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2025 (2) TMI 245 - HC - GSTLevy of GST - expenses incurred by the petitioner for seconded employees from foreign entities - HELD THAT - As is manifest from a reading of the second Proviso to Rule 28 it becomes apparent that the value declared in invoices generated by an entity receiving the requisite goods or services in the present context the services from the seconded employees shall be deemed to be the open market value of the said goods and services. As is manifest from paragraph 3.7 of its Circular No. 210/4/2024-GST dated 26 June 2024 in circumstances where no invoice is raised in respect of services rendered by its foreign affiliate the value of such services will be deemed to have been declared as nil and it is this nil value which shall be treated as the market value of the services in question in terms of the second Proviso to Rule 28 of the CGST Rules. Petition allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issue in this case is whether the expenses incurred by the petitioner for seconded employees from foreign entities are subject to tax under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Integrated Goods and Services Tax Act, 2017 (IGST Act). Specifically, the court considered whether the value of services provided by seconded employees should be deemed as 'nil' in the absence of invoices, as per Rule 28 of the CGST Rules and the clarifications issued by the Central Board of Indirect Taxes and Customs (CBIC). ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The legal framework primarily involves the CGST Act and the IGST Act, with specific reference to Rule 28 of the CGST Rules, which addresses the valuation of supply of goods or services between related persons. The CBIC's Circular No. 210/4/2024-GST further clarifies the application of Rule 28, stating that if no invoice is raised for services provided by a foreign affiliate, the value of such services is deemed to be 'nil'. The court also referenced a previous decision in Metal Corporation Pvt. Ltd. v. Union of India, which dealt with a similar issue. Court's interpretation and reasoning: The court interpreted Rule 28 and the CBIC Circular to mean that in the absence of invoices, the value of services provided by seconded employees should be deemed 'nil'. This interpretation is based on the second proviso of Rule 28, which allows the value declared in invoices to be deemed the open market value if full input tax credit is available. The court noted that the CBIC Circular is binding on the respondents and has not been challenged, thus it must be applied in this case. Key evidence and findings: The court found that no invoices were raised by the petitioner for services provided by the foreign entity, which aligns with the scenario addressed in the CBIC Circular. The petitioner had paid tax under protest, asserting that no tax liability should arise in the absence of an agreement with the foreign entity. Application of law to facts: Applying Rule 28 and the CBIC Circular, the court concluded that the value of services from seconded employees should be treated as 'nil', leading to no tax liability. This conclusion was supported by the precedent set in Metal Corporation Pvt. Ltd. v. Union of India, where similar facts led to the same legal outcome. Treatment of competing arguments: The court acknowledged the potential contention that the CBIC Circular could be inconsistent with the statutory provisions. However, it emphasized that the Circular is binding and unchallenged, thus it must be applied. The court did not delve into questioning the Circular's validity, focusing instead on its binding nature and applicability to the case at hand. Conclusions: The court concluded that the proceedings initiated by the Show Cause Notice (SCN) were futile, as the value of services was deemed 'nil', resulting in no tax liability. The SCN was quashed, and the petitioner was granted relief based on the precedent set in Metal Corporation Pvt. Ltd. v. Union of India. SIGNIFICANT HOLDINGS The court held that the value of services provided by seconded employees, in the absence of invoices, is deemed 'nil' as per the CBIC Circular and Rule 28 of the CGST Rules. This interpretation effectively nullifies any tax liability for such services. The court's decision reinforces the binding nature of CBIC Circulars on tax authorities and clarifies the application of Rule 28 in cases involving seconded employees. Core principles established: The judgment establishes that CBIC Circulars, when unchallenged, are binding on tax authorities and must be applied in relevant cases. It also clarifies that in the absence of invoices, the value of services can be deemed 'nil', preventing any tax liability from arising. Final determinations on each issue: The court determined that the SCN issued to the petitioner was invalid, as the deemed 'nil' value of services from seconded employees negated any tax liability. Consequently, the SCN was quashed, and the petitioner was relieved from any further tax implications related to the seconded employees.
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