Secondment and GST: NOS is a fact-check, not a rule

A number did the rounds last week that should make every CFO with expats on the team look up from their screen: ₹110.64 crore.

That is the IGST demand Skoda Auto Volkswagen India is reported to have received — not for goods, not for a service it bought, but simply for having employees seconded to it from overseas group companies.

The Bombay High Court has since stepped in with interim protection. But the underlying issue is one I keep running into with clients, and it is worth two minutes today — not after a notice of your own lands.

The pattern I keep seeing

An officer picks up the Supreme Court’s 2022 ruling in Northern Operating Systems (NOS), reads it as “secondment from a foreign parent is a taxable supply of manpower services under reverse charge,” and issues a demand — often without pausing to look at how the arrangement actually works.

That reading is too broad. NOS was decided on its own facts. The Court never laid down a blanket rule that every secondment is taxable. It looked closely at who controlled the employees, how they were paid, and what the contracts said. It is a fact-specific judgment being applied as if it were a formula.

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Three things decide your case — and none of them is the word “secondment”

1. Whose employee is this, really?

Schedule III of the GST law says services by an employee to the employer in the course of employment are not a “supply” at all. If the seconded person genuinely works as your employee — your control, your direction, your accountability — you are not receiving a service from the foreign parent. You simply have an employee. That is the strongest place to stand.

2. How is the salary paid? (This is the trap.)

Many groups assume “the parent pays and we reimburse at cost, no markup” is harmless. It is the opposite. That exact routing — salary disbursed abroad, reimbursed by the Indian entity — is one of the features that weighed against the taxpayer in NOS. If your facts look like that, you are sitting on the losing side of the very judgment you are relying on.

3. What do the papers say?

Direct Indian appointment terms, salary run through Indian payroll with TDS deducted here, no lingering right for the employee to revert to the foreign parent — these are the facts that recently persuaded the Karnataka High Court, in the Alstom matter, to distinguish NOS and hold the arrangement outside the tax net.

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The relief most people miss — with a catch

CBIC’s June 2024 circular clarified that where the Indian recipient is eligible for full input tax credit and the foreign affiliate raises no invoice, the value of the supply can be treated as nil — making the whole thing revenue-neutral. Courts have upheld it.

Understand what it is: a valuation shield, not a taxability shield. Leaning on it concedes that a supply exists and merely values it at zero.

It holds cleanly only while your ITC is genuinely 100% — the moment you have any exempt output, it weakens. And even at nil value, the RCM self-invoice still has to be raised on time; a procedural slip can invite interest and penalty on its own.

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A note on the Skoda case — because precision matters

The ₹110.64 crore figure, and the earlier round where the service-tax demand on the same facts was reportedly set aside by CESTAT and the department’s appeal dismissed by the Supreme Court, come from reported coverage. The interim order itself does one thing: it issues notice and directs that no coercive step be taken without the Court’s leave. Whether NOS was applied mechanically, and whether the CBIC circular was ignored, is still to be examined — the matter is listed for September.

So this is interim protection, not a final vindication. But the direction of judicial thinking is clear: these arrangements deserve a fact-specific look, not a rubber stamp.

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What I would do now

If you have any secondment or deputation from a foreign group company:

• Pull the secondment agreement, appointment letters, payroll records and TDS returns — and read them the way an officer would.

• Test the three points above — control, payroll routing, contract terms — and fix the gaps before a notice arrives.

• Confirm your ITC position period by period, so you know whether the nil-value route is even available to you.

• Raise the RCM self-invoice on time regardless, so a procedural lapse never becomes the reason you pay.

The facts of your arrangement — not the “NOS” label — will decide the outcome. And a demand is far easier to answer when your documentation already tells the right story.

If you are seeing secondment notices pick up pace this year, I would be curious what the department is focusing on in the ones you have come across.

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This article is general in nature and not a substitute for advice on your specific facts.