GST CROSS CHARGE/INPUT TRANSFER QUERY

[Sarath S]

A company engaged in IT/software export services has its Head Office (HO) in Hyderabad and a Branch Office (BO) in Bangalore. Over the years, the BO has accumulated unutilized ITC of ₹50 lakhs (FY 2018-19 to FY 2024-25) due to a lack of taxable outward supplies. However HO is engaged in zero-rated exports and claiming ITC refunds.

Considering the GST framework:

1. Can the BO transfer its accumulated ITC to the HO through cross charge? If so, how can it be structured legally?
2. Given the amendments effective from 01.04.2025 mandating ITC distribution only through the ISD mechanism, will the BO lose the accumulated ITC post-31.03.2025?
3. What is the best strategy to ensure that the company does not forfeit the accumulated ITC while remaining GST-compliant?

[Raam Srinivasan Swaminathan Kalpathi]

Please value the services rendered by the branch to the HO on a monthly basis and raise a proper tax invoice on the HO and remit GST (thereby set off the ITC).  The HO can avail ITC and claim refund u/s. 54 upon export of services.

In my considered view the company need not obtain ISD registration if the approach in para 1 is adopted.

Query 3 - will not arise if the suggestion is adopted.

[Ganeshan Kalyani]

Cross charge is done to recover the internally generated service by one unit from another. So, here if BO has given any support service to HO then it can recover its own supervision or support cost by raising a cross charge invoice. 

[Shilpi Jain]

Structuring transactions within the provisions of the law would require to get further factual clarity. Suggested to consult a professional in this regard.

[KALLESHAMURTHY MURTHY K.N.]

Sir

It requires more clarity.  What is the nature of activity in the BO at Bengaluru and inward supplies effected to accumulate ITC without output generation? 

[K.lakshmipati rao]

Dear Mr.Sarath S,

I draw your attention to my views on the subject.

1. Can the BO transfer its accumulated ITC to the HO through cross charge?

Ans. The purpose of "Cross charge" is to allocate expenses from internally generated services, exclusively meant for the receiving Branch/H.O.

2.Given the amendments effective from 01.04.2025 mandating ITC distribution only through the ISD mechanism, will the BO lose the accumulated ITC post-31.03.2025?

Ans. The purpose of " ISD " is to distribute common ITC on services procured from third party vendors relatable to Company to respective branches or Units as per the distribution method as per the provisions of Rule-39. GST Registration is required u/s 24 of Act.

AI Summary

Input tax credit transfer via cross-charge enables branch ITC use, but post-amendment ISD distribution may be required. The BO can transfer accumulated ITC to the HO by valuing internal services and issuing cross-charge GST invoices, enabling the HO to avail ITC and claim refunds on exports. Amendments require ITC distribution through the ISD mechanism after the effective date, so entities must either effect compliant cross-charges before that date or register as an ISD and distribute ITC per Rule 39. Preserve credits through proper valuation, invoicing, documentation, and timely professional advice to ensure GST compliance and avoid forfeiture.