In a major success for the directorate general of GST intelligence (DGGI), government has managed to garner ₹2,500 crore of GST dues that MNCs were avoiding on the expenses made to hire expats for their Indian entities. According to highly-placed sources, DGGI—the investigation arm of the government to curb GST leakages, “had sent as many as 240 show cause notices to MNCs operating India seeking dues of ₹3,300 Crores”.
“Out of these ₹3,300 crores, ₹2,500 crores have been voluntarily paid by the companies once the authorities got in touch with them, seeking clarity after detailed investigations and notices,” sources added.
WHAT IS THE ISSUE?
Referred to as secondment – which is a major and general practice in most of the MNCs, wherein the parent company — overseas group entity—deputes its manpower resources to its subsidiary companies – Indian Company – for particular projects, assignments or otherwise. The employees however remain on the payrolls of the overseas entity and receives its salary overseas. The Indian Company reimburses the whole or part of the salary, perks and other emoluments of the employee to the group company. On completion of secondment, the employee reverts to the overseas company.
The said service of supplying manpower or the seconded employees from the overseas suppliers to Indian entities falls under the ambit of Supply as per section 7 of the CGST Act, 2017 and is an import of services as per the GST rules. Thus the supply of manpower in liable to IGST under reverse charge mechanism.
“GST on secondment of expatriates has been the subject matter of dispute especially from 2022 after Supreme Court held that Service Tax is payable on secondment of expatriates. Departmental authorities applied this judgment and has been demanding GST from Indian entities on such secondment transactions. While this could be revenue neutral, Department has disputed credit due to time limitations,” said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing for petitioner companies in writ Court.
“Salaries paid to employees are out of the GST purview and when the expatriates come to India, they are under a dual employment scheme wherein only for administrative convenience the salary is remitted to the overseas company so that the amount could be remitted in the foreign bank accounts of the expatriates”, explained Rastogi, according to whom, no tax is applicable on the amount of the salary of the expatriates.
Read more at: CNBC TV18
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