The Issue discussed is as follows:

Supply of Services or not? - distinct persons - activities performed by the employees at the Corporate Office in the Course of or in relation to employment, such as accounting, other administrative and IT System Maintenance for the units located in the other states - supply as per Entry 2 of Schedule I of the CGST Act or not supply of Service as per Entry 1 of Schedule III of the CGST Act? - employer-employee relationship.

After going through the arguments the AAAR has come to a conclusion that the activity falls under schedule I and not Schedule III stating that the employee provides service to the HO and HO in turn provides service to its branch units.

It is very surprising to note that the neither the party nor the AAR or AAAR has even mentioned that Section 7 Subsection 2 which refers to items listed in Schedule III over rides Sub-section 1 which refer to items mentioned in Schedule I.

The wording of Section 7 Subsection clearly state that "Notwithstanding any thing mention in subsection 1" the following activities will neither be considered as supply of Goods or Services.

Does this not literally mean that if the employee has provided services to the organisation it is exempt and that Schedule I will not apply.

Any comments

AI Summary

Employee-to-employer services exclusion may preclude treating internal corporate services as taxable supplies under the distinct persons rule.
The core issue is whether employee services performed at a corporate office for branch units are taxable supplies under the distinct persons deeming in Schedule I, or whether the statutory exclusion for services provided by an employee to an employer-introduced by an overriding "notwithstanding" phrase-removes such intra-employer services from the scope of supply. The authority held the corporate office supplies services to branches; commentators argue the exclusion prevails and point to interpretive principles that prioritize specific exemptions and taxpayer-favouring constructions.