Facts of the Case

The present batch of writ petitions challenged multiple Show Cause Notices (SCNs) issued under the Central Goods and Services Tax Act, 2017, alleging tax liability on services arising from the secondment of foreign employees to Indian entities.

The petitioners, including Metal One Corporation India Pvt. Ltd. and other companies, had engaged expatriate employees from their overseas parent/group entities. These employees worked in India under secondment arrangements.

The tax authorities treated such arrangements as import of services, alleging that salary reimbursements made to overseas entities constituted consideration for manpower supply services, thereby attracting GST under the Reverse Charge Mechanism (RCM).

SCNs were issued demanding IGST along with interest and penalties under relevant provisions of the CGST Act and IGST Act.

Issues Involved

  1. Whether secondment of employees by foreign entities to Indian entities constitutes “import of services” liable to GST.
  2. What should be the valuation of such services under Rule 28 of the CGST Rules, 2017.
  3. Whether, in absence of invoices and in light of CBIC Circular No. 210/4/2024-GST, the value of such services can be treated as Nil.
  4. Whether SCNs demanding tax, interest, and penalty are sustainable in such circumstances. 

Petitioner’s Arguments

  • The petitioners contended that the ratio of CCE & Service Tax vs Northern Operating Systems Pvt. Ltd. cannot be applied mechanically to all secondment cases.
  • They argued that in light of CBIC Circular No. 210/4/2024-GST, where full Input Tax Credit (ITC) is available, the value declared (or absence thereof) should be accepted as the open market value.
  • It was submitted that where no invoice is issued, the Circular clarifies that the value may be deemed as Nil, eliminating any tax liability.
  • Consequently, continuation of SCNs was argued to be unsustainable and contrary to binding departmental clarification. 

Respondent’s Arguments

  • The respondents contended that seconded employees remained employees of the foreign parent entity and no employer-employee relationship existed with the Indian entity.
  • Therefore, the arrangement amounted to supply of manpower services, qualifying as import of services under GST law.
  • It was argued that the value of such services must include total salary and related costs, forming the taxable value under Rule 28 of the CGST Rules.
  • The authorities justified the SCNs based on valuation principles and reliance on judicial precedent. 

Court’s Findings

  • The Delhi High Court held that the controversy is limited to valuation under Rule 28 of the CGST Rules, 2017.
  • The Court relied heavily on CBIC Circular No. 210/4/2024-GST, particularly Para 3.7, which clarifies:
    • Where full ITC is available, invoice value is deemed open market value.
    • Where no invoice is issued, the value may be treated as Nil.
  • Since admittedly no invoices were raised in the present cases, the Court held that the value of services must be treated as Nil.
  • Once value is Nil, no GST liability can arise, making the SCNs redundant and unsustainable.
  • The Court emphasized that the Circular is binding on the department, even if its correctness could be debated. 

Court Order / Final Decision

  • All impugned SCNs were quashed.
  • Consequential Orders-in-Original imposing tax, interest, and penalties were also set aside.
  • In the case of Sony India Pvt. Ltd., even interest and penalty proceedings were held unsustainable.
  • The Court clarified that the judgment is limited only to secondment-related issues, and other aspects in SCNs remain open for adjudication. 

Important Clarifications

  • CBIC Circular is binding on tax authorities, regardless of interpretational concerns.
  • Where no invoice is raised and ITC is available, valuation may be deemed Nil.
  • This effectively neutralizes GST liability in similar secondment cases.
  • The ruling is confined strictly to secondment of employees and does not decide other tax issues. 

Sections & Provisions Involved

  • Section 73(1), 73(9) – CGST Act, 2017
  • Section 50 – Interest provisions
  • Section 122(2)(a) – Penalty
  • Section 20 – IGST Act, 2017
  • Section 25 – CGST Act (related persons)
  • Rule 28 – CGST Rules, 2017 (valuation of supply between related persons)
  • CBIC Circular No. 210/4/2024-GST
  • Reverse Charge Mechanism (RCM) provisions 

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62722102024CW149452023_161446.pdf

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