Secondment under GST: Navigating the new era post-NOS ruling and regulatory clarity

Partner: Dhruv Gupta, Senior Associate: Sourabh Kumar

Secondment under scrutiny: Understanding the evolving landscape

The question of whether secondment of employees (particularly expats) from overseas group companies to Indian affiliates is subject to Goods and Services Tax (GST) has resulted in extensive litigation and uncertainty in recent years. The core concern continues to be the line between a true employer-employee relationship, excluded from GST by virtue of Schedule III of the Central Goods and Services Tax Act, 2017, and a deemed ‘supply’ of manpower services by a foreign entity, which would attract GST on a reverse charge basis.

The Supreme Court, in Northern Operating Systems¹ (NOS), attempted to resolve this question by emphasising the substance of the agreement over its form as the decisive factor. Accordingly, the Court found that the Indian entity received manpower supply services from the foreign entity and was liable to pay service tax under the reverse charge mechanism. Despite the Court’s clarification that this ruling was based solely on the facts and circumstances of the specific case, it had a ripple effect, bringing secondment arrangements within the tax net.

A host of departmental actions following the NOS ruling made the environment challenging for businesses relying on secondment models, especially where cross-border payments or reimbursements to the overseas group entity existed. The tax authorities’ widespread and mechanical application of the NOS ruling, often without considering the factual employment relationship, led to the blanket imposition of tax, interest, and penalty, regardless of the nature of secondment agreements or payroll compliance. (To read our earlier analysis of the effect of the NOS ruling on the GST regime, click here.)

However, the landscape has shifted significantly with the latest regulatory guidance and judicial trends.

The gamechanger: Regulatory framework on taxation of secondments

The Central Board of Indirect Taxes and Customs (CBIC) issued a circular on 26 June 2024,² which brought into play a distinct framework for valuing and taxing secondment. The key message of the circular is that if an Indian entity (eligible for full Input Tax Credit (ITC)) does not issue an invoice for services received from a related foreign affiliate (in the context of secondment), the value is deemed ‘Nil’ and no GST is leviable. This approach was accepted by several high courts in recent times, leading to large-scale quashing of the tax demands on such secondments, provided no invoices were raised and the Indian recipient was ITC-eligible.

It is important not to oversimplify: the underlying facts remain critical. The content of secondment contracts, the flow and categorisation of payments, the daily operational and disciplinary control over expats, and payroll practices all impact characterisation. Where seconded employees are genuinely on the Indian company’s payroll, subject to tax deduction at source (TDS), work exclusively within its control, and the foreign entity is merely reimbursed (at cost, not mark-up), the emerging landscape operates in favour of the taxpayer. Any deviation, for instance, mark-ups on reimbursement, retention of economic employer status by the foreign company, or lack of integration into the Indian workforce, could still expose the arrangement to GST liability.

Judicial affirmation: High Courts bolster the CBIC circular

The Delhi High Court³ further strengthened the regulatory stance by unequivocally holding that where no invoice is raised by the Indian entity for services allegedly rendered by a foreign affiliate, and where full ITC is available, the value of ‘supply’ under Rule 28 of the Central Goods and Services Tax Rules, 2017 is deemed ‘Nil’ as clarified by Para 3.7 of CBIC circular. Consequently, there is no scope for tax liability, interest, or penalty in such secondment arrangements. The Court also made it clear that the tax department is bound by such clarifications and cannot seek to revisit the valuation or argue contrary to the circular in similar fact situations.

More recently, in 2025, the Karnataka High Court quashed the entire Integrated GST demand along with interest and penalty, finding that the seconded employees were fully integrated into the Indian entity’s workforce, paid on the Indian payroll, and no invoice was issued in respect of the alleged manpower supply.⁴ The Court squarely applied the CBIC circular and the Delhi High Court’s judgment, emphasising that the tax authorities cannot impute any taxable value where the legislation and binding instructions deem it ‘Nil’.

Administrative reliefs to ease practical challenges

At the administrative level, the recent GST Council recommendations supplement this regime with practical relief. Taxpayers facing historical demands may now avail of a conditional waiver of interest and penalties for FY 17–18 to 19–20, subject to payment of tax by the prescribed cut-off date. There is also clarity that the relevant year of ITC entitlement is the year the invoice is raised, protecting those who paid tax belatedly in response to proceedings.

The path forward: Secondment strategies in the post-circular era

In light of the evolving legal and regulatory framework surrounding the secondment of employees, Indian businesses must chart a strategic course that aligns with both the letter and spirit of recent regulatory and administrative clarifications and judicial trends. The current environment, shaped by the CBIC circular and supported by consistent court perspectives, offers a notable shield for those arrangements that can substantively demonstrate a genuine employer-employee relationship between the Indian entity and the secondees.

For businesses grappling with existing disputes, the path to resolution demands a careful assessment of whether their secondment structures can benefit from the presumption of ‘Nil’ value as provided in the CBIC circular. This is effective in cases where no invoice has been issued by the Indian entity and where the company is eligible for full ITC. In such situations, responses to tax authorities must be robust. It is imperative not to merely cite the circular but also to furnish practical, incontrovertible evidence such as payroll documentation, records of operational control, and a clear absence of any service consideration to the foreign parent entity. The strength of these factual narratives can decisively tip the scales in favour of the taxpayer, shutting the door on allegations of taxable supplies where none, in essence, exist.

When considering ongoing and future secondment strategies, documentation emerges as the touchstone of compliance and dispute-prevention. Every element of the secondment arrangement, from the language of the underlying contracts to the way reimbursements are handled, must unmistakably reflect the primacy of the Indian employer. Reimbursements to overseas group companies should be strictly at cost, with no additional mark-up, thus insulating the transaction from the ambit of ‘manpower supply services’. Moreover, all salary payments should flow through Indian payroll channels, subjected to Indian TDS, and accompanied by clear adherence to local disciplinary and employment frameworks. These markers of genuine integration will prove pivotal should the arrangement’s true character be challenged.

Of course, there will remain instances where the scenario is not so clear-cut—where features like dual management control, mark-ups on reimbursement, or a retained economic employer role for the foreign parent are present. In such cases, businesses should proactively review and, where necessary, restructure their arrangements. A preventive approach designed to eliminate ambiguity will substantially mitigate the risk of future GST litigation and administrative adversity.

Overall, the regulatory and judicial momentum unmistakably favours those secondment arrangements that are both well-documented and substantively genuine. The message is clear and merits close attention: legal form alone is no longer sufficient for compliance or protection; it is the underlying substance—the practical, day-to-day reality of the employment relationship—that will determine exposure or immunity. It is now crucial for organisations to not simply react to departmental scrutiny but to work in tandem with tax professionals, human resource teams, and finance departments to ensure that the entire factual matrix stands up to legal challenge. Proactive compliance, coupled with readiness to demonstrate the true nature of the employment relationship, will be the hallmark of successful, future-proofed secondment operations in the post-NOS, post-circular era.

[1] CCE & ST v Northern Operating Systems Private Limited, Civil Appeal Nos. 2289-2293 of 2021

[2] Circular No. 210/4/2024-GST dated 26 June 2024 (notably para 3.7)

[3] Metal One Corporation India Private Limited v UOI and Ors., 2024 DHC 8298 DB

[4] Alstom Transport India Limited v Commissioner of Commercial Taxes, WP No. 1779/2025

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