🏛️ Huawei Technologies India Pvt. Ltd. v. State of Karnataka
📌 Why This Judgment Matters
In a significant relief to multinational companies operating in India, the Karnataka High Court has quashed the GST demand on salaries paid to expatriate employees, holding that:
✅ Salaries paid to foreign nationals directly employed by the Indian entity do not amount to “import of services.”
✅ Such transactions cannot be taxed under Reverse Charge Mechanism (RCM).
This decision reinforces the fundamental principle under Entry 1 of Schedule III of the CGST Act —
👉 Services by an employee to the employer in the course of employment are neither supply of goods nor supply of services.
🔎 Background of the Case
Huawei India had engaged foreign nationals under fixed-term employment contracts. The expatriates:
Were on the Indian payroll
Received salaries in Indian bank accounts
Were subject to TDS in India
Worked under the supervision and control of the Indian entity
Despite these clear employment indicators, the department alleged import of manpower services and raised IGST demand under RCM for FY 2018-19 to 2022-23.
Huawei challenged the demand — and succeeded.
⚖️ Key Issues Examined by the Court
1️⃣ Whether expatriate salaries constitute “import of manpower services”
2️⃣ Whether expatriates qualify as Non-Resident Taxable Persons (NRTPs)
3️⃣ Applicability of CBIC Circular No. 210/4/2024-GST (26.06.2024) where no invoice is raised and full ITC is available
2️⃣ Expatriates Are NOT NRTPs
The Court rejected the department’s attempt to classify expatriates as NRTPs:
They were not making “occasional supplies”
They were not engaged in independent business activity
They stayed and worked in India for substantial periods
👉 Hence, NRTP provisions were inapplicable.
3️⃣ Nil Valuation under CBIC Circular
Even assuming (without admitting) import of service:
❌ No invoice was issued by overseas entity
✅ Huawei India was eligible for full ITC
As per CBIC Circular No. 210/4/2024-GST and Rule 28, the open market value could be treated as Nil.
➡️ Result: No tax liability survives.
🎯 Key Takeaways for Industry
✔ Employment is not supply under GST.
✔ Substance of relationship prevails over departmental allegations.
✔ CBIC valuation clarification can independently eliminate tax exposure.
✔ Strong documentation of employment terms is critical.
This judgment significantly strengthens GST jurisprudence on cross-border employment structures and will shape future compliance and litigation strategy for multinational corporations.
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