Delhi High Court: The petitions were filed challenging the Show Cause Notices issued by the respondents pertaining 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 them. A division bench of Yashwant Varma and Ravinder Dudeja, JJ., quashed the show cause notices issued by respondents being rendered futile and impotent.
The factual background of this matter revealed that the petitioners, primarily represented by Metal One Corporation India Pvt. Ltd., asserted that their operations involve employing individuals seconded from their parent company in Japan. Initially, the concept of seconded employees and the related tax implications were subjects of dispute, however, the petitioners have since decided not to contest these foundational issues. Instead, they reference a critical clarification issued by the Central Board of Indirect Taxes and Customs, suggesting that the original concerns regarding the applicability of the tax may no longer hold relevance.
The SCNs issued detailed specific allegations against Metal One Corporation India Pvt. Ltd., indicating a liability of IGST amounting to ₹1,94,28,551 for services received from their overseas parent under the Reverse Charge Mechanism for the period from July 2017 to March 2023. Similarly, a related entity of the petitioner received a notice for an unpaid IGST of ₹58,95,317 for the same period. The notices demand clarification as to why these amounts should not be recovered under the provisions of the CGST Act, including interest and penalties for non-compliance.
The issue under consideration relates to the supply of services associated with the placement of foreign expatriates employed by the petitioners. The petitioners in this case contended that the SCNs, which claim unpaid Integrated Goods and Services Tax (IGST) and interest, as well as potential penalties, are unfounded and lack a proper legal basis.
The petitioners argued that the SCNs, which claim unpaid IGST and potential penalties, lack a solid legal foundation. They emphasized that their employment agreements with seconded employees are legally sound and should not be automatically interpreted as services rendered by a foreign entity. In support of their position, the petitioners cited the Supreme Court’s ruling in CCE & Service Tax vs. Northern Operating Systems (P) Ltd., (2022) 17 SCC 90 which established that the mere presence of seconded employees does not directly correlate with a taxable service without considering the specific circumstances of each case. They contended that the SCNs misinterpret this precedent, applying it universally without regard to the unique factual circumstances of their situation.
In response, the respondents maintained that the value of services should reflect the open market value of the supply. They argued that transactions involving temporary employees provided by an overseas company to a related Indian entity are standard global practices. Therefore, they asserted that this arrangement constitutes a “supply” under the CGST Act, making the petitioners liable for GST. The respondents further claimed that no employment relationship exists between the petitioners and the seconded employees, as these individuals remain employees of the parent company and are only temporarily engaged by the petitioners.
The Court outlined the principal challenges posed to the Show Cause Notices, focusing on the alleged GST liability arising from the secondment of employees. The petitioners’ counsel highlighted Rule 28 of the CGST Rules, emphasizing that where a recipient is eligible for full input tax credit, the declared value in the invoice is deemed to represent the open market value of the services supplied. This argument is bolstered by a recent circular from the department, which clarifies that, under certain conditions, the absence of an invoice or a Nil declaration in the context of services provided may invalidate the basis for demanding GST.
As far as petition by Sony India is concerned, the Court remarked that “the petitioner, Sony India Private Limited, had of its own violation and undisputedly, discharged the tax liability proceeding based on Rule 28 and a perceived obligation to pay tax under the Act. The Order-in-Original however imposes a liability of interest and penalty upon that writ petitioner by invoking Section 15 along with Section 73(9). It is also undisputed before us that Sony India Private Limited had not only paid the tax but had also taken credit on a reverse charge basis.” Thus, the petitioner, Sony India Private Limited stood absolved of all tax liabilities and implications flowing from the Act.
The Court quashed the show cause notices and clarified that the present order shall be confined to the issue of seconded employees alone. All other issues which are raised in the impugned SCNs shall be open to be adjudicated by the respondents without expressing any opinion insofar as the other issues which form part of the impugned SCNs are concerned.
[Metal One Corporation India Private Limited v. UOI, 2024 SCC OnLine Del 7499, decided on 22-10-2024]
Advocates who appeared in this case:
Mr. Tushar Jarwal and Mr. Rahul Sateeja, Advocates for petitioner
Ms. Uma Prasuna Bachu, SPC for UOI. Mr. Harpreet Singh, Sr. St. Counsel with Ms. Suhani Mathur, Adv. Ms. Sonu Bhatnagar, Sr. St. Counsel with Ms. Apurva Singh and Ms. K.S.Mary, Advocates for R-4.
