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CBIC vide Instruction No. 05/2023-GST dated December 13, 2023 has instructed the Revenue authorities that the decision of the SC in RE: Northern Operating Systems Private Limited (NOS) [2022-VIL-31-SC-ST] should not be applied mechanically in all the cases.
The CBIC clarified that the SC in its judgment held that the secondment of employees by the overseas group company to NOS was a taxable service of 'manpower supply' and therefore, Service Tax was applicable on same, only after taking every fact into consideration. Accordingly, there may be multiple types of arrangements in relation to secondment of employees of overseas group company in the Indian entity. In each arrangement, the tax implications may be different, depending upon the specific nature of the contract and other terms and conditions attached to it.
Relying on the judgement of the Apex Court in RE: Fiat India Private Limited [2012-VIL-01-SC-CE], noted that each case depends on its own facts, and a broad resemblance to another case is not decisive. Thus, the uniqueness of each case should be considered in determining tax implications. The CBIC further clarified that the extended period of limitation u/s. 74(1) of the CGST Act in cases involving secondment can be invoked only when there is evidence of fraud, wilful misstatement, or suppression of facts to evade tax. Mere non-payment of GST is not sufficient to invoke this provision.
The aforesaid instruction is a welcome clarification, especially since the Revenue authorities have been bombarding the taxpayers with investigations on all kinds of secondment arrangement irrespective of the facts of each case. Interestingly, the said instruction does not provide a rationale relating to levy of taxation, but only emphasizes that the precedent decision cannot be universally applied.
It may be noted that recently, the demand of GST on secondment of employees has been challenged before the Delhi HC in RE: Metal One Corporation Private Limited [2023-VIL-816-DEL]. Similar writ has been filed by Alstom Transport India Limited [W.P. No. 23915/2023]. Both the matters have been stayed and pending for hearing. It would be interesting to see the outcome of these Writs.
The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.
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