Last reviewed: 25 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 — the Delhi High Court in Metal One Corporation India Pvt Ltd (22 October 2024) and the Karnataka High Court in Alstom Transport India Ltd (W.P. No. 1779 of 2025, July 2025) — have gone the other way on genuine secondment facts. Two things are routinely left out of the notices and out of the replies: the Supreme Court itself set aside the extended period of limitation in Northern Operating Systems, and CBIC Circular No. 210/4/2024-GST gives a separate, valuation-based answer that does not require winning the employer argument at all.
The Northern Operating Systems ruling and why it still matters
On 19 May 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. The Court was explicit that there is no single decisive test; the answer turns on a conglomerate of tests applied to the totality of the facts. 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 half of the judgment that rarely appears in a show-cause notice is the limitation finding. Having upheld the demand on merits, the Supreme Court held that the extended period of limitation could not be invoked, since the assessee's treatment was a bona fide interpretation and not wilful suppression; the demand survived only for the normal period. Any notice that reaches back several years on the strength of Northern Operating Systems is relying on a proposition that the same judgment rejected.
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 under Section 74, with interest and penalty layered on.
CBIC's course correction and the High Court pushback
Instruction No. 05/2023-GST dated 13 December 2023. Issued after representations from industry, it directs field formations not to apply Northern Operating Systems mechanically to every secondment. Each arrangement has its own terms and must be examined on its own facts — who controls the seconded employee's day-to-day work, who bears the risk and responsibility, and the real nature of the reimbursement. Its sharpest direction concerns Section 74(1): the extended limitation route is not available merely because the Supreme Court decided against a different assessee on different facts, and fraud, wilful misstatement or suppression must be established on the record before it is invoked. On a legacy notice, this is usually the shortest route to relief.
Periods from FY 2024-25: section 74A. Section 74 governs demands only up to FY 2023-24. For FY 2024-25 onward, notices are issued under section 74A (inserted by the Finance Act, 2024), which has one limitation period for all cases and a lower penalty where fraud or suppression is not alleged. The Instruction 05/2023 logic on suppression still applies to the higher-penalty limb of section 74A, so a notice that alleges suppression for a recent year still has to establish it on the record.
Circular No. 210/4/2024-GST dated 26 June 2024. This deals with the value of a service imported from a related person abroad. Para 3.7 provides that where the foreign affiliate supplies a service to the Indian related person, the Indian entity is eligible for full input tax credit, and no invoice has been issued in respect of that service, the value of the supply may be deemed to be Nil. It does not require the taxpayer to win the employer-employee argument at all; it takes away the number. Self-invoicing obligations under Section 31(3)(f) still have to be handled on their own terms, so use this ground with the facts checked, not as a blanket answer.
The High Courts have since engaged with the question on its merits. The Delhi High Court in Metal One Corporation India Pvt Ltd (22 October 2024) accepted that a mere reimbursement of salary is not consideration for a manpower supply service where the Indian affiliate exercises effective control. The Karnataka High Court went further in Alstom Transport India Ltd (W.P. No. 1779 of 2025, July 2025), quashing an IGST demand of ₹57.9 crore covering July 2017 to March 2023, and it did so on two independent grounds:
- Schedule III. The seconded employees were under the operational supervision, control and administrative authority of the Indian company, were fully integrated into its workforce, were paid salary directly by it with tax deducted, and received statutory employment benefits under Indian labour law. That is an employer-employee relationship, outside the scope of supply under Schedule III of the CGST Act, and Northern Operating Systems was fact-specific rather than a blanket precedent.
- Valuation. Even assuming a taxable supply, para 3.7 of Circular No. 210/4/2024-GST applied: no invoice had been issued and the Indian entity was eligible for full input tax credit, so the value of the service was Nil.
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 succeeding at High Court level where the documentation shows genuine employer-employee substance in India, or where the deemed-Nil valuation applies. These are High Court rulings; the Supreme Court has not revisited the question since 2022.
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 |
| Value, if taxable at all | The salary cost reimbursed, plus any markup, is the taxable value under reverse charge | Where the Indian entity is eligible for full ITC and no invoice was issued by the foreign affiliate, para 3.7 of Circular No. 210/4/2024-GST deems the value Nil — the second ground in Alstom |
| Period covered by the demand | Section 74 invoked for the full extended period on the strength of Northern Operating Systems | The Supreme Court itself set aside extended limitation in that very case, and Instruction No. 05/2023-GST requires suppression to be established, not assumed |
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 |
The numbers show why the structuring choice, and not the mere existence of a secondment, drives the outcome. On the structure as described, the only amount in dispute is the ₹15 lakh reimbursement: at 18% under reverse charge that is ₹2.7 lakh a year, and even that falls away if IndCo is eligible for full input tax credit and no invoice was raised by the parent, applying para 3.7 of Circular No. 210/4/2024-GST. In the alternative structure the base is not ₹15 lakh but the entire invoiced amount — ₹1.2 crore of salary cost plus the 10% coordination fee of ₹12 lakh, that is ₹1.32 crore — so GST at 18% under reverse charge works out to roughly ₹23.76 lakh a year, before interest and before any Section 74 penalty. Where IndCo can take full credit of the reverse-charge tax the exercise is largely revenue-neutral, but the interest and penalty on a past period are not.
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 Instruction No. 05/2023-GST alone protects a structure — it directs officers to examine facts and to establish suppression before invoking Section 74, it does not exempt secondments outright.
- Arguing only the employer-employee point and never pleading para 3.7 of Circular No. 210/4/2024-GST, which can reduce the value to Nil without any finding on who the employer is.
- Letting an extended-period demand stand unchallenged. The Supreme Court set aside extended limitation in Northern Operating Systems itself.
- Treating every High Court ruling in taxpayers' favour as final law. These are High Court decisions on their own facts, the Supreme Court has not revisited the question since 2022, and the position is still developing.
- TDS on reimbursements to the foreign parent: a payment to a non-resident needs TDS under section 195 of the 1961 Act for amounts paid or credited up to 31 March 2026, and under section 393(2) of the Income-tax Act, 2025 from 1 April 2026, unless the reimbursement is shown not to be income chargeable in India. See our Form 15CA/15CB checklist for foreign remittances.
- Permanent establishment risk: if secondees in substance work for the foreign parent, the parent may be treated as having a service PE in India under the tax treaty. The same control-and-supervision facts that decide the GST question decide this one.
- Transfer pricing: the reimbursement is an international transaction with an associated enterprise, reported in the accountant's report in Form 3CEB (section 92E of the 1961 Act; section 172 of the 2025 Act from tax year 2026-27).
- Social security: expats are generally "international workers" under the EPF scheme unless a social security agreement between India and the home country exempts them with a certificate of coverage.
For GST notices generally, see our GST notice reply guide, and for the related question of how group costs are charged across GSTINs, ISD vs cross-charge. For ongoing accounting, CFO and FEMA support for a foreign-owned Indian entity, see our foreign subsidiary accounting and FEMA service.
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, record for each secondment whether the Indian entity is eligible for full input tax credit and whether any invoice was raised by the foreign affiliate, since that is what para 3.7 of Circular No. 210/4/2024-GST turns on, and handle self-invoicing under Section 31(3)(f) deliberately rather than by default. Fifth, on any live notice, plead the points in order of strength: limitation first, where Section 74 has been invoked without evidence of suppression; then the deemed-Nil valuation; then the employer-employee substance. Sixth, do not assume the issue is closed simply because CBIC issued a softer instruction or because a High Court ruled favourably — Revenue continues to issue notices, and each entity's facts need to be assessed on their own footing.
Frequently asked questions
Does the Northern Operating Systems judgment mean all expat secondments are taxed under GST?
No. The Supreme Court ruling of 19 May 2022 held that, on its specific facts, that secondment amounted to manpower supply, and it expressly said there is no single decisive test. It is not a blanket rule that every secondment is taxable. Instruction No. 05/2023-GST dated 13 December 2023 and the High Court rulings since make clear that each arrangement must be examined on its own facts. Two further points are usually missed: the Supreme Court set aside the extended period of limitation in that very case, and Circular No. 210/4/2024-GST can reduce the value to Nil where the Indian entity has full input tax credit and no invoice was raised.
What did the Karnataka High Court decide in the Alstom Transport India matter?
In Alstom Transport India Ltd (W.P. No. 1779 of 2025, July 2025) the Karnataka High Court quashed an IGST demand of ₹57.9 crore on two independent grounds. First, the seconded employees were under the operational supervision, control and administrative authority of the Indian company, were paid salary directly by it with tax deducted and received statutory benefits under Indian labour law, so the relationship was one of employment falling outside supply under Schedule III. Second, even assuming a taxable supply, para 3.7 of Circular No. 210/4/2024-GST deemed the value Nil, since no invoice had been issued and the Indian entity was eligible for full input tax credit.
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?
Instruction No. 05/2023-GST dated 13 December 2023 directed field formations not to apply the Northern Operating Systems ruling mechanically to every secondment, and to examine the specific facts of control, risk and the nature of the reimbursement before raising a demand. Its most useful direction concerns Section 74(1): the extended limitation route cannot be invoked merely because the Supreme Court decided against another assessee on other facts, and fraud, wilful misstatement or suppression has to be established on the record.
What documentation helps defend a secondment structure in a GST dispute?
Appointment or secondment letters issued by the Indian entity, payroll records showing salary paid directly with tax deducted in India, evidence of statutory benefits and withholding handled in India, appraisal and reporting records, and a reimbursement structure without a markup are what establish that the Indian entity is the real employer. Separately, keep the input tax credit position of the Indian entity and the invoicing trail with the foreign affiliate on record, since para 3.7 of Circular No. 210/4/2024-GST turns on those two facts.
Should a company restructure its secondment agreement now?
Yes, review them now rather than after a notice. Revenue continues to issue show-cause notices on cross-charge and reimbursement structures even though the High Courts have ruled in taxpayers' favour on genuine secondments. Test the agreement and the reimbursement mechanics against the control, risk and documentation factors the rulings turn on, and separately record the Indian entity's input tax credit position and the invoicing trail with the foreign affiliate, which is what the deemed-Nil valuation in Circular No. 210/4/2024-GST depends on.
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.