Introduction
The Supreme Court (‘SC’) in C.C., C.E. & S.T. Bangalore v. Northern Operating Systems (P.) Ltd (‘NOS’)[i] addressed the matter of the secondment of employees from a group overseas company to the assessee. The SC determined that the assessee, acting as a service recipient for manpower recruitment, was liable to pay service tax (‘ST’) for the supply of services by the overseas entity during the deputation or secondment period.
Further, on the issue pertaining to the invocation of the extended period limitation, the SC held that where the assessee was under a bonafide belief that it was liable to pay any ST to seconded employees, the extended period of limitation would not be invokable in absence of any specific element of ‘fraud’, ‘wilful suppression’ or ‘deliberate misstatement’.
It is in the backdrop of the NOS judgment that the Central Board of Indirect Taxes and Customs (‘CBIC’), Goods and Services Tax (‘GST’) Policy Wing, has issued an advisory to field officers on issues pertaining to the levy of GST on secondment of employees by overseas entities. The advisory also provides guidance on invocation of s.74(1) of the Central Goods and Services Tax (‘CGST’) Act, 2017 for initiating proceedings in cases of alleged evasion of GST related to secondment.
The secondment of employees refers to the temporary assignment of an employee from their current position or employer to work for another organization or department for a specified period.
Taxability of ‘Secondment’ under GST
The advisory clarifies that the SC, in the NOS judgment only considered facts such as the agreement between NOS and overseas group companies and held that the secondment of employees by the overseas group company to NOS constituted a taxable service of ‘manpower supply’ and hence attracted ST implications. It is pertinent to note that the advisory has clarified that SC’s emphasis in the NOS judgment pertains to specific arrangements and does not rely on a ‘singular test.’ The advisory discourages a one-size-fits-all application of the NOS judgment, emphasizing the necessity for specific evidence of fraud for invoking s. 74(1) under the CGST Act. Further, the advisory clarifies that secondment as a practice is not restricted to ST and the issue of taxability on secondment shall arise in GST also.
Multiple Kinds of Arrangements May Have Different Tax Implications
The advisory further clarifies that the SC judgment cannot be applied mechanically, as there may be different arrangements pertaining to secondment, each with different tax implications depending upon the nature of the contract and attached conditions. The investigation in each case would depend on the factual matrix of each case and the applicability of the said judgment would be decided accordingly. The advisory for the said stance places reliance on Commissioner of Central Excise, Mumbai v. M/s Fiat India (P) Ltd[ii] wherein it was held that each case depends on its own facts and circumstances and mere broad resemblance cannot be decisive as a single significant detail may alter the entire aspect.
Invocation of s. 74(1) cannot be done in a Mechanical Manner
Regarding the invocation of the extended period of limitation under s. 74(1) of the CGST Act, it has been clarified that the said provision cannot be invoked merely on non-payment of GST, without material evidence on record to prove the existence of fraud or wilful misstatement or suppression of facts to evade tax. Further, it has been clarified that when s. 74(1) of the CGST Act is invoked for issuance of the show cause notice (‘SCN’), the evidence relied on by the investigating authorities for such invocation should be made part of such SCN.
Analysis
The advisory clarifies that GST will be leviable on the secondment of employees by overseas entities, emphasizing that secondment, as a practice, extends beyond ST implications. Further, the CBIC through the said advisory has clarified that the applicability of the NOS judgment will depend on the facts and circumstances of each case as there might be multiple arrangements in relation to secondment contracts which may have different tax implications depending upon the terms of contract and factual matrix.
It has been further clarified that s. 74(1) of the CGST Act cannot be invoked mechanically unless there is material evidence to indicate fraud or wilful misstatement or suppression of facts to evade tax on the part of the taxpayer. At this juncture, it is pertinent to note that the advisory clarifies that it is obligatory for the authority issuing the SCN to provide evidence as a part of the said SCN on which it has relied for invocation of s. 74(1). This stipulation can have significant implications in cases where the concerned authorities have invoked s. 74(1) without providing any material evidence which might indicate the existence of fraud, or wilful misstatement or suppression. As such an inference may be drawn that for the invocation of s. 74(1) of the CGST Act, it is incumbent on the authority issuing the SCN to provide evidence upon which it has relied for such invocation.
End Notes
[i]2022 SCC OnLine SC 658.
[ii](2012) 9 SCC 332.
Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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