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Circular No. 199/11/2023-GST
F. No. CBIC-20001/5/2023-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
New Delhi, Dated the 17th July, 2023
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All)
Madam/Sir,
Subject: Clarification regarding 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.
Various representations have been received seeking clarification on the taxability of
activities performed by an office of an organisation in one State to the office of that organisation
in another State, which are regarded as distinct persons under section 25 of Central Goods and
Services Tax Act, 2017 (hereinafter referred to as ‘the CGST Act’). The issues raised in the
said representations have been examined and to ensure uniformity in the implementation of the
law across the field formations, the Board, in exercise of its powers conferred under section
168(1) of the CGST Act hereby clarifies the issue in succeeding paras.
2.
Let us consider a business entity which has Head Office (HO) located in State-1 and a
branch offices (BOs) located in other States. The HO procures some input services e.g. security
service for the entire organisation from a security agency (third party). HO also provides some
other services on their own to branch offices (internally generated services).
3.
The issues that may arise with regard to taxability of supply of services between distinct
persons in terms of sub-section (4) of section 25 of the CGST Act are being clarified in the
Table below: -
S. No
Issues
Clarification
1.
Whether HO can avail the input tax
credit (hereinafter referred to as
‘ITC’) in respect of common input
It is clarified that in respect of common input
services procured by the HO from a third
party but attributable to both HO and BOs or
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services procured from a third party
but attributable to both HO and BOs
or exclusively to one or more BOs,
issue tax invoices under section 31
to the said BOs for the said input
services and the BOs can then avail
the ITC for the same or whether is it
mandatory for the HO to follow the
Input
Service
Distributor
(hereinafter referred to as ‘ISD’)
mechanism for distribution of ITC
in respect of common input services
procured by them from a third party
but attributable to both HO and BOs
or exclusively to one or more BOs?
exclusively to one or more BOs, HO has an
option to distribute ITC in respect of such
common input services by following ISD
mechanism laid down in Section 20 of CGST
Act read with rule 39 of the Central Goods
and Services Tax Rules, 2017 (hereinafter
referred to as ‘the CGST Rules’). However,
as per the present provisions of the CGST
Act and CGST Rules, it is not mandatory for
the HO to distribute such input tax credit by
ISD mechanism. HO can also issue tax
invoices under section 31 of CGST Act to the
concerned BOs in respect of common input
services procured from a third party by HO
but attributable to the said BOs and the BOs
can then avail ITC on the same subject to the
provisions of section 16 and 17 of CGST
Act.
In case, the HO distributes or wishes to
distribute ITC to BOs in respect of such
common input services through the ISD
mechanism as per the provisions of section
20 of CGST Act read with rule 39 of the
CGST Rules, HO is required to get itself
registered mandatorily as an ISD in
accordance with Section 24(viii) of the
CGST Act.
Further, such distribution of the ITC in
respect a common input services procured
from a third party can be made by the HO to
a BO through ISD mechanism only if the said
input services are attributable to the said BO
or have actually been provided to the said
BO. Similarly, the HO can issue tax invoices
under section 31 of CGST Act to the
concerned BOs, in respect of any input
services, procured by HO from a third party
for on or behalf of a BO, only if the said
services have actually been provided to the
concerned BOs.
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2.
In respect of internally generated
services, there may be cases where
HO is providing certain services to
the BOs for which full input tax
credit
is
available
to
the
concerned BOs. However, HO may
not be issuing tax invoice to the
concerned BOs with respect to such
services, or the HO may not be
including the cost of a particular
component such as salary cost of
employees involved in providing
said services while issuing tax
invoice to BOs for the services
provided by HO to BOs. Whether
the HO is mandatorily required to
issue invoice to BOs under section
31 of CGST Act for such internally
generated services, and/ or whether
the cost of all components including
salary cost of HO employees
involved in providing the said
services has to be included in the
computation of value of services
provided by HO to BOs when full
input tax credit is available to the
concerned BOs.
The value of supply of services made by a
registered person to a distinct person needs to
be determined as per rule 28 of CGST Rules,
read with sub-section (4) of section 15 of
CGST Act. As per clause (a) of rule 28, the
value of supply of goods or services or both
between distinct persons shall be the open
market value of such supply. The second
proviso to rule 28 of CGST Rules provides
that where the recipient is eligible for full input
tax credit, the value declared in the invoice
shall be deemed to be the open market value
of the goods or services. Accordingly, in
respect of supply of services by HO to BOs,
the value of the said supply of services
declared in the invoice by HO shall be deemed
to be open market value of such services, if the
recipient BO is eligible for full input tax
credit.
Accordingly, in cases where full input tax
credit is available to a BO, the value declared
on the invoice by HO to the said BO in respect
of a supply of services shall be deemed to be
the open market value of such services,
irrespective of the fact whether cost of any
particular component of such services, like
employee cost etc., has been included or not in
the value of the services in the invoice.
Further, in such cases where full input tax
credit is available to the recipient, if HO has
not issued a tax invoice to the BO in respect of
any particular services being rendered by HO
to the said BO, the value of such services may
be deemed to be declared as Nil by HO to BO,
and may be deemed as open market value in
terms of second proviso to rule 28 of CGST
Rules.
3.
In respect of internally generated
services provided by the HO to
BOs, in cases where full input tax
In respect of internally generated services
provided by the HO to BOs, the cost of salary
of employees of the HO, involved in providing
