MUMBAI: The wave of GST demand notices in Indian companies – in cases where foreign personnel were delegated to India, followed by an increase litigation and industry representation – led to CBIC warning its field employees that a “one size fits all” approach cannot be adopted.
TOI, in its October 4 edition, reported on the spate of demand notices sent to companies in sectors such as automobile, electronics, pharmaceuticals, FMCG, which cumulatively amounted to demands running into hundreds of crores of rupees.
These notifications were notified based on a ruling handed down by the SC in the Northern Operating Systems (NOS) case, on May 19, 2022. Managers and technicians were delegated to NOS by their group companies abroad for a specific mandate. Delegated employees remained on the original employer's payroll and received salary, social security and other benefits from their respective foreign entities. The Indian company later reimbursed the salary expenses. The CF considered that the posting of workers by the foreign group company to NOS was a taxable service of “supply of labor” and service tax was applicable on it.
The CBIC, through a letter dated December 13 sent to senior officials in the indirect tax department, states that the issue of taxation on posting will also arise in the GST domain. However, sounding a note of caution, it adds: “A careful reading of the NOS ruling indicates that the SC's emphasis is on a nuanced examination based on the unique characteristics of each specific agreement, rather than relying on any singular test.”
There are various types of agreements with regard to posting of employees to the Indian company and the tax implications of each may differ, based on the specific nature of the agreement and other terms and conditions associated with it, it said. “Therefore, the SC decision should not be applied mechanically in all cases.” Abhishek Jain, partner and national head of indirect tax, KPMG-India, said, “If the facts differ, say whether the Indian company employs foreign people or whether only social security is reimbursed but foreign people are actually employed by the Indian company , it should be possible to argue that the SC ruling does not apply.”



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