Introduction
Group companies often centralise procurement of goods and services to achieve economies of scale. The question arises: How is centralised procurement treated under GST?
The answer depends on whether the goods are distributed to group entities or consumed centrally. This guide explains the legal framework and the practical implications.
Legal Framework: Cross-Charge and ISD for Procurement
Distribution of Goods
Where centrally procured goods are distributed to group entities, the distribution is a supply of goods under GST. The central entity charges GST on the value of goods supplied.
Distribution of Services
Where centrally procured services are used by multiple GSTINs, the entity can distribute the ITC through the ISD mechanism.
ISD Registration Mandatory
From April 1, 2025, ISD registration is mandatory for distributing ITC on common services.
GST Treatment
Goods
The central entity charges GST on the value of goods supplied to group entities. The receiving entity claims ITC.
Services
The ISD distributes ITC to the recipient GSTINs without charging GST.
Documentation Required
- Procurement Agreement: Documentation of the procurement terms.
- Tax Invoice: For supply of goods.
- ISD Invoice: For ISD distributions.
Best Practices
- Determine the Nature of Procurement: Assess whether goods or services are involved.
- Register as ISD: Register as ISD where services are procured centrally.
- Maintain Records: Document all procurement and allocation transactions.
- Seek Professional Assistance: For complex group structures.
Conclusion
Centralised procurement and cost allocation are treated as cross-charge supplies or ISD distributions. ISD registration is mandatory from April 1, 2025. Proper documentation is essential.
Centralising procurement for your group? Anuj Desai & Associates provides expert guidance on GST compliance. Contact us today.
Contact us:
- Email: office@anujdesaiassociates.com
- Phone: 9619456656
- Website: https://anujdesaiassociates.com
- LinkedIn: linkedin.com/in/ca-anuj-desai-122547230