2020 (2) TMI 592 - AAR - GST

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 ... Supply or not - contracts for supply of goods and supervisory services - import of services - 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 same company or a transaction between two distinct legal entities? - HELD THAT:- A Project Office is merely an extension of the foreign company in India to undertake the project in India and limited to undertake compliances required under various tax and regulatory requirements in India. Accordingly, the transactions between the foreign company and project office is an intra-company affair. If the said transaction is an intra-company transaction, whether the amount paid to the expat employees falls under the definition of 'Supply' under GST laws or will it fall under the Schedule III of the CGST Act, 2017 i.e. 'Services by an employee to the employer in the course of or in relation to his employment? - HELD THAT:- The project office and the head office are single business entity and the project office is acting as an extended arm of the Head Office. Further the project office is fulfilling all the obligations as employer with reference to expat employees and 'Employee-Employer relation exist between the project office and expat employees' - as the service provided by the expat employees to the project office fall under the category of 'Services by an employee to the employer in the course of or in relation to his employment' - Accordingly, no GST is leviable on the salary paid to the expat employees and reflected in the books of account of the project office. 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 TransactionThe 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 EmployeesThe 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.