Huawei Technologies India Private Limited Vs State of Karnataka (Karnataka High Court)
The Karnataka High Court allowed the writ petition challenging a show cause notice dated 23.12.2023 demanding IGST of ₹85,51,00,620/- along with interest and penalty on salaries paid to foreign national employees for the period April 2018 to March 2023. The demand was raised on the ground that the remuneration constituted consideration for “import of Manpower Recruitment and Supply Service” under the Reverse Charge Mechanism (RCM), treating the foreign employees as non-resident taxable persons.
The petitioner contended that the foreign nationals were directly employed under valid employment contracts specifying tenure, reporting authority, working hours, salary, and benefits. They were on the petitioner’s payroll, received salaries and allowances in Indian bank accounts, and were subject to deduction of income tax under the Income-tax Act, 1961. The foreign employees were treated at par with Indian employees and resided in India during the relevant period. It was argued that services provided by employees to the employer in the course of employment fall under Entry 1 of Schedule III of the CGST Act, 2017, which excludes such transactions from the scope of supply.
The Court observed that the case did not involve secondment from other group entities but a direct employer-employee relationship. The material on record demonstrated that the foreign nationals were employees of the petitioner. Consequently, the payment of salaries was outside the ambit of GST as it was covered under Entry 1 of Schedule III of the CGST Act, which excludes services by an employee to the employer from the definition of supply.
