Service tax on expenses towards sharing of Employees and infrastructure of other company

[Shailesh Mehta]

A company 'A' utilizes services of employees and infrastructure of Company 'B' and in turn reimburse the actual cost to the company 'B'. Is company 'B' liable to pay Service tax on the amount received from 'A'.

[KASTURI SETHI]

As per category mentioned in the Issue ID, your query is about applicability of GST and NOT Service Tax.

(1)In this scenario, the services of employees are benefiting other distinct persons. Hence such services of employees will be considered as a ‘supply of service’ by one distinct person to another. Company B is liable to pay GST. This activity is covered under Section 7(1)(c) of CGST Act read with Entry No.2 of Schedule-1.

SCHEDULE-1

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business :

The following case law will help in arriving at correct decision. The concept is clearer by the decision of AAAR-Karnataka reported as 2019 (20) GSTL. 763 (App.AAR-GST) Applicant : Columbia Asia Hospital Pvt. Ltd. = 2018 (12) TMI 1604 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA

[KASTURI SETHI]

This transaction also conforms to the definition of 'supply' provided under Section 7 of CGST Act.

[Ganeshan Kalyani]

On service tax there was case law on deputation of staff to associate company service tax not applicable.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

You are right if deputation of staff is within group company, it is exempted from Service Tax. Relevant period is also to be considered.

[YAGAY andSUN]

If query is related to Service Tax regime then no service tax is applicable.

AI Summary

Reimbursements for Employee Use Considered 'Supply of Service' Under Section 7(1)(c) of CGST Act; GST Applicable A company 'A' reimburses the actual costs to company 'B' for utilizing its employees and infrastructure. The question is whether company 'B' is liable to pay service tax on these reimbursements. The consensus in the discussion is that under the current Goods and Services Tax (GST) framework, such transactions are considered a 'supply of service' as per Section 7(1)(c) of the CGST Act, making company 'B' liable to pay GST. However, if the query pertains to the previous Service Tax regime, no service tax would be applicable on such transactions.