In a recent development, the Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 05/2023-GST, dated 13th December 2023, addressing the implications of the Hon’ble Supreme Court’s judgment in the case of Northern Operating Systems Private Limited (NOS). The judgment, delivered on 19th May 2022, pertains to the nature of secondment of employees by overseas entities to Indian firms and its Service Tax implications.
The CBIC has taken cognizance of representations received, indicating that post the NOS judgment, several field formations have initiated proceedings for alleged GST evasion under section 74(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).
Key Points from the NOS Judgment
Upon careful examination, it is evident that the Hon’ble Supreme Court, in its judgment, considered various aspects, including the agreement between Northern Operating Systems (NOS) and overseas group companies. The court held that the secondment of employees by the overseas group company to NOS constituted a taxable service of ‘manpower supply,’ with Service Tax applicable.
It is crucial to note that secondment, as a practice, is not confined to Service Tax, and the issue of taxability extends to GST as well. The NOS judgment emphasizes a nuanced examination based on the unique characteristics of each specific arrangement, rather than relying on a singular test.
Individual Examination of Cases
Drawing from the wisdom of previous judgments, including the Commissioner of Central Excise, Mumbai vs. M/s Fiat India(P) Ltd, it is clear that each case must be examined individually. A close similarity between cases is not sufficient, as a single significant detail can alter the entire perspective. The broad resemblance to another case is not decisive in determining tax implications.
Considerations for Investigation
The CBIC highlights the existence of multiple types of arrangements regarding the secondment of employees of overseas group companies in Indian entities. Each arrangement may have different tax implications based on the specific nature of the contract and its terms and conditions. Therefore, the NOS judgment should not be mechanically applied to all cases. Investigations must involve a careful consideration of the distinct factual matrix, including the terms of the contract between the overseas company and the Indian entity.
Caution on Extended Period of Limitation
The industry has raised concerns about the mechanical invocation of the extended period of limitation under section 74(1) of the CGST Act in secondment cases. Section 74(1) can be invoked only in cases involving fraud, wilful misstatement, or suppression of facts to evade tax. The CBIC clarifies that this provision cannot be invoked solely due to non-payment of GST without specific evidence of fraud or wilful misstatement.
Guidance for Field Formations
The CBIC instructs field formations to keep these aspects in mind while investigating cases and issuing show cause notices. It emphasizes the need for a thorough examination of each case’s distinct circumstances and warns against mechanical application of the NOS judgment.
Seeking Feedback
The CBIC encourages stakeholders to communicate any difficulties in implementing these instructions to gst-cbec@gov.in.
Conclusion
As businesses navigate the GST landscape in the aftermath of the NOS judgment, a nuanced approach to each secondment case is crucial. The CBIC’s latest instructions provide valuable insights into the factors to consider during investigations, ensuring a fair and accurate assessment of tax implications.
For more detailed information, you can refer to Instruction No. 05/2023-GST on the official website of the Central Board of Indirect Taxes and Customs (www.cbic.gov.in).
