In a relief for the auto major Mercedez-Benz, Bombay High court has granted an interim-stay of order demanding GST dues on expat-salary payment by the company. The Bombay High Court's Division Bench, consisting of Justices G.S. Kulkarni and Firdosh Phiroze Pooniwalla, granted this interim stay on the demand for IGST on salaries paid by Mercedes-Benz to expatriates under the Reverse Charge Mechanism (RCM), aligning with the precedent set by the Supreme Court in the Northern Operating Systems Private Limited (NOS) case.
The stay remains in effect until the next hearing, and in the meantime the High Court has directed the Revenue department to file a counter affidavit within two weeks.
The grounds for the stay included the CBIC's instruction dated December 13, 2023, which emphasised the need for a thorough examination of circumstances before applying the NOS ratio and the presence of differentiating factors between the present case and the NOS case.
In the NOS case, the Supreme Court deliberated on the issue of determining the employer of seconded employees from overseas group companies to Indian entities. The Court emphasised the substance over form principle and considered various factors to conclude that the overseas entity remained the employer, thereby rejecting arguments regarding tax liability and revenue neutrality.
The Court also dismissed the reliance on previous judgments lacking reasoned analysis. Thus, the decisions in both cases have significant implications for the taxation of cross-border transactions and the determination of employer-employee relationships in such contexts.
Sandeep Sehgal, Partner- Tax, AKM Global, a tax and consulting firm states, "The Hon'ble Bombay High Court's interim stay on the IGST demand for Mercedes-Benz's expatriate salaries aligns with the relaxation already granted to other companies facing similar circumstances, including BMW, Mitsubishi, Renault, and others. This relaxation is in accordance with the intent of the CBIC instruction, emphasising the importance of meticulous examination of each fact and circumstance. The decisions in these cases will profoundly impact the taxation of cross-border transactions and the determination of employer-employee relationships."
