MUMBAI: The spate of GST-demand notices on Indian companies – in instances where overseas staff have been deputed to India, followed by an increase in litigation and industry representation – has led to CBIC sounding a word of caution to its field employees that a ‘one-size fit all’ approach cannot be adopted.
TOI, in its edition of October 4, had reported on the spate of demand notices being served on companies across sectors including auto, electronics, pharma, FMCG, which cumulatively added up to demands running into hundreds of crores of rupees.
These notices were served by relying on a judgment given by the SC in the case of Northern Operating Systems (NOS), on May 19, 2022. Managerial and technical staff were deputed to NOS by its overseas group companies for a specified tenure. The deputed employees remained on the payroll of the original employer and received salary, social security and other benefits from the respective overseas entities. Subsequently, the Indian company reimbursed the salary expenses. The SC had held that the secondment of employees by the overseas group company to NOS was a taxable service of ‘manpower supply’ and service tax was applicable on the same.
CBIC via a letter dated December 13 sent to high-ranking indirect tax officials states that the issue of taxability on secondment shall arise in the realm of GST also. However, sounding a cautionary note, it adds: “A careful reading of the NOS judgment indicates that the SC’s emphasis is on a nuanced examination based on the unique characteristics of each specific arrangement rather than relying on any singular test.”
There are multiple types of arrangements as regards secondment of employees to the Indian company and the tax implications of each may differ, based upon the specific nature of the contract and other terms and conditions attached to it, it stated. “Therefore, the decision of the SC should not be applied mechanically in all cases”. Abhishek Jain, partner and national Head, indirect tax, KPMG-India, said, “If the facts differ, say if the Indian company employs the overseas people or if merely social security is reimbursed but the overseas people are effectively employed with the Indian company, it should be possible to argue that the SC decision does not apply.”
TOI, in its edition of October 4, had reported on the spate of demand notices being served on companies across sectors including auto, electronics, pharma, FMCG, which cumulatively added up to demands running into hundreds of crores of rupees.
These notices were served by relying on a judgment given by the SC in the case of Northern Operating Systems (NOS), on May 19, 2022. Managerial and technical staff were deputed to NOS by its overseas group companies for a specified tenure. The deputed employees remained on the payroll of the original employer and received salary, social security and other benefits from the respective overseas entities. Subsequently, the Indian company reimbursed the salary expenses. The SC had held that the secondment of employees by the overseas group company to NOS was a taxable service of ‘manpower supply’ and service tax was applicable on the same.
CBIC via a letter dated December 13 sent to high-ranking indirect tax officials states that the issue of taxability on secondment shall arise in the realm of GST also. However, sounding a cautionary note, it adds: “A careful reading of the NOS judgment indicates that the SC’s emphasis is on a nuanced examination based on the unique characteristics of each specific arrangement rather than relying on any singular test.”
There are multiple types of arrangements as regards secondment of employees to the Indian company and the tax implications of each may differ, based upon the specific nature of the contract and other terms and conditions attached to it, it stated. “Therefore, the decision of the SC should not be applied mechanically in all cases”. Abhishek Jain, partner and national Head, indirect tax, KPMG-India, said, “If the facts differ, say if the Indian company employs the overseas people or if merely social security is reimbursed but the overseas people are effectively employed with the Indian company, it should be possible to argue that the SC decision does not apply.”
