• Notification Date: 18-12-2023
• Notification No: N/A

Chennai Tribunal gives Split Verdict over GST on Salaries to Expats

The matter of goods and services tax (GST) on salaries paid to expats by Indian subsidiaries of multinational corporations (MNCs) refuses to die down. 

After the verdict of the Supreme Court on taxing reimbursements paid by Indian subsidiaries to parent companies for such payments, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (Cestat) recently pronounced a split verdict on the different aspects of these payments. 

The issue in the recent case relating to Nissan Motors India in Chennai Cestat was a bit different because part of the emoluments was paid by the foreign company and the rest by the Indian company directly to overseas employees on deputation to India. 

While the judicial member held that the Indian salary and other allowances paid directly by the taxpayer to secondees could not be taxed, the technical member ruled such payments were to be included in the taxable value. 

Pratik Jain, leader, indirect tax, PwC India, said given the split verdict, the matter would be referred to the third member and industry would await the outcome because the principles of service tax (which the case pertains to) would apply under the GST regime. 

The Supreme Court had ruled last year in a case related to Northern Operating Systems (NOS) that the secondment or deputation of employees from a foreign group to an Indian entity constituted manpower supply and was liable to service tax under the reverse charge mechanism. 

Since GST principles are similar to those of the earlier service tax, the authorities started sending notices to Indian subsidiaries for 18 per cent GST on reimbursement to parent companies for salaries to these employees. 

However, in the NOS case, the issue of valuation was not discussed because the entire amount was paid by the Indian company. In the Chennai Cestat case, part of the emolument was paid by the foreign company and part by the Indian company directly to employees, he said. 

The issue dealt with by Cestat was limited to the question of valuation and arriving at the taxable value and not the taxability of the transaction. 

Following the Supreme Court verdict, the GST authorities started serving notices on a few Indian subsidiaries of multinationals for taxing reimbursement to parent companies as salaries of overseas employees on deputation. 

These companies included BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India, United Breweries, and Kanematsu India. These companies moved high courts and got interim relief “coercive measures” by the authorities. 

To cool the rising temperature, the Central Board of Indirect Taxes and Customs (CBIC) has asked its field officers to not treat every expat salary by Indian subsidiaries of multinationals like NOS.