Foreign Company's India Project Office Transactions Deemed Intra-Company; Expat Salaries Exempt from GST

The case involved determining whether transactions between a foreign company and its project office in India constituted intra-company affairs and if the salary paid to expat employees was subject to GST. The Authority concluded that the project office was an extension of the foreign company, making the transactions intra-company. Regarding the salary paid to expat employees, it was ruled that no GST applied as it fell under the exemption for services by an employee to the employer. Therefore, the accounting entry for expat employees' salaries in the project office's books was not subject to Goods and Services Tax.

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Issues Involved:
1. Whether the transaction between M/s. Hitachi Power Europe GmbH and its project office located at Meja Thermal Power Project, Allahabad is a transaction between the same company or two distinct legal entities.
2. If the transaction is intra-company, whether the amount paid to the expat employees falls under the definition of "Supply" under GST laws or falls under Schedule III of the CGST Act, 2017.

Detailed Analysis:

Issue 1: Nature of the Transaction
The first issue concerns whether the transaction between M/s. Hitachi Power Europe GmbH (foreign company) and its project office in India is an intra-company transaction or between two distinct legal entities.

The Reserve Bank of India (RBI) regulations and the Foreign Exchange Management Act (FEMA) define a "Project Office" as a place of business in India representing the interests of a foreign company executing a project in India. The project office is funded directly by inward remittance from abroad, as evidenced by the balance sheet showing "Head Office balance." The Project Office is registered under the Companies Act, 2013, and holds a PAN and TAN issued in the name of the foreign company.

The Authority concluded that the Project Office is merely an extension of the foreign company in India, limited to compliance with various tax and regulatory requirements. Therefore, the transactions between the foreign company and the project office are intra-company affairs.

Issue 2: Applicability of GST on Salary Paid to Expat Employees
The second issue is whether the salary paid to expat employees falls under the definition of "Supply" under GST laws or falls under Schedule III of the CGST Act, 2017, which exempts "services by an employee to the employer in the course of or in relation to his employment" from GST.

The Project Office deducts TDS on salaries, issues Form 16, and pays professional tax, fulfilling all employer obligations. The VISA issued by the Indian Bureau of Immigration lists the organizational name as 'Hitachi Power Europe GmbH,' indicating an "Employee-Employer relation" between the Project Office and expat employees.

As per Section 7(2) of the CGST Act, 2017, activities specified in Schedule III are treated neither as supply of goods nor supply of services. Schedule III explicitly states that "services by an employee to the employer in the course of or in relation to his employment" are not subject to GST.

The Authority concluded that the services provided by expat employees to the Project Office fall under this category. Therefore, no GST is leviable on the salary paid to expat employees and reflected in the Project Office's books of account.

Ruling:
The Authority ruled that Goods and Services Tax is not applicable on the accounting entry made for the purpose of Indian accounting requirements in the books of account of the Project Office for the salary cost of expat employees. This ruling is valid unless declared void under Section 104(1) of the CGST Act, 2017.

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