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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST Update- No GST liability on payments to expats working in local arms of MNCs: Mah AAR 88/2020-21

GST Update- No GST liability on payments to expats working in local arms of MNCs: Mah AAR 88/2020-21
There have been instances of tax authorities issuing notices to MNCs in a number of cases where an expat employee received payments from the parent in his home country in the service tax regime also.
The similar issue has undergone consideration in the GST regime as to the taxability of the salary payments being made to the expatriates working in India. Germany-based Hitachi Power Europe GmBH, has sought the ruling in respect of the Project Office in India for supply of goods and supervisory services to NTPC, Meja Urja and Damodar Valley Corporation etc, employs a number of expats. The applicant Hitachi Power approached the AAR on whether the GST is applicable on the accounting entry made in the books of accounts of the PO for salary cost of expat employees, where they argued that any project office of a foreign company is required to maintain its financial books of accounts in a manner which would reflect a true and fair view of the business of the company in India as per the requirement of the Companies Act, 2013. Since most of these employees have their primary bank account outside India, their salary is paid from the company’s bank account located abroad, for administrative convenience.
The question before the AAR was whether a foreign company and its project office in India can be considered as distinct entity or as part of same entity. The AAR ruled that a project office is set up for securing the interests of the foreign company and undertake project related activities and the fact that the project office has been granted PAN and TAN in the name of the HO proves that the project office is a mere extension of the HO. Therefore, the AAR concluded that the expat employees working at the PO in India but drawing salary from the HO and complying with all TDS and Form 16 related provisions, are employees of HO they are same entities. Considering that such relationship between the HO and expat employees is a relationship of an employee and employer, the same shall be governed by Schedule III which clearly lays down the fact that services by an employee to an employer shall not be considered as supply and hence not subject to GST.
 
Now, coming to the, Explanation 1 to section 8 of the IGST act , it states that where a person has an establishment in India and any other establishment outside India , then such establishments shall be treated as establishments of distinct persons. In the instant case, the applicants project office is situated in India and employees are working in India but their salary is being paid from head office situated outside India. Hence, the head office and project office will be treated as distinct person. Now the question arises whether the employees of head office will be treated as employee of project office though they are distinct person.
To move further, we have to see the decision of M/s Columbia Asia Hospitals Private Limited pronounced by Karnataka AAR which has ignited the spark wherein the ruling implied that businesses with multi-state offices are required to raise invoices and charge tax  on in-house centralised service functions including overall management, policy decisions and execution thereof. The AAR ruled that since the corporate office in Karnataka and other branches are 'distinct persons' as envisaged by Section 25 of the CGST Act, the employer employee relationship exists between the employees and corporate office and not between the employees and branches. In-house service functions such as human resources and payrolls, if carried out from a centre in one state for offices in other states, will attract GST for which it will have to issue an invoice.
Foreign companies having liaison offices in India will not have to cough up GST on reimbursements of charges or expenses as per the ruling by the Rajasthan AARin the case of M/s Habufa Meubelen B.V. (Raj/AAR/2018-19/05) and Takko Holding GmbH the company had sought a ruling on whether reimbursements of salaries, rent, security, electricity by the parent will face GST.
Hence, Columbia Asia decision is saying that the employees of one branch office are not employees of other. As such, the GST is payable on the services provided by one branch office’s employees to other branch. But impugned order under study has held contrary to the same. It says that employees of head office situated outside India working in branch office in India are employees for both the establishments and hence GST is not applicable. Although this decision has not discussed the concept of “distinct person” in his order yet it is very favorable orders for all assessees.  Hence, this controversy will end here and many rounds of litigation is to be seen in future for this topic. Else the Government should come out with a clarification.
 
The content of this GST update is for educational purpose only and not intended for solicitation.
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