Karnataka HC Quashes Rs. 57.94 Cr IGST Demand on Expatriate Secondment; Cites CBIC ‘Nil Value’ Circular

In a recent ruling, the Karnataka High Court has quashed a demand of Rs 57.94 crore in IGST issued against a company, where the employees were seconded from overseas group companies.

The petitioner company, M/s. Alstom Transport India Limited is engaged in railway and metro infrastructure projects. As per the company, the employees of the company were seconded from foreign group companies to work in India between July 2017 and March 2023. These employees were on the payroll of the company in India, and their salary was paid by the company after deducting the TDS as per the Income Tax Act, 1961. The overseas group entities also provided social security benefits available in their home countries. As per the company, it had been discharging IGST on a reverse charge mechanism on the debit note amount raised by the overseas group entities. The IGST was also claimed as Input Tax Credit (ITC), and the tax authority did not question this.

However, the Department issued a demand for IGST through a show-cause notice amounting to Rs 57,94,94,146, along with interest and penalty for July to March 2023, claiming that the company was liable to pay IGST on the import of ‘Manpower Supply Services‘ from its overseas entities. Therefore, the company approached the High Court of Karnataka.

As per the company, the transaction was not a “supply” as per the meaning of Entry 1 of Schedule III to the CGST Act, 2017. The company contended that salaries paid to the expatriate employees cannot be considered as open market value under Rule 28 of the CGST Rules, 2017. Further, the company added that these payments do not make the consideration for the supply of manpower services, due to which the payments are not subject to IGST under reverse charge. The petitioner relied on the Circular No. 210/4/2024-GST dated 26.06.2024, issued by the Central Board of Indirect Taxes and Customs (CBIC). As per this circular, if there is no invoice, the taxable value is treated as ‘Nil.’ Therefore, the petitioner argues that as no invoices were raised, the open market value must be treated as ‘Nil.’

The Karnataka High Court, after observing para 3.7 of the CBIC’s circular dated 26.06.2024, and quashed the orders worth Rs 57.94 crore issued by the tax authority. The High Court held that the secondment of employees is not a taxable supply of manpower services. Therefore, the IGST under the reverse charge mechanism is not payable.