Implications of the Supreme Court’s Judgment on Employee Secondment and Instruction No. 05/2023-GST

Introduction

In a recent directive from the Government of India’s Ministry of Finance, the Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing, has addressed a critical issue that has been the subject of much debate in the corporate world. The directive, dated 13th December 2023, pertains to the Supreme Court’s judgment in the case of Northern Operating Systems Private Limited (NOS) and its implications on the Goods and Services Tax (GST).

Key Points

1. The Supreme Court’s judgment on the NOS case has led to many field formations initiating proceedings for alleged evasion of GST on the issue of secondment under section 74(1) of the Central Goods and Services Tax Act, 2017 (CGST Act).
   
2. The Supreme Court held that the secondment of employees by the overseas group company to NOS was a taxable service of ‘manpower supply’ and Service Tax was applicable on the same.
   
3. The Supreme Court emphasized a nuanced examination based on the unique characteristics of each specific arrangement, rather than relying on any singular test.
   
4. The document advises that the decision of the Supreme Court in the NOS judgment should not be applied mechanically in all cases. Each case requires careful consideration of its distinct factual matrix, including the terms of the contract between the overseas company and the Indian entity, to determine taxability or its extent under GST.
   
5. The document also addresses the issue of invoking the extended period of limitation under section 74(1) of the CGST Act. It clarifies that section 74(1) can only be invoked in cases where there is a fraud or wilful mis-statement or suppression of facts to evade tax. It cannot be invoked merely on account of non-payment of GST, without a specific element of fraud or wilful mis-statement or suppression of facts to evade tax.

Conclusion

The directive concludes by advising that the above aspects should be kept in consideration while investigating such cases and issuing show cause notices. Any difficulties in implementing these instructions should be reported to the Board. This directive serves as a reminder of the complexities involved in the application of GST and the need for careful consideration of each case’s unique circumstances.

This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

For More Information Please Refer Below CBIC Instruction No. 05/2023 – GST –

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