The Central Board of Indirect Taxes and Customs (CBIC) has directed its field officers not to treat every case of expat salary paid by Indian subsidiaries of international corporations such as Northern Operating System (NOS), which received a GST notification as a result of a Supreme Court decision.
In a circular, the Board instructed officers not to apply the court verdict automatically. The move may bring relief to businesses that have received letters from GST (Goods and Services Tax) officials and have filed claims in High Courts. However, experts believe that the board should have indicated the circumstances in which the GST would not apply. "The decision of the Supreme Court in the NOS judgment should not be applied mechanically in all the cases," the circular read.
According to the circular, each case requires a careful examination of the facts, including the terms of the contract between an overseas company and an Indian entity, to determine taxability or its extent under GST and the applicability of the principles laid out by the Supreme Court's decision in the NOS case.
In the NOS case last year, the Supreme Court ruled that the secondment (deputation) of employees from a foreign group to an Indian corporation comprises "manpower supply service" and is taxable under the reverse charge mechanism.
Following that, notices for 18% GST on expat salaries were issued to BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India, United Breweries, and Kanematsu India. The corporations petitioned the High Courts for interim relief from the authorities' coercive methods.
The CBIC has abstained from offering specific illustrative circumstances where tax imposition would not apply, according to Rajat Mohan, senior partner at AMRG & Associates.
Many notices were issued under Section 74(1) of the Central GST Act for taxes that were not paid or were underpaid, or for input tax credits that were wrongfully claimed owing to fraud or falsification of facts. The time limit for serving notices can be extended under this paragraph. It should be emphasized that alerts for 2017-18 were only valid until November 30 of this year, whilst those for 2018-19 could be issued until the end of the current calendar year.
According to Saurabh Agarwal, tax partner at EY, the circular may provide assistance to taxpayers by allowing full input tax credit on paid tax when Section 74 (1) proceedings are not launched. Abhishek Jain, indirect tax head and partner at KPMG, was asked if CBIC's guidelines may assist corporations close several show-cause notices.
