Karnataka High Court
M/S. Alstom Transport India Limited vs Commissioner Of Commercial Taxes on 15 July, 2025
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 15TH DAY OF JULY, 2025
BEFORE
THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
WRIT PETITION NO.1779 OF 2025 (T-RES)
BETWEEN:
1. M/S. ALSTOM TRANSPORT INDIA LIMITED
3RD FLOOR, 66/2, EMBASSY PRIME
C.V. RAMAN NAGAR
BAGMANE TECH PARK, BENGALURU
KARNATAKA -560093
REPRESENTED BY,
VISHWANATH HUCHCHAPARANNAVAR
AGE 45 YEARS
TAX MANAGER - GST
INCORPRATED UNDER THE COMPANIES ACT, 1956
...PETITIONER
(BY SRI. RAVI RAGHAVAN, SMT. MEGHNA LAL AND
SMT. VANI DWEVEDI, ADVOCATES)
AND:
1. COMMISSIONER OF COMMERCIAL TAXES
VANIJYA THERIGE KARYALAYA
GANDHINAGAR
BANGALORE - 560 009.
2. ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES
(ENFORCEMENT), SOUTH ZONE
ROOM NO. 401, 4TH FLOOR
2
V T K-2 BUILDING, RAJENDRANAGARA
KORMANGALA
BENGALURU-560047.
3. DEPUTY COMMISSIONER OF
COMMERCIAL TAXES
(ENFORCEMENT)-08, SOUTH ZONE
ROOM NO. 401, 4TH FLOOR
V.T.K.-2 BUILDING, RAJENDRANAGARA
KORMANGALA, BENGALURU-560047.
4. ASSISTANT COMISSIONER
OF COMMERCIAL TAXES
ENFORCEMENT-20, SOUTH ZONE
ROOM NO. 401, 4TH FLOOR
V.T.K.-2 BUILDING, RAJENDRANAGARA
KORMANGALA, BENGALURU - 560 047.
...RESPONDENTS
(BY SMT. JYOTI M. MARADI, HCGP)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE
ORDERS BEARING NO.ZD291024038057J DATED 16.10.2024
VIDE ANNEXURE-A, ZD2910240380671 DATED 16.10.2024 VIDE
ANNEXURE- A1, ZD291024038078F DATED 16.10.2024 VIDE
ANNEXURE-A2, ZD291024038087G DATED 16.10.2024 VIDE
ANNEXURE-A3, ZD291024038090T DATED 16.10.2024 VIDE
ANNEXURE-A4 AND ZD291024038094L DATED 16.10.2024 VIDE
ANNEXURE-A5 PASSED BY RESPONDENT NO.4 FOR THE TAX
PERIOD JULY 2017 TO MARCH 2023 WHICH CONFIRMED THE
DEMAND OF IGST OF RS.57,94,94,146/- ALONG WITH INTEREST
AND PENALTY AND ETC.
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THIS WRIT PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 08.07.2025, THIS DAY ORDER WAS
PRONOUNCED THEREIN, AS UNDER:
CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
CAV ORDER
In the captioned petition, petitioner is assailing the
orders dated 16.10.2024 vide Annexures-A to A5 passed by
respondent No.4 and a further declaration is sought that
the taxable value of the supply, if any, made by the
overseas entities/expats to the petitioner is 'Nil' in terms of
Section 15(4) of the Central Goods and Service Tax Act,
2017 (for short 'the CGST Act, 2017') read with Rule 28 of
the CGST Rules, 2017. A further declaration is sought for
payment of salary made to the expats by the petitioner
does not attract IGST on the ground that it does not
amount to manpower and recruitment supply of services
from the overseas group entities to the petitioner/company.
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2. The facts leading to the case are as under:
The petitioner is engaged in the business of designing,
manufacturing, supplying, installing, and commissioning
goods pertaining to railway and metro infrastructure
projects. In addition, the petitioner provides design and
engineering services, including software upgradation and
modification in metro projects. During the disputed period
from July 2017 to March 2023, the petitioner avers that
employees of its overseas group companies were seconded
to work in India for a fixed tenure. The petitioner asserts
that it executed employment agreements with each of these
expatriate employees, detailing their appointments,
salaries, and allowances. It is further submitted that during
the term of their secondment, these expatriates were
placed on the payroll of the petitioner in India, and their
salaries were paid directly by the petitioner after deducting
applicable Tax Deducted at Source (TDS) in accordance
with the provisions of the Income Tax Act, 1961.
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The petitioner contends that while the expatriate
employees were on its payroll, the overseas group entities
continued to provide social security and related benefits
available in their home countries. From November 2020
onwards, the petitioner has been discharging Integrated
Goods and Services Tax (IGST) on a reverse charge basis,
periodically, on the amounts specified in debit notes raised
by the overseas group entities, as reflected in its GSTR-3B
returns. It is submitted that the IGST so paid was availed
as Input Tax Credit (ITC), and no objections were raised by
the authorities in this regard.
The petitioner's grievance arises from the issuance of
a show cause notice bearing No.ADCOM/ENF/SZ/Summons-
480/2023-24 dated 26.09.2023 by respondent No.3,
proposing to demand IGST amounting to
Rs.59,57,19,228/-, along with interest and penalty, for the
period July 2017 to March 2023. The demand is premised
on the allegation that the petitioner was liable to pay IGST
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on the import of 'Manpower Supply Service' from its
overseas affiliates. In response, the petitioner has relied on
Circular No.210/4/2024-GST dated 26.06.2024 issued by
the Central Board of Indirect Taxes and Customs (CBIC),
which clarifies that in cases involving related party
transactions where full input tax credit is available to the
recipient, the value declared in the invoice may be deemed
as the open market value under the second proviso to Rule
28 of the CGST Rules, 2017. The petitioner asserts that
since no invoices were raised, the open market value must
be deemed to be 'Nil'.
Despite furnishing requisite documents and replying in
Part B of Form DRC-01A, explaining that IGST had already
been discharged under the reverse charge mechanism on
the reimbursed amounts, and asserting that the seconded
expatriates were on the petitioner's payroll, respondent
No.3 proceeded to issue a formal show cause notice on
26.09.2023. This was despite the petitioner having clearly
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submitted that the transaction is not a "supply" within the
meaning of Entry 1 of Schedule III to the CGST Act, 2017.
Prior to this, on 27.07.2023, Part A of Form DRC-01A was
issued indicating a proposed liability of Rs.62,69,13,875/-,
which was responded to by the petitioner with detailed
submissions and supplementary documents.
Aggrieved, the petitioner approached this Court by
filing W.P.No.23915/2023 challenging the show cause
notice dated 26.09.2023. This Court, while disposing of the
writ petition, relegated the petitioner to submit a detailed
reply before the authorities, taking note of the then-
recently issued CBIC Circular dated 26.06.2024, which
clarified that in the absence of an invoice, the taxable value
is deemed to be 'Nil'. Despite submission of additional
documents and explanations in line with this clarification,
the respondent No.4 proceeded to pass the impugned order
confirming the IGST demand on alleged import of
manpower recruitment and supply services.
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3. Learned counsel appearing for the petitioner,
reiterating the grounds urged, placed reliance on the
decision of the Delhi High Court in Metal One Corporation
India Pvt. Ltd. vs. Union of India & Ors.1, wherein
similar show cause notices were quashed in cases where no
invoices were raised for alleged manpower supply. Relying
on the said decision and the CBIC Circular dated
26.06.2024, learned counsel argued that salaries paid to
expatriates cannot be treated as open market value under
Rule 28 of the CGST Rules, 2017. He submitted that these
payments, being in the nature of salaries, do not constitute
consideration for supply of manpower services and hence
do not attract IGST under reverse charge.
4. Without prejudice to the above, learned counsel
submitted that the petitioner has, as a matter of abundant
caution, already discharged IGST on the reimbursed
amounts from November 2020 onwards, even though no
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2024 DHC 8298 DB
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invoices were raised for the entire disputed period. He
contended that the transaction, in essence, represents a
service between employer and employee, which falls
squarely within the ambit of Entry 1 of Schedule III to the
CGST Act, 2017 and hence does not amount to a taxable
supply.
5. In opposition, the Revenue contends that the
petitioner's arrangement with its overseas group entities
amounts to a taxable supply of service under the Goods and
Services Tax (GST) regime. According to the Department,
the secondment of employees by the foreign parent or
affiliated entities to the petitioner constitutes a provision of
"manpower supply service". The Department asserts that
this arrangement falls squarely within the ambit of taxable
inter-state supply, wherein the foreign entity is the supplier
and the petitioner is the recipient of such service.
Accordingly, the Department seeks to invoke the provisions
of the Reverse Charge Mechanism (RCM) under Section
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5(3) of the Integrated Goods and Services Tax Act, 2017
(IGST Act), which mandates that the liability to pay tax on
specified categories of supply of services rests with the
recipient, rather than the supplier.
6. To substantiate its position, the Department
places reliance on Notification No.10/2017 - Integrated Tax
(Rate) dated 28.06.2017, issued under the said section,
which specifically enumerates "services supplied by a
person located in a non-taxable territory by way of supply
of manpower for any purpose" as taxable in the hands of
the recipient located in the taxable territory, i.e., India.
The Revenue, therefore, contends that by virtue of this
notification, the petitioner was legally obligated to discharge
IGST under RCM on the entire value of services alleged to
have been provided by the foreign group entities through
seconded personnel. On this basis, the Department seeks
to levy IGST along with applicable interest and penalties on
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the total value of salaries and reimbursements made in
respect of such seconded employees.
7. Heard learned counsel appearing for the
petitioner and learned HCGP for the State. Perused the
records.
8. The petitioner company asserts that, under a
typical secondment arrangement, expatriate employees are
deputed by a foreign parent or affiliate company to work for
its Indian subsidiary for a specified period. Such
arrangements are governed by a dual-contractual
framework comprising (i) a Secondment Agreement
executed between the foreign and Indian entities, and (ii)
an Employment Agreement entered into directly between
the seconded employee (secondee) and the Indian entity.
The Secondment Agreement sets out the overarching terms
of deputation, including the duration of the secondment,
the general roles and responsibilities of the secondees, and
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the mechanism for reimbursement of costs, such as salaries
and benefits paid by the foreign entity on behalf of the
Indian company. In parallel, the Employment Agreement
entered into with the Indian entity governs the specific
terms of the secondee's full-time engagement in India
during the secondment period. This agreement contains
stipulations regarding the tenure of employment, location of
work, compensation structure, employment duties,
benefits, termination and resignation clauses, and dispute
resolution mechanisms.
9. The company further claims that , during the
course of secondment, the secondees remain subject to the
operational supervision, control, and administrative
authority of the Indian company. They are required to
comply with all internal rules and policies of the Indian
entity, including office hours, code of conduct, and statutory
obligations under Indian tax laws, particularly the deduction
of tax at source (TDS) from their salaries. While the Indian
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company disburses the salary directly to the secondees,
certain components such as social security contributions or
benefits mandated under the laws of the home country may
be paid by the foreign entity, which are later reimbursed by
the Indian subsidiary. Functionally and contractually, the
secondees are fully integrated into the Indian company's
workforce and operate exclusively under its control during
the term of their deputation.
10. Prior to the advent of the Goods and Services
Tax (GST) regime, services rendered by an employer to its
employee were expressly excluded from the ambit of
taxation under Section 65(B)(44) of the Finance Act, 1994,
which governed the Service Tax framework. In this legal
context, various appellate tribunals consistently held that
seconded employees were to be treated as employees of
the Indian entity for all practical and legal purposes, and
that no taxable manpower supply service was involved.
These rulings were premised on the fact that the Indian
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company exercised complete control and supervision over
the secondees during their period of deputation; that there
was no payment of consideration to the foreign parent
company in the form of service fees; and that the
relationship between the foreign and Indian entities was
neither that of a service provider-client nor principal-agent.
Consequently, secondment arrangements were generally
not brought within the purview of taxable services under
the Service Tax regime until the Supreme Court's landmark
decision in CC, CE & ST, Bangalore (Adj) etc. vs.
Northern Operating Systems Pvt. Ltd.2, which marked a
significant shift in the legal interpretation of such
arrangements.
11. In its judgment dated 19.05.2022, the Hon'ble
Supreme Court in CC, CE & ST v. Northern Operating
Systems Pvt. Ltd. (supra), adopted a substance-over-form
approach, holding that despite the appearance of an
2
Civil Appeal Nos.2289-2293 of 2021
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employer-employee relationship, secondment arrangements
in substance constituted a taxable supply of manpower
services. The Court's key findings included that the foreign
entity remained the economic employer, retaining control
over the secondees' terms of employment, who continued
on the foreign payroll with salaries fixed in foreign currency
and additional allowances such as hardship pay. The
secondees were assigned to the Indian entity only for
specific tasks and durations, after which they reverted to
the foreign company. Importantly, the foreign entity levied
a mark-up on salary reimbursements to the Indian
company to cover administrative costs, reinforcing the
conclusion that the arrangement was in the nature of a
service transaction liable to tax.
12. Based on the specific facts before it, the Hon'ble
Supreme Court in Northern Operating Systems Pvt.
Ltd. (supra) held that the secondment arrangement
amounted to a supply of manpower services by the foreign
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entity to its Indian subsidiary and was therefore liable to
Service Tax under the Reverse Charge Mechanism (RCM).
Crucially, the Hon'ble Apex Court clarified that its ruling was
fact-specific and should not be treated as a blanket
precedent for all secondment arrangements. Given the
conceptual alignment between the Service Tax and GST
frameworks, the NOS decision prompted heightened
scrutiny of secondment structures under GST. The central
question remains whether a secondment constitutes a
taxable supply of manpower services or a non-taxable
employer-employee relationship exempt under Schedule III
of the CGST Act.
13. Following the ruling, tax authorities particularly
the Directorate General of GST Intelligence (DGGI) initiated
widespread investigations, issuing numerous show cause
notices. Taxpayers responded in varied ways: some paid
GST under protest and claimed Input Tax Credit (ITC),
maintaining revenue neutrality; others contested the
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demand on merits, asserting that the secondees were full-
time employees of the Indian entity. A few opted to pay
tax with interest under Section 73(5) of the CGST Act to
avoid coercive proceedings. However, authorities escalated
matters by issuing notices under Section 74, alleging fraud
or suppression, and in certain cases sought to deny ITC
either on the basis of Section 17(5)(i), where tax is paid
under Section 74, or by invoking time limitations under
Section 16(4).
14. In light of these developments, businesses must
now assess secondment arrangements on a case-by-case
basis. Key factors include: who bears the economic burden
and controls long-term employment; whether the posting is
task-specific or open-ended; how salary is paid directly by
the Indian entity or via the foreign company; and whether
the secondee is absorbed into the Indian organization or
reverts to the foreign entity post-assignment.
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15. The wave of litigation and inconsistent
assessments following the Northern Operating
Systems ruling prompted intervention by both the Central
Board of Indirect Taxes and Customs (CBIC) and the GST
Council. In its Instruction dated 13.12.2023, the CBIC
directed tax authorities to assess secondment cases
individually and to refrain from invoking Section 74 of the
CGST Act unless there was clear evidence of fraud or wilful
suppression. However, implementation at the field level has
remained uneven. Subsequently, in its 53rd meeting held on
22.06.2024, the GST Council made several key
recommendations. First, it proposed a conditional waiver of
interest and penalties for GST demands related to FY 2017-
18 to 2019-20, provided the principal tax is paid by 31
March 2025, this relief is to be implemented through the
insertion of Section 128A in the CGST Act. Second, with
respect to valuation under Rule 28, the Council clarified that
in related party transactions where the Indian recipient is
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eligible for full Input Tax Credit (ITC), the declared value
may be accepted as the open market value, and where no
invoice is raised, the value may be deemed 'NIL' a
clarification particularly relevant to secondment
arrangements. Third, it was clarified that ITC may be
claimed in the financial year in which the invoice is raised,
rather than when tax is paid, thus addressing concerns over
denial of ITC due to timing mismatches. These
recommendations were formally implemented by way of a
CBIC circular dated 26.06.2024.
16. In the present case, the petitioner contends that
the expatriate employees were seconded by the foreign
parent solely to render services to the petitioner in India.
Throughout the period of secondment, these employees
were under the exclusive administrative and functional
control of the petitioner, were integrated into its
organizational framework, and adhered to its internal
policies, code of conduct, and disciplinary rules. Their
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salaries were paid directly by the petitioner and subjected
to Indian income tax, including deduction of TDS, and they
were extended statutory employment benefits under Indian
labour laws. Collectively, these facts establish the existence
of a genuine employer-employee relationship between the
petitioner and the seconded personnel, falling squarely
within the exclusion under Schedule III of the CGST Act and
thereby not constituting a taxable supply.
17. This Court deems it fit to cull out para 3.7 of the
Circular dated 26.06.2024, which reads as under:
"3.7 In view of the above, it is clarified that in
cases where the foreign affiliate is providing certain
services to the related domestic entity, and where full
input tax credit is available to the said related
domestic entity, the value of such supply of services
declared in the invoice by the said related domestic
entity may be deemed as open market value in terms
of second proviso to Rule 28(1) of CGST Rules.
Further, in cases where full input tax credit is available
to the recipient, if the invoice is not issued by the
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related domestic entity with respect to any service
provided by the foreign affiliate to it, the value of such
services may be deemed to be declared as Nil, and
may be deemed as open market value in terms of
second proviso to Rule 28(1) of CGST Rules."
18. This Court finds it appropriate to emphasise
paragraph 3.7 of Circular No. 210/4/2024-GST dated
26.06.2024, which clarifies the legal position regarding
cross-border intra-group services where full input tax credit
is available to the recipient. The Circular unequivocally
states that if the related domestic entity does not raise an
invoice in respect of services received from its foreign
affiliate, the value of such services may be deemed to be
'Nil' and such 'Nil' value shall be treated as the open market
value in terms of the second proviso to Rule 28(1) of the
CGST Rules. The Delhi High Court, in Metal One
Corporation India Pvt. Ltd. v. Union of India & Ors.,
(supra) has also endorsed this clarification, observing that
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once the value is treated as 'Nil' under Para 3.7, there can
be no further tax implications arising under the Act.
19. In the present case, it is not in dispute that no
invoices were raised by the petitioner in respect of the
services allegedly rendered by the foreign affiliate through
seconded employees. Following the clarification in Para
3.7, the value of such services must be deemed to be 'Nil'
and treated as the open market value. Even if arguendo
such secondment arrangement is assumed to be a supply,
the deeming fiction under the Circular neutralises any scope
for further tax liability. This Court is in agreement with the
view of the Delhi High Court that the Circular, being binding
on the authorities, leaves little room for the Revenue to
allege a taxable value in the absence of an invoice.
Further, the second proviso to Rule 28 cannot be invoked to
displace the legal effect of a 'Nil' value where the legislative
framework itself permits such a deeming fiction, especially
when full input tax credit is available.
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20. Accordingly, in light of the statutory exclusion
under Schedule III and the clarificatory Circular issued by
the CBIC, this Court holds that the secondment
arrangement does not give rise to any tax liability, and the
impugned demand raised by the Revenue is liable to be set
aside.
21. For the foregoing reasons, this Court proceeds to
pass the following:
ORDER
(i) In terms of para 3.7 of the circular dated 26.06.2024 , this Court holds that the secondment of employees in the present case does not amount to a taxable supply of manpower services under the GST regime and is therefore not amenable to IGST under the reverse charge mechanism. Consequently, the writ petition is allowed;
(ii) Accordingly, the impugned orders bearing No.ZD291024038057J dated 16.10.2024 (Annexure-A), ZD2910240380671 dated 24 16.10.2024 (Annexure-A1), ZD291024038078F dated 16.10.2024 (Annexure-A2), ZD291024038087G dated 16.10.2024 (Annexure-A3), ZD291024038090T dated 16.10.2024 (Annexure-A4), and ZD291024038094L dated 16.10.2024 (Annexure- A5), passed by Respondent No.4, confirming the demand of Integrated Goods and Services Tax (IGST) to the tune of Rs.57,94,94,146/- along with interest, penalty, and other consequential proceedings for the tax period from July 2017 to March 2023, are hereby quashed and set aside.
Sd/-
(SACHIN SHANKAR MAGADUM) JUDGE CA