Section 25(4) of the CGST Act provides that establishments of the same person in different states are treated as distinct persons. This principle has far-reaching implications for inter-branch transactions, cost allocation, and ITC distribution.
This article explains the distinct persons concept and its compliance implications.
The Statutory Basis
Section 25(4) provides that a person who has obtained more than one registration, whether in one state or more than one state, shall be treated as a distinct person for each registration. The principle extends to registered and unregistered establishments of the same person.
Implications for Inter-Branch Transactions
- Supply: Transactions between distinct persons are supplies under GST.
- Valuation: The value must be at arm’s length under Rule 28.
- Invoicing: A tax invoice must be issued for the supply.
- ITC: The recipient branch can claim ITC on the supply.
ISD vs Cross-Charge
- ISD: Mandatory from April 2025 for distributing ITC on common input services.
- Cross-Charge: For internally generated services and non-ITC cost allocations.
Compliance Framework
- Treat each GSTIN as a distinct person.
- Issue invoices for all inter-branch transactions.
- Apply Rule 28 valuation correctly.
- Use the ISD mechanism for common input services.
- File GSTR-6 for ISD distributions.
Conclusion
The distinct persons principle is foundational to GST compliance for multi-location businesses. Understanding its implications is essential for structuring inter-branch transactions.
At Anuj Desai & Associates, we provide expert advisory services on GST for multi-location businesses. Our team can help you navigate the distinct persons framework.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.