In an ongoing saga surrounding the Goods and Services Tax (GST) on salaries paid to expatriates by Indian subsidiaries of multinational corporations (MNCs), the Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) recently delivered a split verdict on various aspects of these payments.
The case, focusing on Nissan Motors India, presented a unique scenario where a portion of the emoluments was paid by the foreign company, while the remainder was directly disbursed by the Indian entity to overseas employees on deputation to India.
The judicial member asserted that salaries and allowances paid directly by the Indian taxpayer to secondees should not be subject to taxation. Conversely, the technical member argued that such payments should be included in the taxable value.
The Bench of Judicial Member Sulaikha Beevi and Accountant Member M Ajit Kumar held, “In view of the difference of opinion between the Members, the following question are framed for resolution:
POINTS OF DIFFERENCE
(1) Whether part of salary / emoluments paid by appellant to secondees in India in Indian Rupees will form part of consideration as under Section 67 of Finance Act, 1994 for the services of MRSA provided by Nissan Japan to appellant.
(2) Whether payments of part of salary to secondees in Indian currency will form part of ‘gross amount charged’ for arriving at the taxable value.”
Given the split decision, experts anticipate the matter to be referred to a third member, with the industry eagerly awaiting the outcome, as the principles of tax in question extend to the GST regime also, having very far reaching implications.
This development follows a Supreme Court ruling last year in the Northern Operating Systems (NOS) case, where the secondment of employees from a foreign group to an Indian entity was deemed manpower supply and subject to service tax under the reverse charge mechanism. The similarities between GST and service tax principles prompted GST authorities to issue notices to Indian subsidiaries, demanding 18% GST on reimbursements to parent companies for expatriate salaries.
Read Article: GST Implications on Salary secondment: All You Need to Know
However, the recent Chennai Cestat case differs from NOS, as it involves a division of emoluments between the foreign and Indian companies. The tribunal’s focus was on valuation and determining the taxable value, not the overall taxability of the transaction.
In response to the escalating situation, the Central Board of Indirect Taxes and Customs (CBIC) has urged field officers not to uniformly treat expatriate salaries from Indian subsidiaries of MNCs, differentiating them from the NOS case. This directive aims to temper the enforcement measures taken by authorities.
Companies affected by these developments, such as BMW India, Mitsubishi Electric India, Metal One Corporation, Alstom Transport India, United Breweries, and Kanematsu India, have sought relief from high courts and obtained interim protection against coercive actions by tax authorities. The outcome of this complex and evolving issue is keenly anticipated across the industry.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
