Indian companies with overseas staff on deputation get GST notices

Mumbai, Oct 4, 2023

A spate of GST demand notices have been served on Indian companies in recent weeks in cases where overseas staff have been deputed to India.

This follows a judgment given by the Supreme Court that the salary of 'seconded employees' (deputed to an Indian company), which is reimbursed to the overseas entity, will be subject to service tax. This SC order of May 19, 2022, in the case of Northern Operating Systems, has opened a pandora's box even in the realm of GST.

Abhishek Jain, partner and national head, indirect tax, KPMG-India, said: "This was largely witnessed as the period of limitation for assessment of cases for financial year 2017-18 ended in September. Meanwhile, companies which have received such notices are examining the facts of their case to determine the best approach."

A Bengaluru-based in-house tax expert in an engineering company said that the SC, in its order, did not indicate that its order would apply retrospectively. It is quite common for employees to be deputed from the overseas head office or any other overseas group company to the Indian subsidiary or affiliate company. While deputed employees work under the direction of the Indian company, for the purpose of continuance of their social security benefits, the employment contract continues to vest with the overseas company. Salaries for the deputed employees are reimbursed on actual basis by the Indian company to the overseas entity that deputed them.

Northern Operating Systems provided specified back-office services to its overseas affiliates. When required, managerial and technical staff were deputed to it by the overseas group entities for a specified tenure. These employees remained on the payroll of their original employer and salary, social security benefits, etc were received by them from the respective overseas entities. However, the overseas entity would raise a debit note on the Indian company (transferee) to recover such amounts, without any markup.

Jain says that companies which have received the notices must examine the facts of their case. In the case of Northern Operating Systems, the entire salary of overseas employees was paid by the Indian entity to the overseas entity.

[The Times of India]