CROSS CHARGE & ISD - bubbles of the same soap

Cross charge

·???????Cross charging is a concept where Head office/Corporate office raises invoice to other offices/Branches having same PAN but different registrations towards the service provided to such offices.

·???????Cross charge does not define under the GST law, it is a phase used in the industries to identify the supplies made between GST Registrations of a single person.

·???????When a person obtained registration for the establishments in two different states then as per Section 25(4) & (5) of CGST Act said establishments shall be treated an establishment of a distinct person.

·???????Every supply made between distinct person results cross charge require proper documentation to claim the credit.

·???????Cross charge can be of Goods or services.

·???????Cross charging can be done with existing registration.

·???????Every supply between distinct persons or related persons, even without consideration, whether charged or not will be liable to GST.

·???????GST shall be paid first via GSTR-1 and 3B submission.

Input Service Distributor

·???????In ISD Concept, no service provided by the distinct person under the same PAN, but it is provided by 3rd party.

·???????ISD pertains to services only.

·???????ISD have to obtain a separate registration.

·???????No additional cash required to be pay to the government for distribution of the Input tax credit collected under the ISD.

Common Services shared by Corporate to other offices.

·???????Accounting Services, IT and Systems Management Services, Procurement Services, Supply Chain Management Services, Sharing of brand name, logo, marketing material etc. Common bank account for business operations, operated from corporate office Centralization of various internal functions such as tax compliances, legal, HR, IT Consultancy support etc.

·???????Infrastructure sharing by different business segments in corporate office and management time invested in decision making for different business segments Contract/price negotiations/discussions with external stakeholders, including customers, vendor, and banks.

Method of Distribution

·???????ITC shall be distributed by comparing the aggregate turnover of same PAN with aggregate turnover of each GST registration.

Case Laws

·???????Columbia Asia Hospitals (P.) Ltd., - Activities such as accounting, administrative work, etc. carried out by employees sitting at the corporate office for other offices shall be treated as taxable supply of service in terms of Entry 2 of Schedule I read with Section 7 of the CGST Act and GST is payable on the said supply of services.

·???????Tata Sia Airlines Ltd., - charges towards maintenance of aircrafts from Head Office to branch shall qualify as supply of service and GST is payable on the said charges.

·???????Cummins India Ltd - expenses on employment employees employed by head office whose expenses are charged to branches are liable to GST.

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