In a favorable development for Mercedes-Benz, the Bombay High Court has issued a temporary stay on the order demanding Goods and Services Tax ( GST ) dues related to expatriate salary payments by the automaker.
The Division Bench of the Bombay High Court, comprising Justices G.S. Kulkarni and Firdosh Phiroze Pooniwalla, granted this interim relief in response to the demand for Integrated Goods and Services Tax ( IGST ) on salaries paid by Mercedes-Benz to expatriates under the Reverse Charge Mechanism ( RCM ).
This decision aligns with the precedent set by the Supreme Court in the Northern Operating Systems Private Limited ( NOS ) case.
Read More: GST Implications on Salary secondment: All You Need to Know
The stay will be in effect until the next hearing, and during this period, the High Court has instructed the Revenue department to submit a counter affidavit within two weeks.
The grounds for the stay include reference to the Central Board of Indirect Taxes and Customs (CBIC) instruction dated December 13, 2023. This instruction underscores the importance of a comprehensive examination of circumstances before applying the NOS ratio. It also highlights differentiating factors between the current case and the NOS case.
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In the NOS case, the Supreme Court addressed the determination of the employer of seconded employees from overseas group companies to Indian entities. The Court emphasized the substance over form principle and considered various factors to establish that the overseas entity remained the employer. This led to the rejection of arguments related to tax liability and revenue neutrality.
Moreover, the Court dismissed reliance on previous judgments lacking reasoned analysis. Consequently, decisions in both the NOS and Mercedes-Benz cases carry significant implications for the taxation of cross-border transactions and the determination of employer-employee relationships in such international contexts.
The Bombay High Court Division Bench noted that, “The contention of Mr.Shroff, the learned Senior Advocate for the Petitioner, is that the Circular issued by the Central Board of Indirect Taxes and Customs is not considered by Respondent No.3 in passing the impugned order, and, in fact, the Petitioner had placed before the Designated Officer, the comparative position showing as to how the Petitioner would stand independently of the decision by the Supreme Court in the case of C.C., C.E. & S.T. Bangalore (Adjudication) etc. vs. M/s.Northern Operating Systems Pvt. Ltd. in Civil Appeal No. 2289-2293 of 2021 on 19th May 2022”.
It was thus held that, “Till the next date of hearing, impugned order shall remain stayed”.
“At the request of Mr.Mishra, the learned counsel for the Respondents, stand over to 20th February 2024 to enable Respondents to place on record reply affidavit. Let a copy of the reply affidavit be served on the learned Advocate for the Petitioner well in advance”, the Bench added.
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