The Maharashtra Appellate Authority of Advance Ruling (AAAR) while modifying the AAR’s ruling held that the availability of common input supplies on behalf of other unit/units registered as distinct persons will qualify as supply of services.
The Appellant, M/s. Cummins India Ltd. are engaged in manufacture and sale of a variety of diesel engines, parts thereof, and related services, and undertake all day-to-day activities required therefore.
The appellant has sought the advance ruling on the issues in respect of Classification of Engine manufactured by Appellant and Levy of GST on facilitation of common input services, necessity of registering as an ‘Input Service Distributor’ (‘ISD’) and determination of assessable value.
The Appeal, however, is limited to the Ruling in relation to the necessity of obtaining registration as an ISD, determination of assessable value for facilitation of common input services, based on facts and submissions referred in the ensuing paragraphs.
The grounds, mentioned by the Appellant in their Appeal memorandum, are as under Impugned Order has failed to clarify the inapplicability of GST relating to functions of an employee from one distinct unit for another distinct unit, which cannot be treated as a supply in as much as services of an employee are excluded from the definition of Supply under Schedule III of the CGST Act, The necessity for Appellant to determine the assessable value based on 110% of the cost of provision deviates from the applicable statutory provisions, Even though registering as an ISD is an option provided to an assessee, the impugned ruling imposes compulsion on Appellant to obtain registration as an ISD, Impugned Order is silent on the additional submissions made by the Appellant which has a close nexus with the clarification sought; the Impugned Order thus suffers from violation of principles of natural justice.
The coram of Rajeev Kumar Mittal and Ashok Kumar Mehta ruled that availment of common input supplies from the third-party service vendors/suppliers on behalf of the Branch Offices/Units, registered as distinct persons will qualify as supply of services in accordance with the provision of Section 7(1)(a) of the CGST Act, 2017. However, the cost of the said common input services availed on behest of Branch Offices/Units and allocated to the Branch Offices/Units by the Head Office will not attract the levy of GST as the said costs have been incurred by the Head Office in the capacity of a pure agent of the Branch Offices/Units, and as such, the said cost incurred by the Head Office shall be excluded from the value of supply of the facilitation services.
The AAR further noted that the assessable value of the services provided by the Head Office to the branch offices/units can be determined as per the the second proviso to clause(c )of Rule 28 of the CGST Rules, 2017, which provides that value of the tax invoice will be deemed as the open market value of the services.
“Since, the Head Office is not entitled to avail and utilize the credit of tax paid to the third-party service vendors for the common input services received by it on behalf of the Branch Offices/Units as the said common input services received by the Appellant’s Head Office are being used or consumed by the Branch Offices/Units in the course or furtherance of their businesses, and not by the Head Office. Therefore, the Appellant is bound to take the ISD registration as mandated by section 24(viii) of the CGST Act, 2017, and comply with all the provisions made in this regard, if it intends to distribute the credit of tax paid on the common input services received by it, on behalf of the branch offices units, to the branch offices/units,” the AAR ruled.
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