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Supreme Court rules service tax applied on reimbursed costs of seconded employees

India’s Supreme Court on 19 May 2022 ruled that the reimbursement by an Indian company of the salary costs and other expenses of employees seconded by a foreign group company to the Indian company should be treated as a supply of manpower services on which service tax was payable under the reverse charge mechanism. The court’s ruling establishes that where any amount was paid by an Indian company to a foreign company towards the cost of seconded employees, service tax should have been applied and nullifies the view adopted by various benches of the Customs Excise and Service Tax Appellate Tribunal (CESTAT). For the period under appeal, service tax was payable at 12.36%. As from 1 July 2017, service tax is one of a number of taxes replaced by goods and services tax (GST) in India but the principles established in the case potentially may also be relevant under the GST regime.

Source Deloitte

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