Safiya Malik

The High Court of Karnataka Single Bench of Justice Sachin Shankar Magadum held that secondment of employees from overseas group entities to an Indian company does not amount to a taxable supply of manpower services under the Goods and Services Tax regime. The Court directed that in the absence of any invoice, and where full Input Tax Credit (ITC) is available, the value of the alleged service must be deemed as 'Nil' in accordance with para 3.7 of Circular No. 210/4/2024-GST dated 26.06.2024. Consequently, the Court quashed the Integrated Goods and Services Tax (IGST) demand of Rs. 57,94,94,146/- along with associated interest and penalty, which had been confirmed by the tax authorities for the period from July 2017 to March 2023.

The dispute arose from a demand order issued by the Commercial Taxes Department against a company engaged in the business of designing, manufacturing, installing, and commissioning railway and metro infrastructure projects. Between July 2017 and March 2023, employees from the company’s overseas group entities were seconded to India under fixed-term assignments.

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The petitioner asserted that it had executed individual employment agreements with each seconded employee, who was placed on the Indian payroll and paid salaries directly by the company after deduction of applicable taxes under the Income Tax Act, 1961. The expatriate employees also received social security benefits from their home countries, reimbursed by the Indian entity.

From November 2020 onward, the company voluntarily discharged IGST on a reverse charge basis on amounts specified in debit notes issued by the foreign entities, which were reflected in the GSTR-3B returns. This IGST paid was claimed as Input Tax Credit, without objections from tax authorities.

However, on 26.09.2023, a show cause notice was issued alleging that the petitioner had imported "manpower supply service" and failed to discharge IGST of Rs. 59,57,19,228/-, along with interest and penalty. The notice relied on Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, which mandates IGST liability on services received from a non-taxable territory by way of manpower supply.

The petitioner replied through Part B of Form DRC-01A and contended that the seconded employees were on their payroll and the transaction did not qualify as a "supply" under Entry 1 of Schedule III to the CGST Act, 2017. They also cited Circular No. 210/4/2024-GST dated 26.06.2024 issued by CBIC, which clarified that where no invoice is issued, the value is deemed to be ‘Nil’ when full ITC is available.

Earlier, the petitioner had challenged the show cause notice before the High Court through W.P.No.23915/2023. The Court had then directed the petitioner to submit a detailed reply before the authorities, relying on the aforementioned Circular.

Despite the petitioner’s submissions, respondent authorities passed orders on 16.10.2024 confirming the IGST demand. This led to the present writ petition seeking quashing of those orders and a declaration that secondment did not amount to a supply of manpower services.

The petitioner relied on the Delhi High Court decision in Metal One Corporation India Pvt. Ltd. v. Union of India & Ors., which quashed similar show cause notices in absence of invoices.

The Revenue contended that the arrangement constituted a taxable inter-state supply of manpower services, falling under reverse charge liability. It argued that the foreign entity remained the service provider and the Indian company was the recipient, attracting IGST as per Notification No. 10/2017.

To support its claim, the Revenue relied on the Supreme Court judgment in CC, CE & ST, Bangalore v. Northern Operating Systems Pvt. Ltd., which held that despite an apparent employer-employee relationship, secondment arrangements constituted a taxable supply where the economic control remained with the foreign entity.

The Revenue argued that the facts in the present case were similar and warranted taxation.

The Court stated "the petitioner is assailing the orders dated 16.10.2024 ... and a further declaration is sought that the taxable value of the supply, if any, made by the overseas entities/expats to the petitioner is 'Nil' in terms of Section 15(4) of the Central Goods and Services Tax Act, 2017 read with Rule 28 of the CGST Rules, 2017."

The Court recorded that, "during the course of secondment, the secondees remain subject to the operational supervision, control, and administrative authority of the Indian company."

It noted that, "Functionally and contractually, the secondees are fully integrated into the Indian company’s workforce and operate exclusively under its control during the term of their deputation."

The Court acknowledged the Supreme Court’s judgement in Northern Operating Systems Pvt. Ltd., observing that, "the ruling was fact-specific and should not be treated as a blanket precedent for all secondment arrangements."

It further quoted, "the value of such services may be deemed to be declared as Nil, and may be deemed as open market value in terms of second proviso to Rule 28(1) of CGST Rules."

The Court recorded that, "in the present case, it is not in dispute that no invoices were raised by the petitioner in respect of the services allegedly rendered by the foreign affiliate through seconded employees."

It observed, "Following the clarification in Para 3.7, the value of such services must be deemed to be ‘Nil’ and treated as the open market value."

The Court also quoted the Delhi High Court's view, "once the value is treated as ‘Nil’ under Para 3.7, there can be no further tax implications arising under the Act."

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The Court stated, "the secondment arrangement does not give rise to any tax liability, and the impugned demand raised by the Revenue is liable to be set aside."

The Court held that, "in terms of para 3.7 of the circular dated 26.06.2024, this Court holds that the secondment of employees in the present case does not amount to a taxable supply of manpower services under the GST regime and is therefore not amenable to IGST under the reverse charge mechanism."

It stated that, "the writ petition is allowed."

Further, the Court directed that, "the impugned orders bearing No.ZD291024038057J dated 16.10.2024 (Annexure-A), ZD2910240380671 dated 16.10.2024 (Annexure-A1), ZD291024038078F dated 16.10.2024 (Annexure-A2), ZD291024038087G dated 16.10.2024 (Annexure-A3), ZD291024038090T dated 16.10.2024 (Annexure-A4), and ZD291024038094L dated 16.10.2024 (Annexure-A5), passed by Respondent No.4, confirming the demand of Integrated Goods and Services Tax (IGST) to the tune of Rs.57,94,94,146/- along with interest, penalty, and other consequential proceedings for the tax period from July 2017 to March 2023, are hereby quashed and set aside."

Advocates Representing the Parties:

For the Petitioners: Sri. Ravi Raghavan, Smt. Meghna Lal, and Smt. Vani Dwevedi, Advocates

For the Respondents: Smt. Jyoti M. Maradi, High Court Government Pleader

Case Title: M/s. Alstom Transport India Limited v. Commissioner of Commercial Taxes & Ors.

Case Number: W.P. No. 1779 of 2025 (T-RES)

Bench: Justice Sachin Shankar Magadum