Facts of the Case

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

The lead matter involved Metal One Corporation India Pvt. Ltd., which had entered into employment arrangements with employees of its foreign parent company (Japan), who were deputed to India. The tax authorities alleged that such arrangements constituted “import of services”, attracting GST under the Reverse Charge Mechanism (RCM).

The SCNs demanded tax, interest, and penalties under the CGST and IGST framework, relying heavily on the Supreme Court judgment in CCE & Service Tax vs Northern Operating Systems Pvt. Ltd. (2022).

However, during proceedings, the petitioners relied upon CBIC Circular No. 210/4/2024-GST, which clarified valuation principles under Rule 28 of the CGST Rules, 2017. 

Issues Involved

  1. Whether secondment of employees by a foreign entity to an Indian entity constitutes “import of services” under GST law.
  2. Determination of taxable value under Rule 28 of CGST Rules, 2017.
  3. Applicability of CBIC Circular No. 210/4/2024-GST, especially where no invoice is issued.
  4. Whether GST liability survives when full Input Tax Credit (ITC) is available.
  5. Validity of SCNs and consequential proceedings in light of the CBIC clarification. 

Petitioner’s Arguments

  • The petitioners argued that the ruling in Northern Operating Systems Pvt. Ltd. cannot be universally applied without examining the factual matrix of each case.
  • It was contended that:
    • The seconded employees were effectively working under the control of the Indian entity.
    • The valuation of services must be governed strictly by Rule 28, particularly its second proviso.
  • Strong reliance was placed on Para 3.7 of CBIC Circular No. 210/4/2024-GST, which clarifies:
    • Where full ITC is available, the declared invoice value is deemed to be the open market value.
    • Where no invoice is issued, the value may be treated as Nil, thereby eliminating tax liability.
  • Therefore, continuation of SCNs was argued to be legally unsustainable.

Respondent’s Arguments

  • The respondents (Union of India and tax authorities) contended:
    • The seconded employees remained employees of the foreign parent company.
    • No employer-employee relationship existed with the Indian entity.
    • The arrangement amounted to supply of manpower services, falling within import of services.
  • It was argued that:
    • The value should include total remuneration paid (both in foreign currency and INR).
    • Tax liability arises under:
      • Section 73 CGST Act
      • Section 50 (Interest)
      • Section 122 (Penalty)
  • The department relied on valuation provisions under Section 25 CGST Act and Rule 28 CGST Rules. 

Court’s Findings / Order

The Delhi High Court held:

  • The dispute is restricted to valuation under Rule 28 CGST Rules.
  • The Court placed decisive reliance on CBIC Circular No. 210/4/2024-GST, especially Para 3.7:
    • Where no invoice is raised, the value of services shall be deemed Nil.
  • Since:
    • No invoices were issued by the petitioners, and
    • The Circular is binding on tax authorities,

The Court concluded that no GST liability arises.

Key Outcome

  • All impugned Show Cause Notices were quashed.
  • Consequential Orders-in-Original were also set aside.
  • Interest and penalty proceedings were held unsustainable.

The Court observed that continuation of proceedings would be “futile and impractical”. 

Important Clarification by the Court

  • The judgment is limited strictly to the issue of secondment of employees.
  • All other issues raised in SCNs remain open for adjudication.
  • The Court acknowledged possible inconsistencies between the Circular and statutory provisions but held that:
    • CBIC Circular is binding on the department, hence must be followed. 

Sections & Provisions Involved

  • Section 73, CGST Act, 2017 – Determination of tax not paid/short paid
  • Section 50, CGST Act, 2017 – Interest on delayed payment
  • Section 122, CGST Act, 2017 – Penalties
  • Section 25, CGST Act, 2017 – Distinct persons
  • Section 20, IGST Act, 2017 – Application of CGST provisions
  • Rule 28, CGST Rules, 2017 – Valuation between related/distinct persons
  • CBIC Circular No. 210/4/2024-GST (Para 3.7)

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

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