Case to case consideration is required on employee secondment services- GST Policy Wing

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 Right from service tax regime, employee secondment services provided by the group parent company to its subsidiary or associate company in India gained lot of momentum for time to time. Although there were judgements such as 

  • CESTAT, BANGALORE BENCH, Target Corporation India (P.) Ltd. v. Commissioner of Central Excise, Bangalore-III
  • Commissioner Appeals - GST, Imasen Manufacturing India (P.) Ltd. v. Assistant Commissioner, CGST, Behro
  • CESTAT, BANGALORE BENCH, Honeywell Technology Solutions Lab (P.) Ltd. v. Commissioner of Service Tax, Bangalore, until 2022 that employer- employee relationship exist in such service arragement, could not be termed as 'manpower recruitment or supply agency' and whole arrangement between assessee and its group companies did not fall under taxable service of manpower recruitment or supply agency service. 

    • The Hon’ble Supreme Court’s judgment dated 19.5.2022 in the case of CC, CE & ST, Bangalore (Adj.) etc. Vs. Northern Operating Systems Private Limited (NOS) in Civil Appeal No. 2289-2293 of 2021 - 2022-VIL-31-SC-ST on the issue of nature of secondment of employees by overseas entities to Indian firms and its Service Tax implications  have initiated proceedings for the alleged evasion of GST on the issue of secondment under section 74(1) of CGST Act 2017.

    The GST Policy wing has issued Instruction No. 05/2023-GST on 13th December 2023 in this regard.  It is noted that secondment as a practice is not restricted to Service Tax and issue of taxability on secondment shall arise in GST also. A careful reading of the NOS judgment indicates that Hon’ble Supreme Court’s emphasis is on a nuanced examination based on the unique characteristics of each specific arrangement, rather than relying on any singular test.

    Also, highlighted Hon'ble Supreme Court in the case of Commissioner of Central Excise, Mumbai Versus M/s Fiat India(P) Ltd in Civil Appeal 1648-49 of 2004 - 2012-VIL-01-SC-CE has given the following observation -

    “66. ...........Each case depends on its own facts and a close similarity between one case and another is not enough because either a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.”

    Also, reiterated that Section 74(1) cannot be invoked merely on account of non-payment of GST, without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. Therefore, only in the cases where the investigation indicates that there is material evidence of fraud or wilful mis-statement or suppression of fact to evade tax on the part of the taxpayer, provisions of section 74(1) of CGST Act may be invoked for issuance of show cause notice, and such evidence should also be made a part of the show cause notice.

    Its indeed a much needed intervention.

    - LDR

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