Last reviewed: 10 September 2026. Multinational groups with expatriate staff seconded to their Indian entities continue to face GST show-cause notices built on the Supreme Court's 2022 Northern Operating Systems ruling, even as a run of High Court decisions — including a Karnataka High Court ruling on Alstom Transport India's secondment arrangement reported around July 2025 — have gone the other way on genuine secondment facts. The result is one of the more actively litigated corners of Indian GST today, and one where the outcome turns heavily on how an arrangement is actually structured and documented.
The Northern Operating Systems ruling and why it still matters
In 2022, the Supreme Court decided C.C., C.E. & S.T. v. Northern Operating Systems Pvt Ltd, a case concerning secondment of employees from an overseas group company to an Indian entity that reimbursed the foreign company for their salary cost. The Court held that, on the facts before it, this arrangement amounted to a "manpower supply service" rendered by the foreign entity to the Indian entity, and was therefore a taxable service — rejecting the Indian entity's argument that the seconded staff were, in substance, its own employees and that reimbursement of their salary was outside the scope of a taxable service. This ruling, decided under the erstwhile service tax regime, has since been treated by Revenue as directly relevant to GST, because the underlying question — is this a supply of manpower, or an employer-employee relationship outside GST's scope — is structurally the same.
The immediate consequence was a wave of show-cause notices issued to Indian subsidiaries of foreign multinationals across sectors, computing GST under reverse charge on the salary cost reimbursed to the overseas parent for seconded staff, often for several years at a stretch with interest and penalty layered on.
CBIC's course correction and the High Court pushback
Recognising that secondment structures vary widely and that a mechanical application of Northern Operating Systems risked taxing genuine employment arrangements, CBIC issued an Instruction in December 2023 directing field officers to examine the specific facts of each case — who controls the seconded employee's day-to-day work, who bears the risk and responsibility for that work, and the real nature of the reimbursement — rather than treat the Supreme Court ruling as a blanket basis for raising demands.
Since then, several High Courts have engaged with the question on its merits, and a discernible trend has emerged in taxpayers' favour where the facts show genuine integration. A Karnataka High Court ruling concerning Alstom Transport India's secondment arrangement, reported around July 2025, held that where the Indian entity is the real, economic employer — evidenced by the Indian entity issuing appointment terms, handling PF/ESI and other statutory withholding, and conducting local performance appraisal of the seconded employee — the arrangement does not constitute a taxable manpower supply service, and is distinguishable from Northern Operating Systems on facts. As of September 2026, the position across India remains fact-dependent: Revenue continues to issue notices on cross-charge and reimbursement structures, but taxpayers are increasingly succeeding at the High Court level when the secondment agreement and supporting documentation show genuine employer-employee substance in India.
Revenue's view vs the taxpayer's view
| Factor | Revenue's typical argument | Taxpayer's typical defence |
|---|---|---|
| Who controls the work | Foreign parent retains control since the employee remains on its global mobility programme and reports functionally overseas | Indian entity directs day-to-day work, sets local KPIs and conducts performance appraisal |
| Reimbursement structure | Any reimbursement to the foreign entity is consideration for a manpower supply service | A cost-to-cost reimbursement with no markup is not a "supply" — it is a pass-through of salary the Indian entity actually owes as employer |
| Statutory compliance | Not determinative by itself | Indian entity handling PF, ESI, TDS on salary and local statutory filings evidences it is the real employer |
| Contract paperwork | A secondment or service agreement between group entities, however labelled, is read on substance not form | Local appointment letter, integration into the Indian entity's HR systems, and absence of a mark-up support the employer-employee characterisation |
Worked example
An Indian subsidiary, IndCo, hosts an expat employee seconded from its US parent for a two-year assignment. IndCo pays the employee's salary of ₹1.2 crore per annum directly through its own payroll, deducts TDS and remits PF/ESI in India, and the employee's performance is appraised by IndCo's local manager. IndCo separately reimburses the US parent ₹15 lakh per annum, which the parent had continued to pay towards certain US-linked retirement benefits the employee retains, with no markup.
| Scenario | Likely GST exposure |
|---|---|
| As structured above (Indian payroll, Indian statutory compliance, no-markup reimbursement) | Lower risk — closer to the fact pattern the Karnataka High Court found not taxable, though not risk-free if challenged |
| Alternative: IndCo pays no local salary; all cost including a 10% coordination fee is invoiced by the US parent | Higher risk — resembles a manpower supply/service fee arrangement closer to Northern Operating Systems |
If GST were to apply on the ₹15 lakh reimbursement in the higher-risk scenario at 18% under reverse charge, IndCo's annual exposure would be roughly ₹2.7 lakh per year of the assignment, before interest — illustrating why the structuring choice, not just the existence of a secondment, drives the tax outcome.
Common mistakes and red flags
- Routing all secondment costs through a single intercompany service invoice with a markup, which reads far more like a service fee than a salary reimbursement.
- Leaving the seconded employee formally on the foreign parent's payroll with no Indian appointment letter or local statutory registration.
- Failing to document who actually appraises the seconded employee's performance and sets their day-to-day targets.
- Assuming the CBIC December 2023 Instruction alone protects a structure — it directs officers to examine facts, it does not exempt secondments outright.
- Treating every High Court ruling in taxpayers' favour as final law, when the position is still developing and fact-specific.
What business owners and CFOs should do now
Groups running expat secondment arrangements into India should, first, map every current secondment against the control-and-documentation factors courts have focused on: is the Indian entity issuing the appointment or assignment letter, handling PF/ESI and TDS, and genuinely appraising performance locally? Second, review the reimbursement mechanism specifically for any markup, service fee or coordination charge layered on top of actual salary cost — a pure cost-to-cost pass-through remains the stronger position. Third, retain the underlying documentation (secondment agreements, payroll records, appraisal records) in an organised form, since this is precisely what a show-cause notice response or High Court petition will rely on. Fourth, do not assume the issue is closed simply because CBIC issued a softer instruction or because one High Court ruled favourably — Revenue continues to issue notices, and each entity's facts need to be assessed on their own footing before or after a notice lands.
Frequently asked questions
Does the Northern Operating Systems judgment mean all expat secondments are taxed under GST?
No. The 2022 Supreme Court ruling in Northern Operating Systems held that, on its specific facts, secondment amounted to manpower supply. It is not a blanket rule that every secondment is taxable — CBIC's December 2023 Instruction and subsequent High Court rulings make clear that each arrangement must be examined on its own facts, particularly who controls the work and who is the real employer in India.
What did the Karnataka High Court decide in the Alstom Transport India matter?
In a ruling reported around July 2025, the Karnataka High Court held that a genuine secondment arrangement — where the Indian entity functioned as the real, economic employer with integration into Indian payroll, PF/ESI compliance and local performance appraisal — did not amount to a taxable manpower supply service, distinguishing the fact pattern from Northern Operating Systems.
Is a cost-to-cost salary reimbursement to a foreign parent taxable under GST?
This remains fact-dependent and actively litigated. A pure cost-to-cost reimbursement, with no markup and clear evidence that the Indian entity is the substantive employer, is the fact pattern taxpayers have had more success defending. A reimbursement structured with a markup, or where control and supervision remain with the foreign entity, looks more like a service fee and is more likely to be treated as taxable.
What did CBIC's December 2023 Instruction direct field officers to do?
The Instruction directed field officers not to mechanically apply the Northern Operating Systems ruling to every secondment case, and instead to examine the specific facts of control, risk and the nature of reimbursement before raising a demand — a shift away from treating the Supreme Court ruling as an automatic basis for a show-cause notice.
What documentation helps defend a secondment structure in a GST dispute?
Appointment or secondment letters issued by the Indian entity, evidence of statutory withholding and PF/ESI compliance handled in India, local performance appraisal records, and a reimbursement structure without a markup are the documents most commonly relied on to show the Indian entity is the real employer rather than a recipient of manpower supply.
Should a company restructure its secondment agreement now?
Given that Revenue continues to issue show-cause notices on cross-charge and reimbursement structures even as several High Courts have ruled in taxpayers' favour on genuine secondments, it is advisable to have existing secondment agreements and reimbursement mechanics reviewed against the control, risk and documentation factors that recent rulings have focused on, rather than wait for a notice.
If your organisation has received a GST notice on expat secondment reimbursements, or you want your secondment structure reviewed before one arrives, we can help you assess the fact pattern and prepare the supporting documentation.
GST Notice Handling GST Advisory Services Talk to usThis article is general information based on publicly reported developments as of the review date, not an opinion on any specific case; the legal position continues to evolve, and businesses should verify current status and consult a qualified professional before acting on their own facts.