But then such allocation is notional and no money changes hands. Indeed, they simply cannot change hands because after all a branch and head office is nothing but the same entity. That one cannot trade with oneself much less make profit from each other, is axiomatic and forms the bedrock of the mutuality theory, the most fundamental tenet of taxation.
Yet, the GST authorities brazenly defy this time-honoured and time-tested tenet, citing international best practice. The truth is no country commits this tax tyranny that borders on irrationality. To be sure, the GST law requires separate registration in each State for the same entity. While this might have been done for administrative convenience, it does not alter the basic relationship between head office and branch and branches inter se. That the branch is entitled to input tax credit isn’t justification either for this patently wrong impost.
Of the same piece is the government diktat to bring Resident Welfare Associations (RWAs) under GST if the monthly subscription by a flat owner or occupant is more than ₹7,500 and the annual turnover of the RWA exceeds ₹20 lakh . This is even more ridiculous.
An RWA is by no means a trader. Mutuality underpins its relationship with its members. Yes mutuality is disturbed when there is no complete oneness between the contributors and the participants. To wit, let us say there is a club comprising 1,000 members. Let us say they contribute ₹1,000 each every month. No outsiders are allowed inside the club or to partake of its amenities like tennis court, badminton court, billiards table, etc. Such a club is not taxable under the income tax law. But if it allows entry to outsiders too on payment, the protection afforded by the cloak of mutuality is lost.
To a RWA, the small trader criterion of annual turnover not exceeding ₹20 lakh is inappropriate because it is prima facie not a trading association or body. Certainly its object is not to trade or make profits. If it strays away from the straight and narrow of enuring purely for its members by allowing outsiders to partake of its amenities like community hall, it loses the character of being a mutual association because there is no complete match between the contributors and participants.