The GST law will also be amended to make input service distributor (ISD) mechanism mandatory prospectively for distribution of input tax credit of such common input services procured from third parties.

In a recent circular, the Central Board of Indirect Taxes and Customs said that for common input services procured by the head office (HO) from a third party, but attributable to both HO and branch offices (BOs) or exclusively to one or more BOs, HO has the option to distribute input tax credit by following the ISD mechanism. However, if it wishes to distribute the ITC to its BOs, the HO will have to mandatorily register itself under the ISD mechanism.

“Various representations have been received seeking clarification on the taxability of activities performed by an office of an organisation in one State to the office of that organisation in another State, which are regarded as distinct persons under section 25 of Central Goods and Services Tax Act, 2017,” the CBIC said.

The circular also clarifies that taxpayers can also adopt for a cross charge mechanism and bill the branches by adopting the value as per Rule 28 of the CGST Act, which would effectively mean that any value is acceptable if the recipient branch is entitled for full credit.

The circular is expected to bring to rest a number of legal disputes. “Businesses across the industry have been struggling to find the correct method for distribution of credit between Head Office and Branch Office. Recent circular, while proving relief in making ISD optional also endeavours to clarify on the way forward for distribution of input tax credit specifically when it comes to salary costs and other third-party costs. It will likely help in settling a long pending interpretational issue between the tax payer and tax department,” noted Saurabh Agarwal, Tax Partner, EY.

The CBIC has also issued a number of other circulars to implement decisions of the GST Council. It has also issued a circular clarifying taxability of shares held in a subsidiary company by the holding company.

“The activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST,” the CBIC has said.

Experts said the clarification will provide relief to multinational companies. “The essence of the circular is that purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services and for a transaction or activity to be treated as supply of services, there must be a supply and not merely a classification entry,” said Mahesh Jaising, Partner, Leader of Indirect Tax, Deloitte India.