Companies moving from one state to another considered “supply of services” : AAR

Even when companies move their business from one state to another, they could now see tax complications as this would be considered a supply and face Goods and Services Tax (GST).

A recent ruling by Authority for Advance Ruling (AAR) on transfer of business from one state to another by the same company will be considered “supply of services.” The AAR ruled that this would be considered a supply of services.

Tax experts point out that the ruling is set to create GST complications for several companies going ahead.

“One may argue that if transactions between ‘distinct persons’ i.e. two separate locations of the same Company are made liable to tax under GST, other conditions being satisfied, benefit of exemptions, if any, on transactions between distinct persons should also be available,” said Harpreet Singh, Partner, Indirect taxes at KPMG in India.

 

 

Under the GST framework supply of services is an important concept as every supply of services could potentially result in taxes.

“This is a unique ruling on transfer of business between two separate locations of the same Company. While AAR held otherwise, Appellate authority has held the transaction to be eligible for tax on the ground that business was not transferred to ‘another person’ but to ‘distinct persons’ under GST,” said Singh

As per the details of the case a company, Shilpa Medicare Limited unit at Vizianagaram, Andhra Pradesh shifted its business to another unit--. Shilpa Medicare Limited, Bengaluru, (Bangalore) in rural Karnataka. The tax department had said that this results in a supply of services similar to when a company sells goods or when taxable services are provided by a company to another.

Under the GST framework, companies have to register in each state they operate in. Every state is essentially treated as a different company, and transactions between them are taxable. When a company moves away from one state to another it also results in lower GST collections for the state.

Source::: THE ECONOMIC TIMES ,  dated 16/02/2022.