2024 (8) TMI 986 - HC - GST

Expat Salary Payments: Challenge to IGST Liability Gains Judicial Scrutiny Under Circular 210/4/2024-GST

M/s. Alstom Transport India Limited Versus The State of Karnataka, Commissioner of Commercial Taxes Bangalore, Additional Commissioner Of Commercial Taxes (Enforcement), Bengaluru, The Deputy Commissioner Of Commercial Taxes (Enforcement) Bengaluru

HC Karnataka addressed a case involving IGST liability for expat salary payments. The court found merit in the petitioner's arguments challenging the ... Seeking to quash the impugned SCN demanding IGST along with interest and penalty - IGST on salary made to expats by the petitioner - manpower and recruitment supply of services from the overseas group entities to the petitioner or not - HELD THAT:- Without entering into the merits of the matter, the petitioner is relegated to the stage of reply to the show-cause notice. The authorities while considering the reply to the show-cause notice ought to take note of the Circular bearing No.210/4/2024-GST dated 26.06.2024, part of which has been extracted above. Insofar as other points for consideration are concerned, no observation is made regarding the same and it is open to the authority to take considered decision regarding other contentions. The matter is relegated to the stage of reply to the show-cause notice. Needless to state the authorities concerned can take note of applicability of the Circular to the facts on hand. Reply of the petitioner to be made within a period of three weeks from the date of receipt of certified copy of the order. Issues:1. Validity of the show-cause notice demanding IGST.2. Whether payment of salary to expats attracts IGST.3. Interpretation of Circulars 199/11/2023-GST and 210/4/2024-GST.4. Relegation of the petitioner to the stage of reply to the show-cause notice.Analysis:The High Court of Karnataka addressed the first issue concerning the validity of the show-cause notice demanding IGST of Rs. 59,57,19,228/- along with interest and penalty. The petitioner sought a writ of certiorari to quash the notice, arguing that the payment of salary to expats did not attract IGST as it did not constitute manpower and recruitment supply services from overseas entities. The petitioner, engaged in railway and metro projects, had expats on its payroll from July 2017 to March 2023, with salary payments made directly by the petitioner. The court noted the petitioner's contention that the value of services by overseas entities should be determined based on the open market value in invoices, as per Section 15(4) of the CGST Act, 2017 and Rule 28 of the CGST Rules, 2017.Regarding the second issue, the court delved into the interpretation of Circulars 199/11/2023-GST and 210/4/2024-GST. The petitioner relied on these circulars to support its argument that the show-cause notice should be dropped based on the clear position of law reiterated in Circular 210/4/2024-GST. The court acknowledged the relevance of Circular 210/4/2024-GST, which clarified the tax implications of services provided by foreign affiliates to domestic entities, emphasizing the deemed open market value in certain scenarios.The third issue involved the court's decision to relegate the petitioner to the stage of replying to the show-cause notice. The court emphasized that the authorities must consider the Circular 210/4/2024-GST while evaluating the petitioner's response to the notice. The petitioner was directed to submit a reply within three weeks, with the authorities required to adjudicate on the response within eight weeks thereafter. The court kept all contentions open for further consideration, highlighting the importance of applying the Circular to the specific circumstances of the case.In conclusion, the High Court's judgment focused on the procedural aspect of allowing the petitioner to respond to the show-cause notice in light of the relevant Circular and emphasized the need for authorities to consider the Circular's applicability to the case during the adjudication process.