Case Law Details
Metal One Corporation India Pvt. Ltd Vs Union Of India & Ors. (Delhi High Court)
Delhi High Court’s interim relief to Metal One Corp. by staying GST Reverse Charge Mechanism (RCM) show cause notices. Analysis of tax liability on salaries paid to seconded employees.
Introduction: The Delhi High Court has granted relief to Metal One Corporation India Pvt. Ltd. by staying the show cause notices (SCNs) demanding ₹3.09 Crores under GST Reverse Charge Mechanism (RCM). The dispute revolves around the tax liability on salaries paid to seconded employees from its holding company. Let’s explore the details of the case and the court’s interim decision.
Detailed Analysis:
1. Background of the Case:
- Metal One Corporation faces SCNs proposing a GST demand of ₹3.09 Cr on RCM for supplies from its holding company.
- The controversy arises from payments made to seconded employees, treated as salaries, and the applicability of IGST on RCM.
2. Petitioner’s Response:
- Metal One Corporation challenges the assumption that secondment of employees constitutes a supply subject to tax.
- The petitioner asserts that payments to expatriate employees are made under separate employment contracts and not for the supply of services by the holding company.
3. Legal Standpoint:
- The respondents rely on the Supreme Court’s decision in C.C.,E., & ST., Bangalore v. Northern Operating Systems Pvt. Ltd., arguing similarities in the payment structure.
- Metal One Corporation distinguishes the case, emphasizing the foreign company’s role as the employer and the absence of separate contracts in the cited case.
4. Court’s Interim Decision:
- The Delhi High Court, prima facie, opines that salaries paid under employment agreements, absent additional factors, may not be deemed payment for manpower services.
- The court stays proceedings related to the impugned SCNs until further hearings.
Conclusion: The Delhi High Court’s interim decision in the Metal One Corporation case provides relief by staying the GST RCM demand on salaries paid to seconded employees. The court’s initial observation leans toward considering such payments as part of employment contracts rather than services subject to GST. Further developments in the case will shed light on the final resolution.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
CM APPL. 59656/2023
1. Exemption is allowed, subject to all just exceptions.
2. The application stands disposed of.
P.(C) 14945/2023 & CM APPL. 59655/2023
3. Issue notice.
4. The learned counsel for the respondents accepts notice.
5. The petitioner has filed the present petition impugning the show cause notices dated 29.09.2023 (hereafter ‘the impugned SCNs’) (all bearing show cause notice no.93/2023-2024) issued to the three offices of the petitioner located in Delhi, Bombay and Chennai proposing an aggregate demand of ₹3,09,12,653/- (Rupees Three Crores Nine Lacs Twelve Thousand Six Hundred and Fifty Three only) on the ground that the petitioner is liable to pay tax on Reverse Charge Mechanism (hereafter ‘the RCM’), on account of supplies received from its holding company.
6. The petitioner’s holding company had seconded its employees to the According to the Department, payments made to the seconded employees as salaries are chargeable to IGST on RCM. The impugned SCNs proceed on the premise that the remuneration paid to the seconded employees is in essence payment for manpower services rendered by the petitioner’s holding company. Prior to issuing the impugned SCNs, the respondents had issued a pre-show cause notice dated 20.09.2023 calling upon the petitioner to pay the aforesaid demand, failing which a show cause notice would be issued. The petitioner responded to the said pre-show cause notice by a letter dated 25.09.2023, challenging the assumption that secondment of employees entailed any supply chargeable to tax. The petitioner stated that the payment made to expatriate employees were in terms of the separate employment contracts entered into with them respectively. The payment of such remuneration was not on account of supply of services by the petitioner’s holding company.
7. According to the respondents, the said issue is covered by the decision of the Supreme Court in the case of C.C.,E., & ST., Bangalore [Adjudication] v. Northern Operating Systems Pvt. Ltd.: 2022 (61) GSTL 129 (SC). The petitioner submits that the reliance placed on the said decision is misplaced, as in that case the remuneration was being paid by the foreign company to its employees seconded to serve in India. The assessee in that case was required to reimburse the payments to its foreign affiliate. It is submitted that, therefore, it was a clear case where the foreign company was the employer and not the Indian company. The payments made in the said case were not on account of separate contracts entered into between the Indian company and its employees.
8. It is also pointed out that in similar circumstances, the Hon’ble Karnataka High Court and the Hon’ble Punjab and Haryana High Court have stayed the further proceedings in respect of SCN premised on the remuneration paid to the seconded employees as service charges on supply of manpower services.
9. Harpreet Singh, learned counsel appearing for the respondents submits that the present case is similar to the case in C. C., C.E., & ST., Bangalore [Adjudication] v. Northern Operating Systems Pvt. Ltd. (Supra) as in this case as well, the payments were being paid by the petitioner to the holding company for relocation of the employees repatriated to Japan.
10. Counter-affidavit, if any, be filed within a period of two weeks from today. Rejoinder, if any, be filed before the next date of hearing.
11. Prima facie, salaries paid to employees, even though seconded by a foreign affiliate, in terms of the employment agreements with the respective employees, absent anything more, cannot be considered as payment for manpower services supplied by the foreign affiliate.
12. List on 10.01.2024.
13. In the meanwhile, the proceedings pursuant to the impugned SCNs are stayed.
