Whether GST Cross-Charge is Required on Recovery of Common Development Cost from Group Entities?

[Kumar Gaurav]

XYZ Ltd. (Head Office) is incurring development cost for creation of a common digital portal, which will subsequently be allocated among interested other GSTIN of the same entity on a cost-to-cost basis.

Whether such recovery/allocation of Cost from HO to other GSTIN would require issuance of a cross-charge invoice under GST, or can it be treated as a mere cost allocation/reimbursement without GST implications?

[Sadanand Bulbule]

Since each GST registration is treated as a distinct person under Section 25(4) of the CGST Act, allocation of common portal development cost by the Head Office to other GSTINs constitutes a supply under Section 7(1)(c) read with Entry 2 of Schedule I. Accordingly, the Head Office is required to issue a cross-charge tax invoice and discharge GST in accordance with Rule 28 of the CGST Rules. It cannot be treated as a mere reimbursement or cost allocation.

[Shilpi Jain]

All these costs at the time of incurrence itself, GST invoice should be taken in the ISD registration and distributed to all the GSTNs. THen the question of cross charge will not arise.

 

[Shilpi Jain]

Note that ISD is mandatory from 1.4.2025 and not a choice

AI Summary

GST cross-charge for common portal costs may apply between distinct registrations unless input tax credit is distributed through ISD.
Common digital portal development costs allocated by a head office to other GST registrations may be treated as a supply between distinct persons, requiring a cross-charge tax invoice and valuation under the applicable rule rather than treatment as mere reimbursement or cost sharing. Input tax credit on common costs may be distributed through an Input Service Distributor registration among relevant GST registrations; the discussion states that this mechanism is mandatory from 1 April 2025.