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Mystery itc

Shivani (Learner) (1881 Points)

16 July 2018

Dear Friends

X Ltd. has a Corporate Office in Delhi. It supplies no goods from there.

It has various godowns and branches all over India from where it makes outward supply.

It pays a rent of Rs. 5 lakh per month for its corporate office.

It wants to claim ITC for GST paid on rent of its corporate office.

What shall it do to get this ITC?

Even if it opts for voluntary registration of its Delhi Corporate Office, what will it claim ITC against as it is not making any outward supply from Corproate Office !

So solve this mystery as it does not want to forego ITC on lakhs of amount of GST paid on rent each year.

regards

shivani

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13 Replies

Divakar (Student CA Final ) (11857 Points)
Replied 16 July 2018

Do registration as input service distributor (ISD) of ur corporate office

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Shivani (Learner) (1881 Points)
Replied 20 July 2018

it willl serve no purpose

the tax paid on rent is related to corporate office and not to branches.

so ISD will servce no purpose.

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 20 July 2018

Though there is no direct nexus between rent of the the corporate office and branches/factories/godowns, but there is an indirect nexus since without branches/factories/godowns(revenue generating unit) there will be no corporate office. Thus we can say that corporate office is bearing this rent to make all the branches/factories/godowns functional and to generate revenue and therefore the credit paid on rent is attributable to all the branches/factories on pro-rata basis.

Concl: Corporate office should take registration as ISD and distribute it to the branches/factories/godowns.

Divakar (Student CA Final ) (11857 Points)
Replied 20 July 2018

ITC will be distributed to all branches on their turnover ratio

Shivani (Learner) (1881 Points)
Replied 20 July 2018

shivam

koi gadbad to nahi hogi na if i do that

regards

shivani

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Shivani (Learner) (1881 Points)
Replied 20 July 2018

shivam

consider following

A CA registered in Delhi goes to Mumbai for official work, where he stays in a hotel.

now hotel is going to charge CGST and SGST even if CA gives his Delhi GSTIN as place of supply is Mumbai.

Now CA cant take credit of CGST and SGST paid to hotel against his output CGST and SGST in Delhi.

so can CA take registration as ISD in Maharashtra and get invoice issued on his Maharashtra GSTIN ISD and transfer credit to Delhi.

Can he do that?

wont this defeat the basic principle that GST is a destination based tax?

ALso in my corporate office example case, rental service are consumed in Delhi but u r transferring its credit to all over india branches.

dont u think ISD registration is only in those cases where the purpose is to distribute credit in respect of those services only which are consumed in branches but the billing is done on corporate office.

regards

shivani

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 20 July 2018

Nai hoga! Aur hua bhi toh we have got a valid point.

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 20 July 2018

1) “Input Service Distributor” means an office.....

In the 1st line of the definition of ISD itself the CA is debarred from taking registration in Mumbai.

2) 2nd question is good question, so will have to think on it when I am free.

Shivani (Learner) (1881 Points)
Replied 27 July 2018

hanji shivam ji

free nahi huye aap

the query is important to me

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 27 July 2018

Ho gaye ji !

See what I believe is that since GST is a destination based tax so revenue of SGST 'ordinarily' accrues to the consuming state, but there is no hard and fast rule that it should accrue to the consuming state only, otherwise there should have been some provision in law.

No doubt you have got a valid point, but I think you can take the credit and distribute it. We will be able to convince the department by saying "No corporate office if no revenue generating unit, so there is an indirect nexus and hence the credit is attributable on pro-rata basis".

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Divakar (Student CA Final ) (11857 Points)
Replied 27 July 2018

Ho se sabhi branch ko services ka bill kat do aap.... Itc utilise ho jaega... Nahi to bill head office ke name pe le lo branch ka... Jo Common services hoti hai

Shivani (Learner) (1881 Points)
Replied 28 July 2018

dont agree with u shivam

you say there is no provision in law that gst revenue should accrue to the consuming state only which is totally wrong.

place of supply sections in respect of goods and services are specifically framed to see where the supply gets consumed.

i dont think we can just deny Delhi (where corprate office is situated) of its legitimate revenue and pass it on to other states which has not anything to do with it.

in my view only common services related to branches for which billing is made to corproate office can be distributed by corporate office by taking registration as ISD.

GST is different from Service Tax. In service tax entire revenue went to Central Governement but in GST each state will protect its share of revenue tooth and nail.

regards

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 28 July 2018

Agreed, POS provisions are designed in such a way that revenue is generated for consuming state only, but this is not always true(see section 12(5)(a)/12(8)(a)...) and also in my view is nowhere it is written that after accruing to consuming state it cannot be transferred by ISD.

Logically you are correct if you don't want to distribute you may not ! and may be tommorow or after that Govt. may clarify this but if anyone ask me at this moment then I would suggest to distribute since there is no specific exclusion in law.