ISSUE 1
A. Whether Head Office (HO) can avail the ITC in respect of common input services procured from a third party which are attributable to both HO and BOs (Branch Office) or exclusively to one or more Bos?
B. Whether HO can issue tax invoices 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 (ISD) mechanism for distribution of ITC?
CLARIFICATION
For common input services procured by the HO from a third party but attributable to both HO and BOs or exclusively to one or more BOs, HO has following options
A. Distribute ITC in respect of such common input services by following ISD mechanism. However, as per the present provisions of the CGST Act and CGST Rules, it is not mandatory to follow ISD mechanism.
B. HO can also issue tax invoices to the concerned BOs in respect of common input services and the BOs can then avail ITC on the same. One needs to note, the HO can issue tax invoices to the concerned BOs, only if the said services have actually been provided to the concerned BOs.
ISSUE 2
In respect of internally generated services, there may be cases where HO is providing certain services to the BOs for which full ITC is available to the concerned BOs. However, HO may not be issuing tax invoice to the concerned BOs, or the HO may not be including the cost of a particular component such as salary cost of employees involved in providing said services.
A. Whether the HO is mandatorily required to issue invoice to BOs for such internally generated services,
B. Whether the cost of all components including salary cost of HO employees involved in providing the 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.
CLARIFICATION
In cases where the BO is eligible to avail Full Input Tax Credit:
A. The value of supply of services made between distinct persons needs to be determined as per rule 28 of CGST Rules. The value of supply of goods or services between distinct persons shall be the open market value of such supply. Further the rule provides that where the recipient is eligible for full ITC, the value declared in the invoice shall be deemed to be the open market value of the services. Accordingly, the value declared in the invoice by HO shall be deemed to be open market value of such services.
B. Further, 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 shall not make any difference.
C. Further, if HO has not issued a tax invoice to the BO, the value of such services may be deemed to be declared as Nil and may be deemed as open market value in terms of second proviso to rule 28.
ISSUE 3
In respect of internally generated services provided by the HO to BOs, in cases where full ITC is NOT available to the concerned BOs, whether the cost of salary of employees of the HO involved in providing said services to the BOs, is mandatorily required to be included while computing the taxable value of the said supply of services provided by HO to BOs.
CLARIFICATION
In respect of internally generated services provided by the HO to BOs, the cost of salary of employees of the HO, involved in providing the said services to the BOs, is not mandatorily required to be included while computing the taxable value of the supply of such services, even in cases where full input tax credit is not available to the concerned BO.