Question24: I politely differ with your views on the query in your 'Practical Question' column which is appearing in the trail mail. For the sake of brevity, your answer to the query is reproduced below:

Answer: Your office in Mumbai is using it's infrastructure to provide services to Gujrat Factory whatever your office is doing that is used by the factory so the Mumbai office is providing service to Gujrat factory. The registration as ISD is to be taken when some Establishment is arranging services for the factory(other business places ) The mumbai office is not outsourcing service but it's self providing service so you should take registration as a supplier. As per schedule 1 clause 2 to the CGST Act the services provided by one distinct person to other is taxable even if no consideration is charged. The same is as follow Schedule 1 clause 2.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding you are suggested to surrender ISD and take normal registration as supplier .

You have to raise invoice for the services and charge tax on it. This will be also beneficial to you because if you are raising invoice as service provider then you can claim credit of all inwards like photocopy paper ,furniture or TV purchased and used in office of Mumbai.'

In my opinion, under the given situation, the office at Mumbai needs to take ISD registration for distributing the ITC of the GST paid on common input services received by the Mumbai Office. Mumbai office is not providing any taxable services to its factory at Gujarat. For e.g. services of telephone and internet or services of technical or legal consultants received at Mumbai office. All such services have been received by Mumbai office for the factory from where taxable outward supply is effected. Mumbai office cannot raise GST invoice to the factory at Gujarat since no service has been provided by Mumbai office to the factory at Gujarat. In such a situation, the appropriate step is to take ISD registration for distribution of the ITC. It is only the ISD registration that legally allows Mumbai office to raise ISD invoice on its factory without making any taxable supplies. Based on such ISD invoice, factory can avail ITC and utilize the same for making payment of GST liability on its outward supplies.

ANSWER

the Mumbai office is not providing any service on payment of tax but all the work they are doing is consumed by the Gujrat factory This is providing of service and you will have to pay tax on this transaction.

The demand in audit may be raised as per schedule 1 clause 2 to the CSGST Act the is as follow

ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION

(2)Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

The concept of ISD is misunderstood in Industry and trade

The ISD system will apply if you are collecting services for other units like you are giving contract of advertisement for TV channel and all the manufacturing units are taking benefit of it.In this case you can operate as a service provider as well as ISD to other unit as per your choice but so far as the Illustration given in mail is concerned it is providing service without consideration and the same may be subjected to tax as per schedule 1

Let us give you an additional input that if you are registered as a service provider you can take credit of inputs and capital goods which are not available to ISD Tax planning is a very fast emerging area in GST you can plan it within the frame work of Law . (Reply Dt. 26/12/2017)