GST not applicable on salary cost of expat employee debited in books of the Project Office – AAR Maharashtra
by ReinHeads Team | Jul 2, 2020
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GST not applicable on salary cost of expat employee debited in books of the Project Office* – AAR Maharashtra
| Facts |
- The Applicant (i.e., Hitachi Power Europe GmbH, Germany) (‘the HO’) has been awarded contracts for supply of goods and supervisory services for specific projects in India (‘the Projects’)
- For undertaking onshore portion of the Projects, the Applicant constituted 3 Project Offices (‘the PO’) which are permitted under the Foreign Exchange Management Act, 1999
- Some expat employees of the HO work in the PO, for whom all the employer’s obligation under the Income Tax Act, 1961 (like Form 16) are done by the PO. However, since, these expat employees have their primary bank account outside India, for administrative convenience, salary is paid to these employees from the HO’s bank account located abroad
- As per the Companies Act, 2013, any project office of a foreign company has to maintain its financial books of accounts reflecting a true and fair view of the business in India. Thus, to keep record of expat’s salary expenses, the PO makes an accounting entry in its financial books of accounts
- The PO has obtained GST registration for supply of goods and services in relation to onshore portion of the Projects and is charging applicable GST to the customer
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| Issue before the Authority for Advance Ruling (‘the AAR’) |
- Whether GST is applicable on the accounting entry made for the purpose of Indian accounting requirements in the books of accounts of the PO for salary cost of expat employees?
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| Discussion and Findings of the AAR |
The AAR held that GST is not applicable on the accounting entry made in the books of PO on account of the following key reasons:
- PO represents the interests of the foreign company executing a project in India and undertakes commercial activities related to the specific project. Accordingly, the PO is an extension of the HO
- Expats are employees of the HO and since the PO is an extension of the HO, there is a relation of employer and employee between the PO and the expat employees
- To levy GST on accounting entries made in the books of accounts of the PO for salary cost of expat employees, such accounting entry should be either supply of goods, services or both
- Since there is a relation of employer and employee between the PO and the expat employees, the same shall not be considered as a ‘supply’ under the provisions of Schedule III of the Central Goods & Service Tax Act, 2017 (i.e., services by an employee to the employer in the course of or in relation to his employment)
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*Advance Ruling No. GST-ARA-38/2019-20/B-27 dated 11 March 2020 (AAR, Maharashtra) |
