In a recent turn of events, several Indian companies have found themselves entangled in a web of GST demand notices, particularly concerning cases where overseas employees have been deputed to work in India. This predicament stems from a significant judgment handed down by the Supreme Court, which ruled that the salaries of "seconded employees" deputed to Indian companies, reimbursed to the overseas entities, are subject to service tax. This landmark decision, delivered on May 19, 2022, in the case of Northern Operating Systems, has opened a complex and evolving chapter in the realm of India's Goods and Services Tax (GST).
Experts in the field have noted that this flurry of GST demand notices can largely be attributed to the closure of the assessment period for the financial year 2017-18, which concluded in September. Meanwhile, the companies that have received these notices are diligently scrutinizing the specifics of their respective cases to devise the most suitable course of action.
An in-house tax expert at an engineering company based in Bengaluru emphasized that the Supreme Court's order did not explicitly declare its applicability as retrospective. This is a crucial point, as it is customary for employees to be deputed from overseas head offices or other group companies to Indian subsidiaries or affiliate entities. While these deputed employees operate under the guidance and direction of the Indian company, their employment contracts continue to be held by the overseas entity. The salaries for these deputed employees are reimbursed by the Indian company to the overseas entity on an actual basis.
The case of Northern Operating Systems serves as an illustrative example. This company provided specific back-office services to its overseas affiliates and occasionally received managerial and technical staff members who were deputed to them by overseas group entities for predetermined durations. These deputed employees, while working in India, remained on the payroll of their original employers and continued to receive their salaries and social security benefits from the overseas entities. However, the overseas entity would subsequently invoice the Indian company (the transferee) to recover these amounts without any additional markup.
In light of these developments, companies that have received GST demand notices are urged to carefully examine the particulars of their unique situations. In the case of Northern Operating Systems, the entire salaries of overseas employees were disbursed by the Indian entity to the overseas counterpart, further complicating the tax implications in play.
CAclubindia
