Related Company Services under GST
Para 2 of Schedule I of the Central Goods and Service Tax Act, 2017 states that supply of goods or services or both undertaken between the related persons or undertaken between the distinct persons, as per provisions specified in section 25, when carried out in the course or furtherance of business would be taxable under GST even when such supply has been undertaken without consideration. In this article, we look at the impact of GST on related company services. Definition of the word ‘related persons’ is contained in Explanation to section 15 of the Central Goods and Service Tax Act, 2018 which covers a whole lot of related persons. As per the said explanation, the person would be deemed to be a related person in case they are covered under any of the following categories –- Persons who are either officers or directors of one another’s business;
- Persons who are partners in the business;
- Persons who are employer and employee;
- Persons who directly / indirectly owns, controls, holds 25% or more of the outstanding voting stock or share or both of them;
- Persons who directly / indirectly control one another;
- Persons who directly / indirectly are controlled by the third person;
- Persons who directly / indirectly control the third person;
- Persons who are the member of the same family.
Latest Advance Ruling
In the case of Columbia Asia Hospitals Pvt. Ltd. 2018 (8) TMI 876 – Advance Ruling Authority, Karnataka has given the ruling which is relevant in the present matter. The facts of the case are summarized hereunder –- M/s. Columbia Asia is engaged in providing health care services;
- They are operating in 6 states and have total 11 hospitals;
- They have 6 hospitals in Karnataka itself;
- Their corporate office is located in Karnataka and accounting, administration and IT system is maintained in the corporate office;
- AAR states that employees employed by the corporate office are providing services to the corporate office in the nature of the employer-employee relationship. On the other hand, corporate office and branches are distinct persons under the Act and there is no relationship between the employee of one distinct entity and another distinct entity, as per GST law, even if they belong to the same legal entity.
- Activities undertaken between related persons are treated as supplies. Further valuation includes costs even the employee costs need to be accounted for at the time of valuating the goods / services provided by one unit to another unit.
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