IGST Not Leviable On Secondment Of Employee From Overseas Group Companies: Karnataka High Court

The Karnataka High Court held that IGST is not leviable on secondment arrangement with overseas entities. Justice Sachin Shankar Magadum was addressing the issue of whether a secondment constitutes a taxable supply of manpower services or a non-taxable employer-employee relationship exempt under Schedule III of the CGST Act. In this case, the during the period from July 2017 to March 2023, the assessee avers that employees of its overseas group companies were seconded to work in India for a fixed tenure. During the term of their secondment, these expatriates were placed on the payroll of the petitioner in India, and their salaries were paid directly by the assessee after deducting applicable Tax Deducted at Source (TDS) in accordance with the provisions of the Income Tax Act, 1961. A show cause notice was issued by the department proposing to demand IGST for the period July 2017 to March 2023. The demand is premised on the allegation that the assessee was liable to pay IGST on the import of 'Manpower Supply Service' from its overseas affiliates. In response, the assessee has relied on Circular No.210/4/2024-GST dated 26.06.2024 issued by the Central Board of Indirect Taxes and Customs (CBIC), which clarifies that in cases involving related party transactions where full input tax credit is available to the recipient, the value declared in the invoice may be deemed as the open market value under the second proviso to Rule 28 of the CGST Rules, 2017. The assessee asserts that since no invoices were raised, the open market value must be deemed to be 'Nil'. Despite furnishing requisite documents the Deputy Commissioner of Commercial Taxes/respondent no.3 issued a formal show cause notice. Aggrieved the assessee filed a writ petition before the Karnataka High Court. The Court relegated the assessee to submit a detailed reply before the authorities, taking note of the then recently issued CBIC Circular dated 26.06.2024, which clarified that in the absence of an invoice, the taxable value is deemed to be 'Nil'. Despite submission of additional documents and explanations in line with this clarification, the Assistant Commissioner of Commercial Taxes/respondent No.4 passed the order confirming the IGST demand on alleged import of manpower recruitment and supply services. The assessee submitted that salaries paid to expatriates cannot be treated as open market value under Rule 28 of the CGST Rules, 2017. These payments, being in the nature of salaries, do not constitute consideration for supply of manpower services and hence do not attract IGST under reverse charge. The department submitted that the assessee's arrangement with its overseas group entities amounts to a taxable supply of service under the Goods and Services Tax (GST) regime. According to the Department, the secondment of employees by the foreign parent or affiliated entities to the assessee constitutes a provision of “manpower supply service". The bench looked into paragraph 3.7 of Circular No. 210/4/2024-GST dated 26.06.2024, and observed that following the clarification in Para 3.7, the value of such services must be deemed to be 'Nil' and treated as the open market value. Even if arguendo such secondment arrangement is assumed to be a supply, the deeming fiction under the Circular neutralises any scope for further tax liability. The bench referred to the case of Metal One Corporation India Pvt. Ltd. v. Union of India & Ors., [2024 DHC 8298 DB] Delhi HC and stated that “………..This Court is in agreement with the view of the Delhi High Court that the Circular, being binding on the authorities, leaves little room for the Revenue to allege a taxable value in the absence of an invoice. Further, the second proviso to Rule 28 cannot be invoked to displace the legal effect of a 'Nil' value where the legislative framework itself permits such a deeming fiction, especially when full input tax credit is available.” In light of the statutory exclusion under Schedule III and the clarificatory Circular issued by the CBIC, the bench held that the secondment arrangement does not give rise to any tax liability, and the demand raised by the Revenue is liable to be set aside. In view of the above, the bench allowed the petition. Case Title: M/s Alstom Transport India Limited v. Commissioner of Commercial Taxes Case Number: WRIT PETITION NO.1779 OF 2025 (T-RES)Citation No: 2025 LiveLaw (Kar) 250 Counsel for Petitioner/Assessee: Ravi Raghavan, Meghna Lal and Vani Dwevedi Counsel for Respondent/Department: Jyoti M. Maradi Click Here To Read/Download The Order

IGST Not Leviable On Secondment Of Employee From Overseas Group Companies: Karnataka High Court

Mehak Dhiman

Tags