Don’t apply SC ruling in NOS case mechanically in all employee secondment cases: CBIC to officials

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Don’t apply SC ruling in NOS case mechanically in all employee secondment cases: CBIC to officials

Friday, 15 December 2023 | PTI | new delhi

The CBIC has asked its field offices not to mechanically apply the Supreme Court judgement in the Northern Operating System (NOS) case in relation to the secondment of employees.

In an instruction to field formations, the Central Board of Indirect Taxes and Customs (CBIC) said secondment as a practice is not restricted to service tax and the issue of taxability on secondment shall arise in GST also.

Secondment of employees refers to an agreement between an employer and employee, that requires the employee to work in another location or department for a specified period.

GST officials have recently issued notices to various multinational companies over secondment of employees following the Supreme Court judgement which held that the secondment of employees by overseas group company to NOS was a taxable service of 'manpower supply' and service tax was applicable on the same.

It is noted that secondment as a practice is not restricted to service tax and the issue of taxability on secondment shall arise in GST also, the CBIC said.

A careful reading of the NOS judgment indicates that the Supreme Court's emphasis is on a nuanced examination based on the unique characteristics of each specific arrangement, rather than relying on any singular test, the CBIC said.

The CBIC said there may be multiple types of arrangements in relation to secondment of employees of overseas group company in the Indian entity. In each arrangement, the tax implications may be different, depending on the specific nature of the contract and other terms and conditions attached to it.

"Therefore, the decision of the Hon'ble Supreme Court in the NOS judgment should not be applied mechanically in all the cases. Investigation in each case requires a careful consideration of its distinct factual matrix, including the terms of contract between overseas company and Indian entity, to determine taxability or its extent under GST and applicability of the principles laid down by the Hon'ble Supreme Court's judgment in NOS case," the CBIC said.

EY Tax Partner Saurabh Agarwal said this circular could bring much-needed relief to taxpayers, as it potentially allows full input tax credit on paid tax when Section 74 proceedings are not initiated.

"Nevertheless, the department recognizes the existence of various types of secondment arrangements, highlighting the potential for different tax implications depending on the specific case. This suggests a nuanced approach from the department, where the Supreme Court's judgment won't be universally applied," Agarwal said.

AMRG & Associates Senior Partner Rajat Mohan said while this clarification by CBIC is a commendable stride forward, encouraging tax officers to approach secondment arrangements with care and in adherence to legal principles, it is noteworthy that the board has refrained from providing specific illustrative cases where tax imposition would not apply.

Deloitte India Partner Saloni Roy said after the SC ruling, GST officials issued notices to various multinationals for seeking the details on secondment arrangements and demanded GST, along with interest and penalty.

These notices were challenged in some cases before various high courts, which granted stay on the proceedings as an interim measure.

"The instruction issued by the Finance Ministry acknowledges the issues faced by industry and has directed the field formations to evaluate each arrangement basis the parameters set by the Supreme Court before any demand is raised. Also, since this is an interpretational issue, the levy of 100 per cent penalty will be applied only when a willful evasion of tax is found," Roy said.

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