• Notification Date: 16-12-2023
• Notification No: N/A

GST on Expat Salary: CBIC forbids Officers from applying SC Order Mechanically

The Central Board of Indirect Taxes and Customs (CBIC) has asked its field officers to not treat every case of expat salary by Indian subsidiaries of multinationals like Northern Operating System (NOS), which drew a GST notice following a Supreme Court verdict. 

The Board, in a circular, asked officers to not apply the court verdict mechanically. The move may provide relief to the companies facing notices from GST (Goods and Services Tax) authorities and approached High Courts over the issue. However, experts said the board should have specified the cases where the GST would not apply. 

"... The decision of the Supreme Court in the NOS judgement should not be applied mechanically in all the cases," said the circular. 

Investigation in each case requires careful consideration of facts, including the terms of the contract between an overseas company and an Indian entity, to determine taxability or its extent under GST and the applicability of the principles laid by the Supreme Court's judgment in NOS case, said the circular. 

The Supreme Court said in the NOS case last year the secondment (deputation) of employees from a foreign group to an Indian entity constitutes “manpower supply service” and is liable for service tax under the reverse charge mechanism. 

After that BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India, United Breweries and Kanematsu India received notices for 18 per cent GST on expat salaries. The companies moved High Courts and got interim relief against any coercive measures by the authorities. 

Rajat Mohan, senior partner at AMRG & Associates, said it is noteworthy that the CBIC has refrained from providing specific illustrative cases where tax imposition would not apply. 

Many notices were issued under Section 74(1) of the Central GST Act on taxes not paid or short paid or input tax credits wrongly availed of due to fraud or misstatement of facts. Under this clause, the time bar applicable to notices can be extended. It should be noted that notices for 2017-18 were time-barred till November 30 this year and those for 2018-19 could be issued till the current calendar year. 

Saurabh Agarwal, tax partner at EY, said the circular could bring relief to taxpayers as it potentially allows full input tax credit on paid tax when Section 74 (1) proceedings are not initiated. 

Abhishek Jain, indirect tax head and partner at KPMG, said if CBIC’s instructions could help in the closure of various show-cause notices issued to companies.