Whether Registration Required in Another State

[Ayush Aggarwal]

Madams/Sirs,

My client is a company engaged in business of providing translation services having principal place of business in Punjab. They have employees from all over the country. Their 95% of turnover is from export of services. Their aggregate turnover exceeds Rs. 10 Crores. They are registered in Punjab under PGST Act, 2017.

Now they have taken on rent a small building in Maharashtra (Pune). This building is used exclusively as office (back office) where employees in Pune provide translation services to the company for its ongoing projects. It can also function as a hub where outside contractors come into the back office and provide translation services to the company. No service is provided to any customer from Pune Office directly i.e. there is no sales/turnover from Pune office. The Pune office employees report to Punjab office and all the work gets invoiced from Punjab Office. My query is whether they would be required to obtain GST Registration in Maharashtra because we are already registered in Punjab and have a fixed establishment in another state i.e Maharashtra.

[Shilpi Jain]

Yes. Registration would be required since Pune office is providing services to Punjab office. 

These are services between distinct persons which is also liable to gst and necessitates registration as there is a fixed establishment in Pune

[Ayush Aggarwal]

Thank you Shilpi mam for your reply.

Mam, in furtherance to my question, since the turnover from Pune office is NIL, how would the service provided to the Punjab office be valued. There is no reference point to determine the selling price.

If we take open market value of such supply as per Rule 28, I believe there is no reference point to determine the price. Since, the price range of translation service is solely dependent on the service provider himself, the cost of translation can be Rs. 5 per Word or Rs. 50 per word. It would not be possible to determine the open market value as there is too much variation in asking price. Then would a nominal amount charged for translation by Pune branch to Punjab Branch be sufficient for compliance with Rule 28? 

[SACHIN GARG]

Rule 28 also says that if receiver of services is entitled to take full ITC, transaction value will be accepted as fair value. I think in that case, you can show nominal amount as you mentioned 

[KASTURI SETHI]

Sh.Ayush Aggarwal Ji,

Pl. go through the following  Board's circular word for word :-

Taxability of services provided by an office of an organisation in one State to the office of that organisation in another State, both being distinct persons — Clarification

C.B.I. & C. Circular No. 199/11/2023-GST, dated 17-7-2023

 

[Ayush Aggarwal]

Thank You Sachin Garg Sir and Kasturi Sethi Sir for your replies. I have again read Rule 28 and Circular. 

I believe that following conclusion can be drawn:

We are required to obtain GST registration in the state of Maharashtra since we have permanent establishment there. But we can file NIL returns as we will not be issuing any tax invoices to HO from Pune Office for Internally generated services. Therefore, it will be deemed that the market value of services provided by the BO to HO is NIL.

Please correct me if I am wrong.

And thank you everyone for your replies and guidance.

[KASTURI SETHI]

Sh.Ayush Aggarwal  Ji,

Your conclusion is in letter and spirit of Rule 28 read with Board's circular.

[Ganeshan Kalyani]

Sir, also consider that if Pune office avails any service which is covered under reverse charge mechanism then registration under GST would become mandatory.

AI Summary

Translation Company Needs GST Registration in Maharashtra Due to Pune Office, Rule 28 Allows Nominal Valuation for Compliance. A company providing translation services, primarily exporting from Punjab, is considering whether it needs GST registration in Maharashtra after renting an office in Pune for back-office operations. Despite no direct sales from Pune, responses suggest registration is necessary due to services between distinct persons. Concerns about valuing services for GST compliance were addressed by referencing Rule 28, which allows nominal amounts if full Input Tax Credit is available. It was concluded that GST registration in Maharashtra is required, but NIL returns could be filed since no tax invoices are generated for internal services. Additional advice included considering reverse charge mechanisms.