The Delhi High Court has quashed GST penalty proceedings initiated by dept. on secondment arrangements.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that as per the CBIC where no invoice is raised by the related domestic entity in respect of services rendered by its foreign affiliate, the value of such services would be “deemed” to have been declared as ‘Nil’ and ‘Nil’ value liable to be treated as the market value for the purposes of the Second Proviso to Rule 28.
Table of Contents
Background
The batch of writ petitions were filed challenging the Show Cause Notices1 which had come to be issued by the respondents and pertained to a perceived liability of tax under the Central Goods and Services Tax, Act 2017 on supply of services and which in turn was connected with the placement of foreign expatriates to aid and assist in the functions being carried out by the writ petitioners.
Although the existence of seconded employees in India and secondment itself appears to have been originally contested, the petitioners went on to state that they did not propose to agitate those issues in light of subsequent developments.
The petitioners contended that those issues may no longer be of relevance in light of the clarification issued by the Central Board of Indirect Taxes and Customs. As per Para 3.7 of that Circular, the CBIC clarifies that where no invoice is raised by the related domestic entity in respect of services rendered by its foreign affiliate, the value of services would be “deemed” to have been declared as ‘Nil’ and that ‘Nil’ value liable to be treated as the market value for the purposes of the Second Proviso to Rule 28.
The petitioner is an entity which stands duly registered under the Act in the States of Delhi, Maharashtra and Tamil Nadu. It is stated to have entered into individual employment agreements with the employees of Metal One Corporation Japan, its parent entity, who then also became employees of the writ petitioner.
Conclusion
The court held that no invoices were generated. In view of the of the explicit terms of the Circular, the value of the service rendered would have to be treated as ‘Nil’. This would lead one to the inescapable conclusion of no perceivable or plausible tax liability possibly being created. The proceedings initiated in terms of the impugned SCNs and their continuance would be futile and impractical. The SCNs are essentially rendered impotent and would serve no practical purpose.
The court held that once the position to govern all assessees pan-India came to be clarified by the CBIC, the continuation of penalty proceedings or for that matter the imposition of interest would not sustain.
“In light of the stand taken by the CBIC, the petitioner, Sony India Private Limited, would have stood absolved of all tax liabilities and implications flowing from the Act,” the court said.
FAQs
What is secondment arrangement?
A secondment is a temporary assignment where an employee works in a new role or organization, while still being employed by their original company. The employee is called a secondee, and the original employer is called the seconder. The new organization the employee works for is called the host. A secondment (sometimes referred to as a “job rotation”) is a chance for an employee to temporarily work on a different team within their organization, or in some cases, for a different organization entirely. Think of secondments as the on-the-job equivalent of exchange student programs.
Case Details
Case Title: Metal One Corporation India Pvt. Ltd Versus Union Of India & Ors.
Case No.: W.P.(C) 14945/2023 & CM APPL. 59655/2023
Date: 22.10.2024
Counsel For Petitioner: Tushar Jarwal
Counsel For Respondent: Uma Prasuna Bachu
