CBIC has issued Instruction 5/2023 on 13th December, 2023 regarding the Supreme Court judgment in the case of Northern Operating Systems Pvt Ltd (NOS) and its implications for GST.
Background:
i) On May 19, 2022, the Supreme Court ruled in the NOS case that the secondment of employees by an overseas group company to NOS was a taxable ‘manpower supply’ service under Service Tax laws.
ii) After this ruling, GST field formations initiated proceedings against some companies under GST section 74(1) for alleged evasion regarding employee secondments.
iii) Industry associations have represented that section 74(1) was being mechanically applied without considering specific facts.
Key Guidelines from CBIC:
i) The NOS judgment requires a nuanced examination of each secondment arrangement based on specific contractual terms and conditions. The ruling should not be applied mechanically in all cases.
ii) Per earlier Supreme Court rulings, every case depends on its own unique facts. Broad similarities with precedents are not decisive in determining taxability.
iii) There can be multiple types of secondment arrangements with overseas group entities, each having different GST implications based on the contract. A careful consideration of the factual matrix is needed in each case.
iv) Section 74(1) permits invoking an extended limitation period only in cases of fraud, willful misstatement or suppression of facts to evade GST. Mere non-payment of GST is not sufficient to invoke section 74(1).
v) Field formations should properly examine material evidence of such fraud, misstatement or suppression, and include this evidence in show cause notices issued under section 74(1).
Conclusion
The CBIC has clarified that the NOS judgment requires a fact-based analysis of each specific secondment arrangement to determine GST taxability. Section 74(1) cannot be applied mechanically without material evidence of deliberate tax evasion in such cases. Field formations have been directed to follow these guidelines while investigating secondment cases going forward.
CBIC GST Instructions 5/2023 dated 13/12/2023: Clarifications on NOS Ruling (SC) impact on GST Liability in Employee Secondments