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TMI Blog2020 (7) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act comes into play in this case as per which services by an employee to the employer in the course of or in relation to his employment will not be considered as a supply and therefore will not attract GST. - GST-ARA-38/2019-20/B-27 - - - Dated:- 11-3-2020 - MS. P. VINITHA SEKHAR, AND MR. A. A. CHAHURE, MEMBER PROCEEDINGS (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act and MGST Act respectively ] by M/s. Hitachi Power Europe GmbH, the applicant, seeking an advance ruling in respect of the following question. Whether the Goods and Services tax (herein referred as GST ) is applicable on the accounting entry made for the purpose of Indian accounting requirements in the books of accounts of Project Office for salary cost of Expat employees. At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Office makes an accounting entry in its financial books of accounts in India for the salary cost of the Expat employees. 2.7 The Reserve Bank of India (RBI) has framed the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2916 (FEMA Regulations) and as per Notification No: FEMA 22 (R)/2016-RB dated: 31 March 2016, a Project Office means a place of business in India to represent the interests of the foreign company executing a project in India but excludes a Liaison Office. The RBI has granted general permission to foreign companies to establish Project Offices in India , provided they have secured a contract from an Indian company to execute a project in India. The contract for execution of project in India would be executed by the Foreign Company in its own name with the Indian Company prior to setting up a Project Office in India. The Project Office is set up for a specific project and hence cannot engage in any other activity/business other than the business in relation to the Project. The project should be funded directly or indirectly from abroad by the Foreign Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve salary coat and payment of the same to most of these Expat employees were made from the Head Office s bank accounts to the employees bank account outside India. 2.12 As per the Companies Act, 2013, the Foreign Company is required to prepare its financial statement accounting for all expenses and its corresponding income earned in India from the India Projects and in order to comply with the above requirements, the Foreign Company makes an accounting entry amongst others for the cost of Expat employees salary cost in its books of accounts based on the accounting debit note provided by the Head Office. 2.13 The accounting of the salary costs is made for the purpose of compliances under the Indian Companies Act, 2013 and the Project Office is not obligated to make any remittances to HPE Germany Head Office for the above entry. Hence the Applicant has filed this application to obtain clarity on whether accounting of salary cost for the purpose of compliance under Indian Companies Act, 2013, with no obligation to pay any consideration would be treated as a services and be subject to levy of GST in India under Reverse Charge Mechanism. 2.14 The Applicant has also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees of the Holding Company to its Subsidiary Company would not be subject to levy of GST as per Schedule III of the CGST Act, 2017 and here is no understanding or agreement to import any service, as the Project Office is only extension of HPE Germany. 2.19 Application has placed reliance on the recent decision held by the Honourable CESTAT, New Delhi in the case of CCE ST Vs Nissin Brakes India Private Limited [2018- TIOL-1976-CESTAT-DEL] = 2018 (5) TMI 1223 - CESTAT NEW DELHI , which has been upheld by the Honorable Supreme Court [TS-230-SC-2019-ST] = 2019 (2) TMI 1630 - SC ORDER by dismissing the Department s appeal, wherein the forum observed the following: a. Appellant has deducted tax at source from salary and other perks given to employees. b. Appellant did not pay any direct/indirect consideration to its parent company towards deployment of the employees. Thus, it cannot be said that there is any agency and client relationship between the parent company and the appellant. c. When the employee/employer relationship exists, the method of disbursement of salary cannot determine the nature of transaction. 2.19. In view of said ruling, tax wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as distinct entities or as part of the same entity. 5.2 Master Direction No.10/2015-16 dated 01.01.2016 as updated from time to time, issued by the Reserve Bank of India states that Establishment of branch office/ liaison office / project office or any other place of business in India by foreign entities is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 read with Notification No. FEMA 22(R)/2016-RB dated March 31, 2016 . 5.3 Section 6(6) of Foreign Exchange Management Act, 1.999 states that Without prejudice to the provisions of this section. the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business . 5.3.1 In exercise of the powers conferred by sub-section (6) of Section 6 of the Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession -if Notification No. FEMA 22/2000-RB dated May 3, 2000, as amended from time to time; the Reserve Bank of India has made certain regulations to prohibit, restrict and regulate establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for their operations in India. A Project Office represents the interests of the foreign company executing a project in India and undertakes commercial activities related to the particular project. 5.5 Applicant has stated that, as a Project Office in India they supply goods and services for undertaking onshore portion of the project on payment of applicable GST to customers in relation to the specific projects carried out at the various sites in India and for this purpose, the Project Office has obtained registration under the GST legislation in various states in India. 5.6 The Project Office has its own employees and also some employees of the Head Office (Expat employees) who work in the Project Office in India, for whom all the employer s obligation like Form 16 in accordance with Section 203 of the Income Tax Act,1961 are done by the Project Office. 5.7 As per the provisions of the Companies Act, 2013, applicant is required to maintain its financial books of accounts in a manner which would reflect a true any fair view of the business of the Company in India. Thus, in order to keep record of the expenses of salary cost of Expat employees working from India, the Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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