Secondment refers to the delegation of employees or expatriates to another part of the organization at home or abroad.
After multinational companies in India received several GST notices related to ‘sending’ employees abroad, the Central Board of Indirect Taxes (CBIC) has asked its field officials I do not “mechanically” apply the Supreme Court’s 2022 decision in all cases.
Secondment refers to the delegation of employees or expatriates to another part of the organization at home or abroad. This leads to the question of taxation of these employees – whether they will be considered part of the Indian subsidiary or a foreign group company.
In May last year, in the case of Northern Operating Systems Pvt. Ltd, the Supreme Court has held that the posting/transfer of employees from a foreign company to an Indian entity falls within the nature of ‘recruitment and provision of manpower services’ and will therefore be subject to tax on services.
The authorities have also extended this measure to GST, sending notices to several multinational companies, including auto and FMCG companies, to collect information on expatriates and employees on secondment. work with them.
The CBIC’s decision, asking the officials to carefully probe each case, came after the industry made several representations to the CBIC regarding the blanket invocation of the SC decision by field organizations against all such employment agreements between foreign entities and companies in India.
“It may be worth noting that there may be some type of arrangement regarding the placement of employees of a foreign group company in the employment of the Indian entity. In each agreement, the tax implications may vary, depending on the specific nature of the contract and other terms and conditions attached to the contract.
Therefore, the decision of the Supreme Court in NOS should not be applied mechanically in all cases. The investigation in each case requires careful consideration of its distinct factual matrix, including the terms of the contract between a foreign company and an Indian entity, to determine its applicability. or its extent under GST and the applicability of the principles prescribed by the ruling of the competent authority. Supreme Court in the NOS case,” the guidelines issued by the CBIC on Wednesday said.
The CBIC noted that a “careful reading of the NOS judgment” shows that the Supreme Court emphasized “nuanced considerations based on the unique characteristics of each particular agreement, rather than a single test ”. The industry also argued that in many cases relating to postings, field units mechanically invoke the extended period of limitation under Section 74(1) of the Central GST Act (CGST).
Section 74(1) of the GST Act deals with determination of non-payment or underpayment of tax or misuse of input tax credit under GST by fraud or by any willful misrepresentation or hide the truth. The CBIC said Section 74(1) cannot be invoked solely for non-payment of GST without a specific element of fraud or intentional misrepresentation or concealment of facts to evade tax. such cases and issue a just cause notice. “Only in cases where the investigation shows that there is substantial evidence of fraud or intentional
misrepresentation or concealment of the truth to evade taxes on the part of the taxpayer can the provisions of Article 74(s) be relied upon. 1) of the CGST Act for processing the issue. of the show cause notice and this evidence should also be a part of the show cause notice,” he said.
Manish Gaur, senior associate at Lawyers Lakshmikumaran & Sridharan, said the directions issued by the CBIC have brought a lot of relief to taxpayers as it clarifies that the judgment cannot be applied mechanically and the facts of each case must be carefully analyzed before recommending a judgment. the request. “This direction will also require the Ministry to be open to the possibility of cases of recruitment of foreigners in India that are not import of labor services and therefore will not have a tax impact,” he said. tax”.
These instructions will also help bring an end to the various show cause notices issued in this regard. “These proactive, timely and much-needed guidelines have played a vital role in the successful implementation of GST. When the above-mentioned guidelines are implemented judiciously, they can help in concluding various schemes,” said Abhishek Jain, Head and Partner, Indirect Tax, KPMG.
For more information, visit at https://happenrecently.com/zepto/?amp=1
