No GST Liabilities on Salary paid to Seconded Employees: Delhi HC absolves Sony India and other Foreign Entities in light of CBIC Circular [Read Order]

In a significant decision the Delhi High Court absolved foreign entities including Sony India Pvt. Ltd. of liability to pay Goods and Services Tax ( GST ) on the salaries paid to seconded employees, in light of a circular released by the Central Board of Indirect Taxes and Customs ( CBIC ).

The judgment was rendered by the Delhi High Court while jointly disposing of multiple connected matters arising from the same cause of action, all filed by foreign entities against the Union of India and Directorate General Of GST Intelligence among others.

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Among the multiple Writs, the Court referenced the Petition filed by Metal One Corporation India Pvt. ( Metal One ) Ltd., the Indian branch of a Japanese conglomerate involved in the steel industry, and registered under the Central Goods and Services Tax ( CGST ) in Delhi, Maharashtra and Tamil Nadu. Metal One, like the other Petitioners had entered into individual employment agreements with the Employees of their foreign entities who then became employees of the Indian unit.

Present Writ Petitions incepted on the basis of the judgment passed by the Supreme Court of India in CCE & Service Tax vs. Northern Operating Systems (P) Ltd (2022), wherein it was held that “transactions in which an overseas entity had seconded employees to an Indian entity and then charged the employees’ salaries to be borne by the Indian company in the form of reimbursement, the same would qualify as manpower supply by the overseas group company to the Indian subsidiary”.

Metal One further apprised the Court of tax demand issued in terms of Section 73(5) of the GST Act and allied Show-Cause Notices ( SCN ) which have been impugned in the present proceedings.

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In light of the submissions made by the Petitioners, the Delhi High Court estimated the question of law stood restricted to the value to be ascribed to the supply of goods and services, being regulated by Rule 28 of the CGST Rules, 2017.

However, the Delhi High Court Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that the statutory position of the matter is to be decided in terms of Circular No. 210/4/2024-GST dated 26.06.2024 issued by the CBIC. Para 3.7 of the Circular clarifies that if the domestic entity of the foreign corporation does not raise invoice in respect of services rendered by its foreign affiliate, the value of such services would be deemed to “Nil”, with the market value of such services rendered also deemed to be “Nil” for the purposes of second proviso to Rule 28 of the CGST Rules, 2017.

The Bench observed that no invoices were raised by the Petitioners in connection with the services of supply of seconded employees by the foreign parent entities.

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The Delhi High Court further attested to the actions of Sony India Pvt. Ltd. who had discharged their supposed tax liability as per Rule 28 of the CGST Rules and claimed credit on a reverse charge. It was held that once the position of the CBIC Circular to govern all concerned assessees Pan-India is laid down, penalty proceedings or imposition of interest would not sustain.

In light of the findings, the Delhi High Court averred that Sony India Private Limited along with the Petitioners stood absolved of all tax liabilities strictly confined to the issue of salaries paid to seconded employees.

To Read the full text of the Order CLICK HERE

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