DGGI recovers ₹2500 crores GST dues not paid on expat salaries from MNCs

In a major success for the directorate general of GST intelligence (DGGI), government has managed to garner ₹2,500 crore of GST dues that MNCs were avoiding on the expenses made to hire expats for their Indian entities. According to highly-placed sources, DGGI—the investigation arm of the government to curb GST leakages, "had sent as many as 240 show cause notices to MNCs operating India seeking dues of ₹3,300 Crores”.

"Out of these ₹3,300 crores, ₹2,500 crores have been voluntarily paid by the companies once the authorities got in touch with them, seeking clarity after detailed investigations and notices," sources added.

Referred to as secondment – which is a major and general practice in most of the MNCs, wherein the parent company  -- overseas group entity—deputes its manpower resources to its subsidiary companies – Indian Company – for particular projects, assignments or otherwise. The employees however remain on the payrolls of the overseas entity and receives its salary overseas. The Indian Company reimburses the whole  or part of the salary, perks and other emoluments of the employee to the group company. On completion of secondment, the employee reverts to the overseas company.

The said service of supplying manpower or the seconded employees from the overseas suppliers to Indian entities falls under the ambit of Supply as per section 7 of the CGST Act, 2017 and is an import of services as per the GST rules. Thus the supply of manpower in liable to IGST under reverse charge mechanism.

Given the constant efforts to plug GST leakages in the system, DGGI, sent notices to 240 entities and some of the majors include, "Maruti Suzuki India Ltd, which paid ₹139.29 crore voluntarily, similarly, Panasonic India Pvt Ltd paid ₹75.30 crore, Mizuho Bank Ltd paid ₹47.76 crore, Shell India Markets Pvt Ltd voluntarily paid ₹46.80 crore, India Yamaha Motor Pvt Ltd paid ₹36.68 crore, IBM India Pvt Ltd paid ₹22.95 crore, Sony India Pvt Ltd paid ₹22.73 crore, Aramco Asia India Pvt Ltd paid ₹21.72 crore, Suzuki Motorcycle India Pvt Ltd voluntarily cleared ₹20.28 crore, Nippon Steel India Pvt Ltd voluntarily paid ₹17.80 crore, Canon India Pvt Ltd voluntarily paid ₹14.68 crore, Hitachi India Pvt Ltd voluntarily paid ₹12.96 crore and Mitsubishi Electric Automotive India Pvt Ltd paid ₹12.05 crore,” sources added.

Some of the other companies where GST demand was less than ₹10 crore and was cleared partially include from "Reckitt Benkiser (India) Pvt Ltd, American Express India Pvt Ltd, Volvo Auto India Pvt Ltd, Oracle India Pvt Ltd, Benetton India, Bombardier Transportation India Pvt ltd, Google India Pvt ltd, Linkedin Technology Information Pvt Ltd, Air Bnb India Pvt Ltd, ZTE Telecom India Pvt Ltd,  Marks & Spencer Retail India Pvt Ltd, HSBC Asset Management India Pvt Ltd, JP Morgan India Pvt Ltd, etc," sources added.

"According to DGGI analysis says that Secondment/ expat salaries & expenses is the 2nd most common issue under which GST evasion has been recorded in last 2 years," sources said.

“GST on secondment of expatriates has been the subject matter of dispute especially from 2022 after Supreme Court held that Service Tax is payable on secondment of expatriates. Departmental authorities applied this judgment and has been demanding GST from Indian entities on such secondment transactions. While this could be revenue neutral, Department has disputed credit due to time limitations,” said Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing for petitioner companies in writ Court.

“SC judgment in the case of Northern Operating Systems is fact specific and many High Courts have stayed the SCNs as facts differ from that of Supreme Court. CBIC has also issued an instruction to clarify that facts of each case should be analyzed,” added Rastogi.

“Salaries paid to employees are out of the GST purview and when the expatriates come to India, they are under a dual employment scheme wherein only for administrative convenience the salary is remitted to the overseas company so that the amount could be remitted in the foreign bank accounts of the expatriates”, explained Rastogi, according to whom, no tax is applicable on the amount of the salary of the expatriates.

Saurabh Agarwal of Tax Partner said, "...many companies have sought stays from the High Court against the tax demand liabilities alleged in the Show Cause Notices, citing differences in fact patterns from the NOS case. The recent stay granted by the Bombay High Court in the matter of Mercedes-Benz aligns with similar relaxations granted to other companies like BMW, Mitsubishi, and Renault."

"As these matters are pending before the High Court, it remains to be seen what principles will be pronounced by the court. Given the continued issuance of notices by the department despite the circular's clarification, it is suggested that these matters be referred to the Law Committee by the GST Council. A detailed circular outlining the specific circumstances under which secondment of employees' services would be taxable should be issued."