GST on Employee Secondment: Rules, Cases and Valuation

The question is no longer simply: “Is salary reimbursement taxable?”

Secondment disputes have become one of the most technically difficult areas of GST for multinational groups.
The typical transaction looks deceptively simple:

Foreign Parent / Group Entity → Employee seconded to India → Employee works for Indian Entity → part/all salary paid overseas → Indian Entity reimburses cost

But GST asks a much more difficult question:

Who is actually supplying what to whom?

If the secondee becomes, in substance and law, an employee of the Indian company, services rendered by that individual to the Indian employer fall within Paragraph 1 of Schedule III to the CGST Act -neither a supply of goods nor a supply of services.

If, however, the overseas entity continues to be the real employer and merely places its employee at the disposal of the Indian company, the Department may characterise the arrangement as an import of manpower or personnel services.

And even where the existence of an intra-group service is assumed, a separate issue now arises: what is its value? CBIC Circular No. 210/4/2024-GST dated 26 June 2024 says that where the Indian related-party recipient is eligible for full ITC, and no invoice is issued in respect of the service, the value may be deemed to have been declared as Nil under the second proviso to Rule 28(1).

This distinction is critical.

The modern defence is therefore not:

“Salary reimbursement = never taxable.”

It is:

Nature of relationship → existence of supply → identity of supplier → import conditions → Schedule I → valuation → RCM → ITC → limitation/penalty.

1. Business transaction

A multinational group often moves managerial, technical, financial, IT, engineering, research or specialist personnel from one group entity to another for a temporary period.

A conventional structure may contain four separate legal relationships:

Foreign Group Company
 ↓ seconds / releases employee
 Indian Group Company
 ↓ exercises day-to-day control
 Seconded Employee
 ↓ works exclusively in India
 Salary / benefits
 → paid partly in India and sometimes partly overseas
 → overseas component subsequently reimbursed by the Indian company

The transaction may involve:

• a global mobility or secondment agreement;
• an employment/assignment letter with the employee;
• continuance of the employee on overseas payroll;
• Indian payroll registration;
• TDS under section 192 of the Income-tax Act;
• provident fund/social-security contribution;
• expatriate allowances;
• tax equalisation;
• housing, relocation and schooling costs;
• foreign pension or social-security payments;
• salary recharge or debit notes from the overseas company;
• reimbursement without mark-up; and
• repatriation after expiry of the assignment.

The mistake is to assume that the label “salary reimbursement” determines GST.

It does not.

The Supreme Court has made the economic and contractual substance of the arrangement decisive.

2. How the industry actually operates

MNC secondments ordinarily arise for commercial rather than tax reasons.

An Indian subsidiary may require:

• specialised technical know-how unavailable locally;
• a group CFO/controller during an integration period;
• engineering personnel for a manufacturing facility;
• global compliance leadership;
• project management expertise;
• group technology implementation;
• transfer of operating systems or processes;
• temporary leadership following an acquisition; or
• global mobility as part of employee career development.

The foreign employee frequently remains enrolled in the home-country payroll because removing the employee can disturb:
pension rights;

• social-security coverage;
• insurance;
• retirement benefits;
• stock plans;
• seniority;
• immigration arrangements; and
• home-country tax compliance.

Therefore, the foreign company may continue disbursing part of the employee's compensation even where the Indian company bears the economic cost.

That commercial reality explains why payroll location and employer identity are not necessarily the same thing.

Conversely, retaining overseas payroll, employment rights and guaranteed repatriation can also demonstrate continuing overseas employment.

Hence, neither side can safely argue from one fact alone.

3. Why GST law struggles with the transaction

GST contains three provisions pulling the transaction in different directions.

A. Schedule III: employee services are outside supply

Paragraph 1 of Schedule III states:

Services by an employee to the employer in the course of or in relation to his employment are neither a supply of goods nor a supply of services.

Therefore:

Employee → Real Employer = No Supply

The entire dispute then becomes:

Who is the real employer?

B. Schedule I: related-party imports can be supply even without consideration

Paragraph 4 of Schedule I treats as supply:

Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business -even without consideration.

This produces a major danger.

Even if:

• there is no mark-up,
• there is no conventional service fee,
• there is merely cost allocation, or
• no amount is separately charged,

the Department can still ask:

Did the overseas related entity provide a service to India?

If yes, lack of consideration by itself does not necessarily eliminate Schedule I exposure.

C. IGST: import of service

Section 2(11) of the IGST Act requires:

1. supplier located outside India;
2. recipient located in India; and
3. place of supply in India.

For an ordinary service not covered by a special place-of-supply rule, section 13(2) ordinarily places the supply at the location of the recipient.

Notification No. 10/2017-Integrated Tax (Rate) makes the Indian recipient liable under reverse charge for services supplied by a person in a non-taxable territory to a person in the taxable territory, subject to the notification.

Thus, if:

Foreign Company = supplier
 and
Indian Company = recipient

an RCM case can emerge.

But if the overseas entity has supplied nothing and the individual is genuinely the Indian company's employee, the analysis may stop at Schedule III.

4. The employer test - the real centre of controversy

The Supreme Court in CC, CE & ST, Bangalore v. Northern Operating Systems Pvt. Ltd. (2022) 61 GSTL 129 (SC) did not formulate a simplistic rule that every secondee remains the employee of the foreign company.

Instead, the Court examined the entire arrangement.

The Court drew on traditional employment jurisprudence and emphasised that no single test is universally conclusive. Control matters, but modern employment relationships require examination of the totality of circumstances.

Questions that should be asked

Who:

• selects the employee?
• appoints the employee?
• determines remuneration?
• can increase or reduce salary?
• conducts appraisal?
• allocates work?
• controls working hours?
• approves leave?
• disciplines the employee?
• can terminate employment?
• bears employment risk?
• bears salary cost?
• provides statutory employee benefits?
• owns the employee's work product?
• determines promotion?
• controls repatriation?
• bears redundancy risk?
• assumes liability for employee conduct?
• has the employee integrated into its organisation chart?
• issues Form 16 and deducts TDS?
• records salary as employee cost?
• treats the person as an employee under labour law?

No single answer is conclusive.

The strongest enquiry is:

Has the Indian entity genuinely acquired the employee, or merely acquired access to an employee belonging to another entity?

5. Department’s likely theory 

Following Northern Operating Systems, the Department's SCN commonly develops along the following lines.

Step 1 -Overseas company remains the real employer

The Department may rely upon:

• original overseas employment continuing;
• employee continuing on foreign payroll;
• continuing overseas pension/social-security entitlement;
• temporary nature of posting;
• right to return to overseas company;
• global mobility policy;
• foreign company fixing major employment conditions; and
• employee being deployed because of a group requirement.

Step 2 -Indian entity obtains manpower

Operational control in India is then characterised merely as control required by any recipient of manpower.

The Department may say:

Giving directions to a seconded worker does not convert the recipient into the legal employer.

Step 3 -Salary recharge is consideration

Where the foreign company pays compensation and subsequently raises a debit note on India, the Department may argue:

salary cost reimbursement = consideration for supply of employee/manpower

Absence of mark-up does not necessarily negate consideration.

Step 4 -Import of services

Foreign entity = supplier.
Indian entity = recipient.
Place of supply = India.

Therefore IGST becomes payable under RCM.

Step 5 -Alternative Schedule I case

Even without an identifiable recharge:

Foreign related entity has made available personnel/services to its Indian affiliate.

Schedule I, Paragraph 4 can potentially deem an import of related-party services to be a supply even without consideration.
Step 6 -NOS relied upon

The Department will normally invoke:

CC, CE & ST, Bangalore (Adjudication) v. Northern Operating Systems Pvt. Ltd., Civil Appeal Nos. 2289-2293 of 2021, decided 19 May 2022; reported at 2022 (61) GSTL 129 (SC).

The Supreme Court ultimately held NOS to be the recipient of manpower recruitment/supply services from overseas group entities.

6. Taxpayer’s legal position

The defence should operate in layers.

Defence 1 -There is a direct contract of employment with India

Show that the secondee:

• signed an Indian employment agreement;
• accepted Indian employment obligations;
• became part of the Indian organisation;
• worked exclusively for the Indian entity;
• reported only to Indian management;
• was subject to Indian HR policies;
• could be disciplined by India;
• was evaluated by India;
• was remunerated economically by India; and
• performed no services for the overseas entity while seconded.

The objective is to establish:

Employee → Indian Employer
not:
Foreign Employer → supplies Employee → Indian Recipient

Defence 2 - Foreign payroll is merely a payment mechanism

A foreign entity may continue making payroll payments because of social-security, pension or mobility requirements.

Payment mechanics should not automatically determine employer identity.

Earlier Tribunal decisions had accepted this reasoning. Bain & Company India Pvt. Ltd. v. CST, Delhi, for example, found that payment of US social-security contributions by the holding company, followed by reimbursement, did not by itself transform expatriates into manpower supplied by the foreign company.

However, after NOS, this argument must be used carefully and backed by stronger employment evidence.

Defence 3 - NOS is fact-specific

The Department's own instruction now supports this.

CBIC Instruction No. 05/2023-GST dated 13 December 2023 expressly addresses the post-NOS tendency to initiate GST proceedings mechanically.

The Instruction recognises that the Supreme Court's conclusion arose from the particular characteristics of the arrangement before it and directs officers to determine taxability having regard to the peculiar facts of each secondment.

Accordingly:

Secondment ≠ automatically manpower supply.

The terms of each arrangement must first be tested.

Defence 4 - Schedule III operates at the employee-to-employer level

If the employee is genuinely employed by India, the employee's labour is excluded from GST by Schedule III.

The Department cannot convert salary into taxable consideration merely because another group company acts as payroll administrator.

What remains necessary, however, is to test whether the foreign company separately provides:

• recruitment;
• management;
• HR administration;
• global mobility;
• technical support; or
• other services.

Those services cannot automatically borrow the employee exclusion.

Defence 5 - Assuming a foreign-affiliate service, Test Rule 28 separately

This has become the most powerful alternative argument in full-ITC cases.

Circular No. 210/4/2024-GST dated 26 June 2024 provides that where services are supplied by a foreign affiliate to a related domestic entity and the Indian recipient is eligible for full input tax credit:

• the invoice value may be treated as open market value; and
• where no invoice has been issued for the service, its value may be deemed to have been declared as Nil, which may be treated as open market value under Rule 28(1).

Thus:

Existence of supply and taxable value of supply are two different enquiries.

An assessee should argue both.

7. Contractual evidence

The secondment defence can often be won or lost before the GST notice arrives -when the HR documents are drafted.

Strong evidence favouring Indian employment

The documentation should ideally establish:

• independent employment agreement between Indian company and employee;
• employment commencing with Indian entity on secondment date;
• duties owed exclusively to India;
• Indian company having exclusive operational and disciplinary control;
• India determining performance appraisal;
• India having termination/right-to-remove authority;
• salary economically borne by India;
• foreign payroll merely acting as paying agent;
• no manpower/service fee payable to overseas company;
• no mark-up;
• no obligation on foreign entity to provide a substitute employee;
• no performance guarantee by overseas entity;
• work product belonging to India;
• confidentiality obligations owed to India;
• Indian HR policies applying;
• Indian reporting structure;
• overseas entity having no right to direct day-to-day work;
• clear treatment of foreign social-security payments as employee-related expenditure; and
• no language describing personnel as being “loaned”, “supplied”, “provided” or “made available”.

Red-flag clauses

These are particularly dangerous:

• “Foreign Company shall provide personnel.”
• “Employee shall remain employee of Foreign Company.”
• “Personnel are temporarily loaned.”
• “Employee shall return to Foreign Company.”
• “Foreign Company may replace the secondee.”
• “Foreign Company shall determine compensation.”
• “Host shall reimburse employee cost.”
• “Employee continues under Group Mobility Policy.”
• automatic repatriation;
• foreign company retaining termination authority; or
• foreign entity assuming obligations toward the employee which normally belong to an employer.

Northern Operating Systems examined precisely such documentary indicators in determining the true relationship.

8. Accounting / ERP evidence

The general ledger often tells a story different from the legal agreement.

That is dangerous.

A GST investigation may extract:

• related-party ledgers;
• salary recharge ledgers;
• intercompany payable accounts;
• employee-cost accounts;
• management-fee ledgers;
• expatriate-cost centres;
• foreign-currency remittances;
• cost-allocation journals; and
• transfer-pricing workings.

Strong accounting treatment

Where legally supportable, genuine employment costs should consistently appear as:

• Salary and Wages;
• Employee Cost;
• Employee Benefits;
• Social Security;
• Expatriate Employee Cost; or
• Personnel Cost.
• High-risk descriptions
• Manpower Charges;
• Technical Service Fee;
• Management Fee;
• Personnel Supply;
• Deputation Charges;
• Consultancy Fee;
• Service Recharge.

A ledger description is not conclusive in law, but it is often the Department's first factual anchor.

Critical reconciliation

For each secondee, prepare:

Indian payroll

foreign payroll component
social-security payment
tax equalisation
allowances
 = total compensation

Then reconcile total compensation with:

• employee contract;
• Form 16;
• TDS return;
• transfer-pricing records;
• foreign debit note;
• bank remittance;
• GL expense;
• financial statements; and
• RCM/self-invoice position.

9. Reconciliation evidence

A strong notice reply should contain a Secondee Master Reconciliation.

Recommended columns:

Employee ID | Overseas Entity | Indian Entity | Assignment Start | Assignment End | Indian Employment Agreement | Indian Salary | Overseas Salary | Social Security | Total Employee Cost | Debit Note | Mark-up | GL Code | TDS u/s 192 | PF / Benefit Evidence | RCM Paid? | ITC Availed? | Full ITC Eligible? | Invoice/Self-Invoice | Remarks

This helps answer four separate Department allegations:

1. whether a foreign entity actually invoiced anything;
2. whether salary was treated consistently as employee cost;
3. whether there was consideration beyond reimbursement;
4. whether Circular 210/4/2024 applies.

10. Important judgements - service-tax / legal era

10.1 Volkswagen India Pvt. Ltd. v. CCE, Pune-I

2014 (34) S.T.R. 135 (Tri.-Mumbai)

 Supreme Court appeal reported at 2016 (42) S.T.R. J145 (SC).

The Tribunal had accepted the taxpayer's position in the secondment context.
However, Northern Operating Systems subsequently observed that the CESTAT rulings in Volkswagen and Computer Sciences Corporation, although affirmed earlier by the Supreme Court, were unreasoned for the relevant issue and therefore had no meaningful precedential value on the question subsequently determined in NOS.

10.2 Computer Sciences Corporation India Pvt. Ltd. v. CST, Noida – CESTAT Delhi

2014-TIOL-434-CESTAT-DEL. | (2014) 35 STR 94 (Tri. Del)

This was another taxpayer-favourable secondment decision relied upon before NOS.

The Supreme Court subsequently curtailed its precedential force on the central issue in NOS.

This case was confirmed in 2015 (37) S.T.R. 62 (All.)

10.3 Honeywell Technology Solutions Pvt. Ltd. v. CST, Bangalore

2020-TIOL-1277-CESTAT-BANG.

The Tribunal jurisprudence had placed significance upon the substantive employer-employee relationship and had treated salary-disbursement mechanics as insufficient to determine manpower supply.

The case forms part of the earlier body of decisions discussed in NOS.

10.4 Bain & Company India Pvt. Ltd. v. CST, Delhi

CESTAT, New Delhi, decision dated 27 February 2014.

(2014) 35 STR 553 (Tri. Del)

The expatriates' salaries were paid in India and income tax deducted in India. The foreign holding company paid US social-security contributions which were reimbursed by the Indian entity.

CESTAT held, in substance, that foreign payment of social-security contribution alone did not mean the expatriates constituted manpower supplied by the holding company.

The principle remains factually useful, though it must now be applied subject to the Supreme Court's later NOS analysis.

10.5 CC, CE & ST, Bangalore v. Northern Operating Systems Pvt. Ltd.

Supreme Court of India

 Civil Appeal Nos. 2289-2293 of 2021
 Decision: 19 May 2022
 Reported: 2022 (61) G.S.T.L. 129 (S.C.) / [2022] 138 taxmann.com 359

This is the watershed decision.

The Supreme Court examined the secondment agreements, employment arrangements, foreign payroll, temporary posting, repatriation, control and economic context.

It held that the overseas companies had supplied manpower services to NOS and that NOS was the service recipient.

But one point is frequently overlooked

The Supreme Court rejected invocation of the extended period.

The existence of previous decisions supporting the assessee and the genuine interpretational controversy demonstrated that the assessee's position was not necessarily mala fide or wilfully suppressive.

That reasoning is enormously important in GST penalty disputes.

10.6 Boeing India Defense Pvt. Ltd.

CESTAT: 2023 (5) TMI 523 – CESTAT New Delhi.
 Supreme Court: Commissioner of CGST v. Boeing India Defense Pvt. Ltd., 2023 (12) TMI 239 | (2023) 13 CENTAX 34 (SC) | (2024) 388 ELT 37 (SC)– SC, followed by dismissal of review reported at 2025 (1) TMI 833 – SC.

The litigation became relevant to the separate issue of whether reimbursements can automatically form the value of the service. The later CESTAT discussion in Daimler India records the reliance placed on Boeing and Intercontinental Consultants on valuation of reimbursements.

This supplies a useful reminder:

A conclusion that a service exists does not automatically determine its taxable value.

10.7 Daimler India Commercial Vehicles Pvt. Ltd. v. Commissioner of GST & Central Excise

CESTAT Chennai, decision dated 2 July 2025.

(2026) 44 CENTAX 87 (Tri. Mad.)

The Tribunal examined detailed employment and foreign-assignment documentation and considered the arrangement substantially similar to NOS. It consequently upheld the characterisation as manpower recruitment/supply service for the relevant legacy period.

The decision is useful because it demonstrates that NOS remains potent where the contracts continue to show significant foreign-company involvement.

11. GST-ERA development: The law after northern operating systems

11.1 CBIC Instruction No. 05/2023-GST -13 December 2023

This Instruction may be the most important administrative defence against a mechanical NOS notice.

CBIC recognised that different secondment arrangements contain different factual characteristics and instructed officers not to mechanically apply NOS to every case.

It also addressed indiscriminate use of section 74 and emphasised the statutory ingredients necessary for fraud/wilful misstatement/suppression.

Practical proposition

A notice stating merely:

“Secondment exists; therefore NOS applies”

is legally vulnerable.

The officer must compare the taxpayer's agreements and facts with those considered in NOS.

12. The rule 28 revolution - circular 210/4/2024-GST

Circular No. 210/4/2024-GST dated 26 June 2024

CBIC dealt with imports of services from foreign related persons where the Indian recipient is eligible for full ITC.

The Circular states, in substance:

Full ITC + Invoice raised
 → invoice value may be deemed open market value.

Full ITC + No invoice
 → value may be deemed to have been declared as Nil
 → Nil may be deemed open market value.

This does not conceptually repeal Schedule I.

Instead, it attacks the valuation consequence of the deemed supply.

That distinction should be clearly pleaded.

13. Metal one corporation - The major GST turning point

Metal One Corporation India Pvt. Ltd. v. Union of India & Ors.

Delhi High Court
 W.P.(C) 14945/2023 and connected matters
 Decision: 22 October 2024
 Reported inter alia as 2024 SCC OnLine Del 7499 | 2024:DHC:8298-DB | (2024) 24 CENTAX 13 (Del. HC)

The petitions concerned GST demands connected with foreign expatriates/seconded employees.

The Court considered Circular 210/4/2024.

Where no invoice had been issued and the Circular deemed the value to be Nil, the Court held that there could be no meaningful tax liability arising from the alleged service and quashed the relevant SCNs/orders concerning seconded employees.

Why Metal One matters

It shifts the litigation from:

“Is NOS applicable?”

to:

“Even if NOS is assumed, what taxable value survives under Rule 28 and Circular 210?”

That is a fundamentally different defence.

14. Thales India Private Limited - ₹8.99 Crore paid under protest

Thales India Pvt. Ltd. v. Additional Commissioner of CGST

Delhi High Court
 W.P.(C) 16611/2024
 Decision: 7 January 2025

(2025) 31 CENTAX 232 (Del. HC)

This is an excellent real-life illustration.

Thales had seconded employees from foreign entities.

It reassessed the expatriate-related expenditure and paid approximately:

₹8.99 crore GST under protest

on 20 March 2024.

The Department subsequently issued a section 74 SCN seeking tax, interest and penalty consequences.

The Delhi High Court applied Metal One and Circular 210/4/2024 and quashed the SCN.

This case is especially useful in notices involving:

• voluntary payment;
• payment under protest;
• section 74 allegations;
• no foreign-affiliate invoice; and
• availability of full ITC.

15. Alstom Transport India - ₹57.95 crore demand quashed 

Alstom Transport India Ltd. v. Commissioner of Commercial Taxes

Karnataka High Court
 W.P. No. 1779 of 2025 (T-RES)
 Decision: 15 July 2025

(2025) 34 CENTAX 119 (Kar. HC)

This is one of the strongest recent taxpayer decisions.

The Department had confirmed approximately:

₹57,94,94,146 IGST

plus interest and penalty for July 2017 to March 2023.

Alstom contended that:

• expatriates were integrated into its organisation;
• they were under its administrative and functional control;
• salaries were paid by Alstom;
• Indian TDS was deducted;
• employment benefits were provided; and
• the relationship was genuinely employer-employee.

The Karnataka High Court also applied Circular 210/4/2024 and observed that no invoice had been issued for the alleged foreign-affiliate service.

The Court held that the secondment did not result in taxable manpower supply in the circumstances and quashed the IGST demand.

Litigation lesson

Alstom combines both strands:

Schedule III employer-employee argument
 plus
 Rule 28/Circular 210 Nil valuation argument.

That is the preferred modern defence architecture.

16. Huawei Technologies India - direct employment matters

Huawei Technologies India Pvt. Ltd. v. State of Karnataka

Karnataka High Court
 W.P. No. 2848 of 2024 (T-RES)
 Decision: 5 December 2025

(2026) 39 Centax 336 (Kar.) | 2026 (106) G.S.T.L. 360 (Kar.)

The Karnataka High Court set aside the demand concerning remuneration to foreign-national employees.

A significant factual distinction was that the arrangement reflected a direct employer-employee relationship with the Indian entity rather than a conventional foreign-company manpower-supply structure.

The case reinforces the point that:

foreign nationality does not equal foreign-company manpower supply.

The relationship must be proved.

17. Other corporates that have faced reported secondment / related notes 

Reported litigation demonstrates that this is not theoretical.

Among enterprises appearing in this line of cases are:

• Northern Operating Systems
• Metal One Corporation India
• Sony India
• Idemitsu Lube India
• Petronas Energy India
• Thales India
• Alstom Transport India
• Huawei Technologies India

For example, the Delhi High Court record in Sony India Pvt. Ltd. v. Directorate General of GST Intelligence records the taxpayer's contention that there was no manpower-supply agreement and that employees were engaged under independent employment contracts.

Petronas Energy India similarly came before the Delhi High Court in litigation involving Circular 210/4/2024 and alleged imported/related-party services.

These reported disputes demonstrate a broader post-NOS enforcement pattern across multinational groups.

18. Section 74 / Penalty Defence

A secondment notice should never concede section 74 merely because GST was not discharged.

CBIC Instruction 05/2023 is directly relevant.

The taxpayer should ask:

• What was concealed?
• Which statement was false?
• Where is fraud alleged?
• What establishes intent?
• Were secondment agreements recorded in books?
• Were foreign remittances visible?
• Was TDS deducted?
• Were salary expenses disclosed in audited financial statements?
• Were transfer-pricing disclosures made?
• Was the issue genuinely interpretational?

Even NOS itself rejected extended limitation because the legal issue was genuinely debatable and contrary Tribunal authority existed.

Thus:

Non-payment ≠ fraud.

19. Notice defence - recommended pleading sequence

Do not begin a reply merely by saying:

“The amount represents salary reimbursement and therefore GST is not applicable.”

That is too weak after NOS.

Use the following sequence.

Ground 1 - Identify the alleged supply

Require the Department to state precisely:

• supplier;
• recipient;
• service;
• consideration;
• contractual obligation; and
• taxable value.

A salary remittance cannot itself prove a supply.

Ground 2 - Establish genuine Indian employment

Build the employer test fact by fact.

Attach:

• Indian employment agreement;
• assignment letter;
• organisation chart;
• reporting structure;
• appraisal records;
• HR policy;
• leave records;
• payroll;
• TDS;
• PF/social-security evidence; and
• termination/control clauses.

Ground 3 -Distinguish NOS factually

Prepare a comparison:

NOS characteristic	Assessee's facts
employee remained linked to overseas employer	direct Indian employment
temporary loan/deployment language	independent Indian employment
overseas payroll/reimbursement	India bears and controls remuneration
predetermined repatriation	no automatic return/right retained
foreign group relationship central to deployment	Indian operational requirement
overseas company remained material participant	foreign entity merely administrative/payroll facilitator

The exact matrix must obviously be adapted to the actual documents.

Ground 4 -Invoke Schedule III

Once Indian employer status is established:

employee services → employer → outside supply.

Ground 5 -Without prejudice, invoke Circular 210

Even if a service by the foreign affiliate is assumed:

• related-party transaction;
• full ITC available;
• no relevant invoice raised;

therefore Rule 28/Circular 210 Nil valuation applies.

Rely upon:

Metal One → Thales → Alstom.

Ground 6 -Challenge section 74

Rely upon:

• Instruction 05/2023;
• complete disclosure;
• interpretational dispute;
• NOS limitation reasoning; and
• revenue neutrality/full ITC where factually available.

Ground 7 -Challenge valuation independently

Demand cannot simply adopt gross employee remuneration without establishing why that amount constitutes consideration/value of the alleged service.

Ground 8 -Reconcile employee cost

Attach a person-wise, month-wise and entity-wise reconciliation.

20. Preventive controls for multinational groups

Secondment should become a formal GST-control area.

1. Pre-secondment tax review

Legal, HR, tax and transfer-pricing teams should approve the structure before the employee moves.

2. Separate employment from group service agreements

Do not hide employee deployment inside a generic management-service agreement.

3. Avoid contradictory wording

An Indian employment agreement saying:

“You are our employee”

cannot comfortably coexist with a foreign agreement saying:

“We shall supply our employee to you.”

4. Align ERP and legal documentation

Legal characterisation, payroll and GL descriptions should tell the same story.

5. Maintain an expatriate register

Track:

• employing entity;
• salary payer;
• recharge;
• mark-up;
• social-security contribution;
• agreement;
• TDS;
• GST treatment;
• ITC eligibility; and
• Rule 28 position.

6. Review full-ITC status before relying on Circular 210

The Nil valuation clarification is materially tied to full input tax credit availability.

Businesses with:

• exempt turnover;
• blocked credits;
• section 17 reversals; or
• partial credit restrictions

should not mechanically assume the Circular eliminates liability.

7. Examine self-invoicing / RCM controls

Section 31(3)(f) and the reverse-charge documentation framework should be examined wherever an imported service is recognised. CBIC's own FAQs recognise self-invoicing obligations in specified foreign-service RCM situations.

8. Annual secondment reconciliation

Do not wait for DGGI/audit.

Run an annual reconciliation of:

Foreign related-party ledger ↔ Salary ledger ↔ Employee master ↔ Form 16/TDS ↔ Bank remittances ↔ GST RCM ↔ ITC ↔ Transfer-pricing report.

21. How Masters India can help in secondment-related GST notices

Technology cannot determine the legal employer -that remains a documentary and legal analysis.

But Masters India can materially strengthen the compliance and evidence-management side of the defence.

Its Notice Management platform states that it can automatically fetch GST notices/orders, maintain a central repository across GSTINs, store supporting documents and replies, generate deadline reminders, maintain audit logs and provide status dashboards.

For a secondment investigation, that can assist in:

A. Multi-GSTIN notice tracking

MNCs frequently receive similar queries across registrations.

A central dashboard can identify:

• which GSTIN received notice;
• notice date;
• section invoked;
• tax period;
• demand amount;
• due date;
• status; and
• related order.

B. Building the audit trail

Relevant material can be linked to the case:

• SCN;
• DRC-01A;
• DRC-01;
• reply;
• hearing submission;
• reconciliations;
• acknowledgements; and
• orders.

C. GST-data reconciliation

Masters India provides reconciliation tools capable of comparing purchase-register data with GSTR-2B and producing consolidated, vendor-wise and column-wise comparison reports.

Although a secondment dispute requires substantial HR/payroll reconciliation outside ordinary invoice matching, these GST reconciliation capabilities can assist in establishing the surrounding tax position -particularly:

• ITC eligibility;
• RCM entries;
• invoice reporting;
• GL/GST mismatches; and
• whether any related-party document entered the GST reporting chain.

D. ERP integration

Masters India states that its GST platform can integrate with ERP environments including SAP, Oracle, Microsoft Dynamics, Tally and custom systems.

For large MNCs, that makes it possible to create a defensible data trail connecting:

ERP → GST books → returns → notices → reconciliations.

E. Most useful secondment-specific report

An additional internal report can be created from ERP/payroll data:

Foreign Related Party Recharge v. Employee Cost v. GST RCM Matrix

This should identify every foreign recharge containing:

• employee name/code;
• cost centre;
• nature of cost;
• country;
• invoice/debit note;
• mark-up;
• RCM treatment;
• self-invoice;
• full ITC eligibility; and
• Rule 28/Circular 210 position.

That report can convert an otherwise narrative notice reply into an evidence-based defence.

22. Decision matrix

Situation A

Direct Indian employment + India pays salary + India controls employee + no foreign service agreement

Risk: Lower

Primary defence: Schedule III

Situation B

Direct Indian employment + foreign company merely disburses part salary + exact reimbursement

Risk: Fact-sensitive

Defence:

Employer test → payroll-agent explanation → Schedule III → Circular 210 alternatively

Situation C

Employee remains foreign employee + temporary assignment + mandatory repatriation + foreign entity charges salary

Risk: High

NOS becomes materially relevant.

Situation D

Foreign entity provides employee but no invoice is raised + Indian company has full ITC

Characterisation risk may remain, but valuation defence under Circular 210 + Metal One/Thales/Alstom becomes highly significant.

Situation E

Full ITC is not available

Do not rely casually upon Nil valuation.

The employer/Schedule III analysis becomes even more important because an actual tax cost may survive.

The current legal position cannot fairly be reduced to either of these statements:

“Secondment is taxable because the Supreme Court has decided it.”

or

“Secondment is not taxable because salary is outside GST.”

Both are incomplete.

The better proposition is:

Stage 1 -Characterisation

Determine the real employer from the complete factual and contractual matrix.

Stage 2 -Supply

If India is the employer, employee services fall under Schedule III.

Stage 3 -Foreign entity

Separately determine whether the overseas entity itself supplies anything to India.

Stage 4 -Schedule I

If it does, related-party import provisions may apply even without consideration.

Stage 5 -Import

Test supplier, recipient and place of supply.

Stage 6 -RCM

Apply the IGST reverse-charge framework.

Stage 7 -Valuation

Apply section 15 and Rule 28.

Stage 8 -Full ITC

Apply Circular 210/4/2024.

Stage 9 -Limitation and penalty

Apply Instruction 05/2023 and the limitation reasoning of NOS.

What should multinational groups remember about GST on secondment?

The key lesson from secondment litigation is that salary reimbursement alone does not determine GST liability. 
The real enquiry is who employed the secondee, who controlled the employment relationship, what the overseas entity actually supplied, whether an invoice was raised, whether full ITC was available, and how Rule 28 applies.

Northern Operating Systems remains important where the foreign entity retains substantive employer attributes, but it should not be applied mechanically to every secondment arrangement. 

The strongest defence is therefore layered: establish genuine Indian employment first, test Schedule III, examine any separate foreign-affiliate service, and then address valuation, RCM, ITC, limitation and penalty independently. 

Masters India can support this with notice management, GST reconciliation, ERP integration and evidence-tracking workflows that help multinational finance teams build a stronger audit trail.