GST Circular 199/2023 providing clarity on Cross Charge vs ISD

GST circular issued recently has provided clarification on various issues of Cross Charge vs ISD

The same can be summarized as under:

1. HO can claim credits which are commonly used by Head Office and Branches
   2. In case of transfer of credit (ISD / Cross Charge), the credit transfer needs to be restricted to the services actually provided to the BO – This is to ensure that excess credit is not transferred to a branch to shift credit from one location to another and minimize cash liability
   3. Salary Cost is not required to be considered for arriving at cross charge value irrespective of whether BO is entitled to full credit of ITC or not
   4. If Cross charge invoice not raised then “value of such service may be deemed to be declared as NIL” and may be deemed as OMV – This effectively provides immunity to taxpayers who did not raise cross charge invoice

However, there is some caution which need to be taken as under:

1. The GST Council had recommended prospective amended in GST Law to make ISD mandatory for third party services – Once the GST Laws are amended, HO will have to bifurcate the cost into
– Internally generated services – Raise invoice on Branches
– Third Party Services – Transfer the credit using ISD

2. Circular only covers transactions between distinct person (Branches of the Company) and not between related parties

3. The Circular specifically states that Salary cost can be excluded for computation of invoice value irrespective of whether branch can avail credit or not.  However, no reasoning for the same is provided nor has any clarification been provided for any other expenses.

4. Based on Q2 in the Circular, it appears that the ITC available needs to be checked on transaction level and not taxpayer level – “𝘏𝘖 𝘪𝘴 𝘱𝘳𝘰𝘷𝘪𝘥𝘪𝘯𝘨 𝘤𝘦𝘳𝘵𝘢𝘪𝘯 𝘴𝘦𝘳𝘷𝘪𝘤𝘦𝘴 𝘵𝘰 𝘵𝘩𝘦 𝘉𝘖𝘴 𝘧𝘰𝘳 𝘸𝘩𝘪𝘤𝘩 𝘧𝘶𝘭𝘭 𝘪𝘯𝘱𝘶𝘵 𝘵𝘢𝘹 𝘤𝘳𝘦𝘥𝘪𝘵 𝘪𝘴 𝘢𝘷𝘢𝘪𝘭𝘢𝘣𝘭𝘦”.