 "HC gives interim relief to BMW over GST notice on salaries paid to expats")
The Punjab and Haryana Court has granted an interim relief to BMW India over show cause notice issued by the authorities for the goods and services tax (GST) on salaries paid to expatriates through reimbursement to parent companies.
The court directed the company to file a comprehensive response to the notice issued by the authorities. However, it instructed the authorities to not take any coercive steps to recover the tax during the pendency of the writ petition filed by the company.
Multinational corporations (MNCs) operating in India are facing GST demands from the authorities over this issue. The tax demands pertain to an 18 percent tax on salaries and allowances paid to foreign expats.
The GST authorities consider expat salaries or allowances, reimbursed by Indian companies to foreign entities, as a "supply of manpower," making them taxable under the GST regime.
However, salaries directly paid by Indian companies to expat employees without reimbursement won't attract GST, as expats are then perceived as employees of the Indian company alone.
Notices followed a Supreme Court judgment in May 2022 in the Northern Operating System (NOS) case. The ruling had stated that the secondment (deputation) of employees from a foreign group to an Indian entity constitutes "manpower supply service" and is liable for service tax under the reverse charge mechanism.
Many companies, including BMW India, approached court against the notices after Punjab and Haryana HC stayed the operation of a notice to Mitsubishi Electric India over this GST demand.
Also Read
Harpreet Singh, indirect tax partner at KPMG India, said all multinationals with expats in India are keeping a close eye on these proceedings.
"Even a stay order on similar facts is being appreciated as most of the companies are facing enquiries, notices on taxability of salary, reimbursements paid to expats," Singh said.
He said it is heartening to know that various high courts are looking at fact patterns in each case and then giving stay, relief on merits and not just following the Supreme Court judgment as a precedent for taxing all expat arrangements.