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1
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Whether HO can avail the input tax credit (hereinafter referred to as ‘ITC’) in respect of common input services procured from a third party but attributable to both HO and BOsor 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?
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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 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
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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.
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The value of supply of services made by a registered person to a distinct person needs tobe 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.
salary cost of HO employees Accordingly, in cases where full input tax involved in providing the said
services has to be included in the credit is available to a BO, the value declared computation of value of services on the invoice by HO to the said BO in respect provided by HO to BOs when full of a supply of services shall be deemed to be input tax credit is available to the the open market value of such services, concerned BOs. irrespective of the fact whether cost of any particular component of such services, likeemployee 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.
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In respect of internally generated services provided by the HO to provided by the HO to BOs, the cost of salary BOs, in cases where full input tax of employees of the HO, involved in providing credit 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.
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In respect of internally generated services 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.
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