Punjab and Haryana High Court has granted interim relief to BMW India on show cause notice issued for GST recovery on salaries paid to expats in Indian rupee. The company has been asked to give a detailed response by next month.

“In case any adverse order is passed against the petitioner during the pendency of the writ petition, respondents shall not take any coercive steps to recover the amount,” a division Bench of Justices G S Sandhawalia and Lapita Banerjee said.  

Later, the Bench adjourned the matter to February 13, 2024 with another connected matter Mitsubishi Electric India.

The Bench has already stayed the operation of SCN proposing to raise GST demand on salaries paid to seconded expatriate employees in India. BMW India entered into an agreement with its parent company Germany based BMW AG for employing personnel having requisite skills and expertise.

Part of their remuneration (salary, bonus, reimbursement etc.) was to be paid outside India to the extant permissible under the laws and regulations of India. The said amounts were to go through the parent company for administrative convenience and the said company was to act as a paying office. The balance amount was to paid by Indian company.

Though the company had deposited IGST on amount reimbursed to overseas entity. However, it got the notice for IGST due on salary paid in Indian rupees. Though the company contested the demand saying the said amount is not taxable, but it was issued a show cause notice. This notice was challenged in the High Court and got interim relief.

Commenting on the ruling, Harpreet Singh, Partner, Indirect Tax at KPMG, said, “It is heartening to know that various High Courts are looking at fact pattern in each case and then giving stay/relief on merits and not just following the Supreme Court judgment as a precedent for taxing all expat arrangements.”

This is the not the first matter where Tax Department’s notice has been stayed. In the matter of Metal One Corporation, Delhi HC had granted interim-stay over proceedings pursuant to SCN demanding GST on salaries paid to seconded expatriates based on Supreme Court’s verdict in Northern Operating Systems. 

Karnataka HC in Alstom Transport India had stayed adjudication of SCN issued by GST Department proposing to levy IGST on salaries paid directly by the Indian entity to the expatriates and in United Breweries Ltd granted stay in writ against an SCN seeking to levy GST on salary and other costs incurred by head offfice to branch offices.

In the matter of Renault Nissan Automotives, SC has issued Notice in a challenge by assessee to service tax demand under reverse charge mechanism (RCM) against Indian arm (assessee) on deputation of foreign employees/ expatriates i.e. secondees from Nissan Motor Company, Japan.