2020 (7) TMI 79 - AAR - GST

Expat employees' salary cost in Project Office not subject to GST under CGST Act

In Re: M/s. Hitachi Power Europe GMBH

The authority determined that GST is not applicable on the accounting entry for the salary cost of Expat employees in the books of accounts of a Project ... Applicability of GST - accounting entry made for the purpose of Indian accounting requirements in the books of accounts of Project Office for salary cost of Expat employees - HELD THAT:- A project office in an extension of the foreign Head Office, and as in the subject case shall carry on all activities relating and incidental to execution of the Project in India. Thus the expat employees are employees of the employer i.e. the Head Office and since the Project Office is an extension of the Head Office, there is a relation of employer and employee between the Project Office and the expat employees. For GST to be applicable on the accounting entry made for the purpose of Indian accounting requirements in the books of accounts of Project Office for salary cost of Expat employees paid by the Head Office, such accounting entry should be seen as a supply of goods, services or both. Since we find that there is a relation of employer and employee between the Project Office and the expat employees, the provisions of Schedule III of the CGST Act comes into play in this case as per which services by an employee to the employer in the course of or in relation to his employment will not be considered as a supply and therefore will not attract GST. Issues Involved:1. Whether GST is applicable on the accounting entry made for the salary cost of Expat employees in the books of accounts of a Project Office.Issue-wise Detailed Analysis:1. Applicability of GST on Accounting Entry for Salary Cost of Expat Employees:Facts and Contentions by the Applicant:- The applicant, a Project Office of a foreign company (Hitachi Power Europe GmbH), operates in India under the Foreign Exchange Management Act, 1999 (FEMA, 1999) and is involved in executing projects awarded to its Head Office (HO) in Germany.- The Project Office maintains financial books as per the Indian Companies Act, 2013, and records salary costs for Expat employees paid by the HO.- The applicant contends that these accounting entries are for compliance purposes and do not involve any actual payment or consideration to the HO.- The applicant argues that the Project Office is not a separate legal entity but an extension of the HO, and therefore, the employer-employee relationship exists between the Project Office and the Expat employees.- The applicant cites various legal precedents and provisions, including Schedule III of the CGST Act, 2017, which exempts services provided by an employee to an employer from GST.Jurisdictional Officer's Submissions:- No written submissions were made by the jurisdictional officer.Discussion and Findings:- The authority examined whether the foreign company and its Project Office in India are distinct entities or part of the same entity.- According to the FEMA Regulations, a Project Office represents the interests of the foreign company executing a project in India and is regulated by the Reserve Bank of India.- The Project Office is considered an extension of the foreign Head Office and is required to maintain financial books reflecting a true and fair view of its business in India.- The PAN and TAN for the Project Office are issued in the name of the Head Office, reinforcing the notion that the Project Office is not a separate legal entity.- The authority concluded that there is an employer-employee relationship between the Project Office and the Expat employees.- As per Schedule III of the CGST Act, services by an employee to the employer in the course of employment are not considered a supply and thus do not attract GST.Order:- The question of whether GST is applicable on the accounting entry for the salary cost of Expat employees in the books of accounts of the Project Office is answered in the negative.