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2019 (11) TMI 1596 - AAR - GSTLevy of GST - accounting entry made for the purpose of Indian accounting requirements in the books of accounts of Project Office for salary cost of Expat employees - transaction between same company or a transaction between two distinct legal entities? - HELD THAT - A Project Office is merely an extension of the foreign company in India to undertake the project in India and limited to undertake compliances required under various tax and regulatory requirements in India. Accordingly, it is observed that the Head Office and project office are the same legal entity and they cannot be treated as different legal entities. We also observe that the project office is merely an extension of Head Office for administrative convenience/ to fulfill legal obligations. If the said transaction is an intra-company transaction, whether the amount paid to the expat employees falls under the definition of Supply under GST laws or will it fall under the Schedule III of the CGST Act, 2017 i.e. Services by an employee to the employer in the course of or in relation to his employment. ? - HELD THAT - The project office and the head office are single business entity and the project office is acting as an extended arm of the Head Office. Further the project office is fulfilling all the obligations as employer with reference to expat employees and Employee-Employer relation exist between the project office and expat employees - Further, as per Schedule Ill of the CGST Act, 2017, the services by an employee to the employer in the course of or in relation to his employment shall be treated neither as supply of goods nor a supply of service. Thus, as the service provided by the expat employees to the project office fall under the category of Services by an employee to the employer in the course of or in relation to his employment . Accordingly, no GST is leviable on the salary paid to the expat employees and reflected in the books of accounts of the project office.
Issues Involved:
1. Whether the transaction between M/S Hitachi Power Europe GmbH and its project office located at Meja Thermal Power Project, Allahabad is a transaction between the same company or two distinct legal entities. 2. Whether the amount paid to the expat employees falls under the definition of "Supply" under GST laws or under Schedule III of the CGST Act, 2017 as "Services by an employee to the employer in the course of or in relation to his employment." Issue-wise Detailed Analysis: 1. Legal Entity Status of Project Office: The applicant, M/S Hitachi Power Europe GmbH, a foreign company incorporated in Germany, has established project offices in India for executing contracts related to mega power projects. These project offices are registered under the Foreign Exchange Management Act, 1999, and operate under specific conditions, such as being funded directly or indirectly from abroad and not engaging in activities beyond the project scope. The project office is not a separate legal entity but an extension of the foreign company. The Reserve Bank of India’s Foreign Exchange Management Regulations, 2016, define a "Project Office" as a place of business in India representing the interests of a foreign company executing a project. The project office must secure a contract from an Indian company and be funded through inward remittance or other specified means. The project office’s PAN and TAN are issued in the name of the foreign company, and it is registered under the Companies Act, 2013, as a foreign company. The project office acts as an extension of the foreign company for administrative convenience and legal compliance. Therefore, the Head Office and the project office are considered the same legal entity, not distinct entities. 2. Applicability of GST on Salary Paid to Expat Employees: The applicant employs expat employees from the Head Office who work at the project office in India. These employees have their salaries paid by the Head Office, with TDS deducted by the project office as an employer under the Income Tax Act, 1961. The project office issues Form 16 and pays professional tax for these employees, indicating an employer-employee relationship. According to Section 7(2) of the CGST Act, 2017, activities or transactions specified in Schedule III, including "services by an employee to the employer in the course of or in relation to his employment," are neither treated as a supply of goods nor a supply of services. Therefore, the salary paid to expat employees falls under this category and is not subject to GST. Ruling: The Authority for Advance Ruling concluded that the transaction between the Head Office and the project office is an intra-company transaction, and the project office is merely an extension of the Head Office. Consequently, the services provided by expat employees to the project office are considered "services by an employee to the employer in the course of or in relation to his employment" as per Schedule III of the CGST Act, 2017. Therefore, no GST is applicable on the accounting entry made for the salary cost of expat employees in the project office’s books of accounts. This ruling is valid subject to the provisions under Section 103(2) until and unless declared void under Section 104(1) of the CGST Act, 2017.
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