Source : The Economic Times dated 29.12.2018 |
The authority held that
two units which are separately registered shall be distinct person in terms of
section 25(4) of the Central GST Act 2017. It further held that employee working
in one unit shall be treated as an employee for that particular unit for the
purposes of employer-employee exemption under Schedule III of the Act. In our above
example the employee who is working for Delhi unit shall be treated as employee
of Delhi Unit and not of Chandigarh for claiming exemption. The authority ruled
out the fact that employees are engaged for a company as a whole. It said that
employee shall remain specific to the unit he is working for and not for all
the units collectively. Hence in such a case such employee salaries becomes the
cost of provision of services to the units registered in other state.
If this is held true, it
is going to have far reaching repercussions:
1.
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In
most of the cases under healthcare and education industry, administrative
activities pertaining to schools/hospitals are carried out from their central
office. If the rendering of services from central office to these
schools/hospitals are charged to tax, it will certainly lead to increase in
the operational cost. Further since these hospitals/schools output services
are exempted they shall not be eligible to claim input tax credit.
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2.
|
The
industry would now have to re-frame their employment agreement for their
employees as to ensure that their costs are borne by the specific unit
itself. At least this will save the additional GST burden which would come at
present. The location of employee would not matter as far as the employer
employee contract is earmarked to specific units.
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3.
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In
case of multiple offices and employee rotation, the industry would have to re-frame the agreements every time the location of an employee is changed. The
challenge would arise where an employee serves the company as a whole while
being located at multiple office during a single period. The sharing of
employee cost based upon turnover of the units can be a good idea. This will
certainly lead to lots of confusion.
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4.
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Apart
from Strategy Role, Co-ordination role and policy role no other function
should be allotted to the head office. The authority has held that apart from
these roles all other roles are in terms of rendering services to the units.
It needs to be ensured that either the head office issue invoice to branches
or the resources are allocated to the unit itself.
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5.
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The
industry is not only required to ensure that the employment agreement is made
with specific units but also ensure that the payments are also made through
the funds of that unit itself. This might lead into finance issues in case
the units are too small to have adequate cash flows. It looks like the
branches and head offices will now be divided for all the functions.
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6.
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The
issues certainly arise where a common employee is working for both taxable
and exempted supplies, it shall become a nightmare to bifurcate the employee
cost amongst these two activities, Something similar to Rule 42 and Rule 43
of CGST Rules needs to be introduced to settle the never ending litigation on
proportionate distribution of employee cost.
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If the decision is accepted by the industry/department, it is certainly going to cause never ending chaos for them.
Regards
CA. Keshav R Garg
(B.Com, FCA, CS, ISA(ICAI))
Author: Bharat's GST Ready Reckoner
A Handbook on GST
Member: Indirect Tax Committee of CII,
Founder: MyGst.MyTax Foundation
Adviser: Industries Association of Chandigarh
Adviser: Chambers of Chandigarh Industries
Address: 3328, First Floor, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008
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