In a significant ruling impacting multinational structures operating in India, the Karnataka High Court has held that secondment of employees does not constitute “manpower supply services” under GST. The judgment provides critical clarity on tax exposure arising from cross-border employee arrangements and reinforces the legal position emerging across High Courts.
Secondment arrangements typically involve deputation of employees from an overseas entity to its Indian subsidiary. The key tax question has been whether such arrangements constitute a taxable supply of manpower services or fall within the employer-employee relationship excluded under Schedule III of the CGST Act.
From a compliance standpoint, evaluating such arrangements requires a structured GST advisory and compliance approach to assess contractual terms, control, and documentation.
The dispute arose in the case of Alstom Transport India Limited, where the GST authorities issued a Show Cause Notice demanding INR 57.94 crore, along with interest and penalties. The demand was raised under the reverse charge mechanism, treating seconded employees as manpower services imported from overseas group entities for the period July 2017 to March 2023.
The central issue was whether the secondment of employees by a foreign parent company to its Indian subsidiary qualifies as “manpower supply services” liable to GST, or whether it constitutes an employer-employee relationship excluded from tax under Schedule III.
The Court examined the nature of the arrangement and observed that the seconded employees were under the exclusive administrative and functional control of the Indian entity. This established the existence of a genuine employer-employee relationship.
Further, reliance was placed on CBIC Circular No. 210/4/2024-GST read with Rule 28 of the CGST Rules, which clarifies that in the absence of any invoice raised, the value of such services shall be deemed to be NIL.
The Court also aligned with the position taken by the Delhi High Court in the Metal One Corporation case, reinforcing that such circulars are binding on tax authorities and cannot be disregarded while determining tax liability.
The High Court held that secondment arrangements do not qualify as manpower supply services and fall within the exclusion under Schedule III of the CGST Act. Consequently, the GST demand of INR 57.94 crore, along with interest and penalties, was quashed.
The Court further clarified that even if such arrangements were hypothetically treated as supply, the deeming fiction under the CBIC Circular results in a NIL taxable value, thereby eliminating any tax liability.
This ruling strengthens the judicial trend favoring taxpayers in secondment-related disputes and provides much-needed clarity for multinational groups operating in India.
Given the increasing scrutiny around cross-border arrangements, businesses should proactively evaluate their structures through an indirect tax litigation and advisory lens to mitigate potential disputes.
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