Top Multinational Companies (MNC) have contested the show cause notices (SCNs) issued by the Directorate of GST Intelligence (DGGI) over the secondment issue on deputation of expatriates to the Indian arm/subsidiary of the global conglomerate for GST payments.
GST has demanded that an expatriate employee being reimbursed by the Indian company for the services provided to the company is deemed as the recipient of the service considered as a "supply of manpower" under the GST law.
Companies liable to pay GST on supply at applicable rate
GST officials claimed that Indian companies are liable to pay GST on the value of the deemed supply at the applicable rate.
DGGI issued over 100 SCN across Delhi, Bengaluru and Mumbai and collected revenue of over ₹1500 crores from these companies on the secondment issues.
Amongst those who contested the GST demand include Kawasaki Motors and Shinhan Bank (India) contending that supply of manpower between a parent company and it’s Indian arm cannot be deemed as ‘supply of manpower’ hence does not attract GST.
Almost one-third of the 100 odd MNCs issued SCNs across the country paid the GST demand while others made ‘part payment’ contesting the penalty and interest levied by the department on the dues before the adjudicating
Earlier the Supreme Court had in May declared that secondment of personnel to group firms situated in India resulted in the supply of a taxable service, and that the amount of wage cost refunded to the group companies would be liable to tax.
Supreme Court order
According to senior GST officials the SCNs were issued after the Supreme Court order which clearly stated that if the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. “SC order is clear that in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed,” explained a senior GST official and further added that many of these companies are contending with the arrangement of the employment are before various Adjudicating Authorities.
DGGI has been active in issuing notices seeking recovery of tax, along with interest, for the service tax and GST period.