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With the global COVID-19 pandemic, employers have implemented a work from home (WFH) culture. This has positives like rental cost reduction, facility management cost reduction, no transportation cost and negatives like hinderance to working efficiency. Also, benefits like flexible working hours and saving in the commute time have been major positives for employees.
The WFH culture has provided flexibility to employers to acquire accomplished manpower from any part of the country. Technology has enabled ease in communication and data transfer, which has further strengthened the WFH culture.
WFH may have created a win-win situation for employers and employees, however, this model of working from across the country for a state specific Goods and Services Tax (GST) registration can lead to possible interpretation challenge from GST registration perspective.
For better understanding, let us discuss the relevant GST provisions, provided as follows.
Person liable for GST registration as per Section 22 of the Central Goods and Services Tax Act, 2017 (CGST Act)
Section 22
A supplier should be liable to obtain GST registration in the state from where he makes a taxable supply of aggregate turnover exceeding INR 20 lakh.
The location of supplier of service should be as below as per Section 2(71) of the CGST Act
Section 2(71) – ‘Location of supplier of services’ means –
The location of the supplier shall be the place from where he is making a taxable supply. In a case where the taxable supplies are being made from the place other than registered place of business then location of the supplier shall be the location of such fixed establishment.
On combined reading of aforesaid provisions, a taxable person should be required to obtain GST registration for a fixed establishment from where taxable supply is being made. Let us understand the meaning of a fixed establishment as laid down in the CGST Act.
Fixed establishment has been defined below as per Section 2(50) of the CGST Act.
Fixed establishment means a place which is characterized by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services or to receive and use services for its own needs.
A place categorised by sufficient degree of permanence in terms of human and technical resource for supplying services should be considered as a ‘fixed establishment’.
The term ‘sufficient degree of permanence’ has not been defined under GST law and may vary from business to business based on its nature and scale of operations.
Under the service tax regime, board circular[1] has clarified that a fixed establishment is an establishment other than business establishment which has both human and technical resource necessary for providing or receiving services permanently.
The service tax education guide has also clarified that temporary presence of staff by way of a short visit at a place cannot be called a fixed establishment. Adequacy and permanence of the arrangement (human and technical), to carry out the activity is significant, however, the number of staff is not very relevant.
Basis the above, we comprehend that an establishment should be considered as ‘fixed establishment’ if the following two criterions are cumulatively satisfied:
Criteria 1: Adequate perpetuity in terms of human and technical resources.
Sufficiency in terms of number of employees and technical resources could be subjective depending on the nature of business. The presence of resources in an establishment should be continuing, capable of operating independently. In case such an arrangement of resources is for a temporary period, then the same may not be considered as a ‘fixed establishment’.
Criteria 2: Ability to provide or receive services for own requirements.
These resources should be capable of executing the task without major assistance from the resources of other/registered locations.
In view of the above, if adequate number of employees with technical resources work from an establishment other than the registered place of business on perpetual basis then the establishment may be considered as a ‘fixed establishment’.
The SEZ law and the foreign trade policy 2015-2020 have issued guidelines in relation to work from home for employees of SEZ and STPI units. Certain relevant points mentioned in the guidelines have been summarised below
The employee shall be authorised to undertake work pertaining to that specific SEZ/ STPI unit.
Export of goods or services shall be from the premises of specific SEZ/ STPI unit. Revenue from export of goods or service to be accounted by SEZ/ STPI unit to which employee is tagged.
These guidelines may contradict the fixed establishment interpretation under the GST law for employees.
Companies adopting permanent WFH policy for their employees may have to obtain GST registration the place (other than registered place of business) with sufficient degree of permanence as discussed above, that could qualify as a fixed establishment.
Also, companies opting for WFH on temporary basis due to the COVID-19 pandemic, may evaluate amending the employment agreement with WFH clause to document the infrequent and brief nature of this arrangement.