Salaries paid to expatriates under secondment do not constitute taxable supply under GST; absence of invoices results in nil taxable value as per the CBIC circular.

Headnote:(A) Central Goods and Services Tax Act, 2017 - Section 15(4) and Rule 28 - Challenge to demand of Integrated Goods and Services Tax (IGST) on seconded expatriates - The court finds that salaries paid to expatriates do not constitute taxable manpower service under the GST regime, reaffirming the exclusion under Schedule III of the CGST Act and the related CBIC circular clarifying nil value in absence of invoices. (Paras 1, 18, 20)

Facts of the case:
The petitioner assails demand of IGST of Rs.57,94,94,146/- by tax authorities for the tax period July 2017 to March 2023 linked to seconded expatriates, asserting that their salaries do not amount to a taxable supply, based on the employer-employee relationship and reliance on CBIC clarifications. (Paras 1, 2)

Findings of Court:
The court holds that the secondment arrangement does not give rise to any tax liability under the GST framework, as no invoices were raised, and statutory exclusions apply. Therefore, the IGST demand is quashed. (Paras 20, 21)

Issues: Whether the secondment arrangement constitutes a taxable supply of manpower service and if the absence of invoices defaults the taxable value to nil as per the CBIC circular. (Paras 19)

Ratio Decidendi: The court highlighted that in the absence of invoices, the value of services is to be deemed 'Nil' and thus no tax liability arises; the Circular issued by CBIC is binding on the authorities. (Paras 18, 20)

Result: The writ petition is allowed, and the IGST demand is quashed.

CAV ORDER

In the captioned petition, petitioner is assailing the orders dated 16.10.2024 vide Annexures-A to A5 passed by respondent No.4 and a further declaration is sought that the taxable value of the supply, if any, made by the overseas entities/expats to the petitioner is 'Nil' in terms of Section 15(4) of the Central Goods and Service Tax Act, 2017 (for short 'the CGST Act, 2017') read with Rule 28 of the CGST Rules, 2017. A further declaration is sought for payment of salary made to the expats by the petitioner does not attract IGST on the ground that it does not amount to manpower and recruitment supply of services from the overseas group entities to the petitioner/company.

2. The facts leading to the case are as under:

The petitioner is engaged in the business of designing, manufacturing, supplying, installing, and commissioning goods pertaining to railway and metro infrastructure projects. In addition, the petitioner provides design and engineering services, including software upgradation and modification in metro projects. During the disputed period from July 2017 to March 2023, the petitioner avers that employees of its overseas group companies were seconded to work in India for a fixed tenure. The petitioner asserts that it executed employment agreements with each of these expatriate employees, detailing their appointments, salaries, and allowances. It is further submitted that 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 petitioner after deducting applicable Tax Deducted at Source (TDS) in accordance with the provisions of the Income Tax Act, 1961.

The petitioner contends that while the expatriate employees were on its payroll, the overseas group entities continued to provide social security and related benefits available in their home countries. From November 2020 onwards, the petitioner has been discharging Integrated Goods and Services Tax (IGST) on a reverse charge basis, periodically, on the amounts specified in debit notes raised by the overseas group entities, as reflected in its GSTR-3B returns. It is submitted that the IGST so paid was availed as Input Tax Credit (ITC), and no objections were raised by the authorities in this regard.

The petitioner’s grievance arises from the issuance of a show cause notice bearing No.ADCOM/ENF/SZ/Summons- 480/2023-24 dated 26.09.2023 by respondent No.3, proposing to demand IGST amounting to Rs.59,57,19,228/-, along with interest and penalty, for the period July 2017 to March 2023. The demand is premised on the allegation that the petitioner was liable to pay IGST on the import of ‘Manpower Supply Service’ from its overseas affiliates. In response, the petitioner 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 petitioner asserts that since no invoices were raised, the open market value must be deemed to be ‘Nil’.

Despite furnishing requisite documents and replying in Part B of Form DRC-01A, explaining that IGST had already been discharged under the reverse charge mechanism on the reimbursed amounts, and asserting that the seconded expatriates were on the petitioner’s payroll, respondent No.3 proceeded to issue a formal show cause notice on 26.09.2023. This was despite the petitioner having clearly submitted that the transaction is not a “supply” within the meaning of Entry 1 of Schedule III to the CGST Act, 2017. Prior to this, on 27.07.2023, Part A of Form DRC-01A was issued indicating a proposed liability of Rs.62,69,13,875/-, which was responded to by the petitioner with detailed submissions and supplementary documents.

Aggrieved,

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