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Secondment GST: Karnataka HC Ruling on Compliance Rules

In the recent ruling in the case of M/S Alstom Transport India Ltd, the Karnataka HC quashed an IGST demand raised on Alstom India for alleged “manpower supply” via expat secondment from its foreign group companies. The Court held that expats were on Alstom India’s payroll, under its control and had employment contracts with it—thus forming an employer-employee relationship.

Background:

For project work in India, expatriate employees were seconded from overseas group entities and placed under the assessee’s control and payroll. The assessee:

  1. Executed direct employment contracts with the expatriates,
  2. Paid their salaries in India
  3. Deducted TDS as per Indian tax laws.

Despite this, tax authorities issued a Show Cause Notice (SCN) alleging it amounted to an import of manpower supply service, attracting IGST liability under the Reverse Charge Mechanism (RCM).

Court’s Interpretation:

The court laid out the economic employer test, the nature of posting and integration into the Indian workforce test to determine the employer-employee relationship. Referring to Circular No. 210/4/2024-GST as below:

  1. Where no invoice is raised for intra-group services and full ITC is available, the supply value may be treated as ‘Nil’, eliminating GST liability.
  2. This deeming fiction applies even if the arrangement is assumed to be a taxable supply.

 Also, regarding seconded expatriates it has been found that:

  1. They were under full control and supervision of the Indian entity.
  2. Salaries were paid directly in India and governed by Indian labour laws.
  3. No markup or service fee was charged by the foreign entity.
  4. They were integrated into Indian operations as employees.

Key Takeaways

  1. Where there is no invoice and full ITC is available, it allows treating intra-group service value as ‘Nil’, eliminating GST liability.
  2. The deeming fiction applies even if supply is assumed.
  3. When the seconded expatriates were controlled, paid and governed by an Indian entity and laws, with no service fee charged. Consequently, no effective GST liability arises even if treated as a supply.

Conclusion

The Court, supported by the CBIC Circular, clarified that secondment of expatriates to the Indian entity does not amount to taxable supply under GST when no consideration is charged and full ITC is available. The arrangement reflects an employer-employee relationship, not manpower supply, eliminating any GST demand.