We updated you on landmark Supreme Court judgement in the case of CC,CE&ST v. Northern Operating Systems Private Limited, 2022-VIL-31-SC-ST. In this case, the Court disregarded employer-employee relationship between expats & the Respondent (Indian company) and held that the Respondent is liable to pay Service Tax under Reverse Charge Mechanism (‘RCM’) on remuneration paid to expats. We also discussed that this decision is equally applicable and relevant under GST regime as well.

Pursuant to this, recently DGGI has initiated investigations against several MNCs, seeking agreements and other details relating to employees seconded to India.  

NITYA Comments: Initiation of investigations by DGGI indicates that the Government intends to collect GST on such activity and the GST Council / the Government is unlikely to consider Industry representations to issue positive clarification on this issue. Hence, MNCs may need to litigate this issue in near future. 

Taxpayers need to analyse their existing Secondment Agreements to determine similarities or distinguishing features from that of Northern Operating Systems (supra) to determine applicability of GST under RCM. Even if GST is payable, taxpayers can consider strategizing this issue to limit interest exposure for past period. 

Taxpayers may also note that if they pay GST after being pointed out by department, ITC thereof may get jeopardized basis Section 17(5)(i) of the CGST Act.

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