GST on Salary paid to Seconded Employees: Madras HC grants Interim Stay on Demand [Read Order]

A Single Bench of the Madras High Court imposed an interim stay on the Goods and Services Tax ( GST ) Demand on salary paid to seconded employees of the petitioner.

The petitioner, in this case, challenged an original order dated December 23, 2023, which classified the entire salary amount as a taxable supply.

The order, passed by Justice Senthilkumar Ramamoorthy on March 14, 2024, pertains to the treatment of salaries paid to seconded employees under the Goods and Services Tax ( GST ) regime.

Secondment refers to a temporary arrangement in which an employee transitions from one role to another, typically within the same group of companies, for a specified duration, offering advantages to all parties involved.

By seizing opportunities in the global economy and utilizing the benefits of various locations, international group companies frequently engage in agreements with affiliated or local entities. The main objective is to maximize economic benefits, such as workforce or resource availability, to effectively fulfill designated tasks assigned by the overseas entity.

The counsel for the petitioner submitted that the entire salary paid to seconded employees, which is subject to income tax and outside the scope of supply under applicable GST enactments, was treated as a taxable supply by misapplying the judgment of the Hon'ble Supreme Court in C.C., C.E. & S.T. - Bangalore (Adjudication) ETC. v. M/s.Northern Operating Systems Pvt. Ltd. on 19.05.2022.

The bench noted that, “Since a prima facie case is made out and several High Courts granted interim relief and are also examining whether such an arrangement would qualify as a taxable supply, there shall be an interim stay of further proceedings pursuant to the impugned order until the matter is heard next.”

The Madras High Court Bench of Justice Senthilkumar Ramamoorthy held that the petitioner presented a credible case and that other High Courts are examining similar arrangements.

Considering this, the court ordered an interim stay on further proceedings related to the impugned order until the next hearing on April 8, 2024.

To Read the full text of the Order CLICK HERE

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