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Applicability of GST on deputed staff
By K V Srinivasamurthy, Senior Consultant – Indirect Taxes, PKF Sridhar & Santhanam LLP, CA, Chennai
Nov 19, 2020


•  It has become a common practise, especially in group companies to depute the employees to another company. During such deputation, the deputed employees work under the direction, supervision and control of the company to whom they are on deputation. The salary of the deputed employees is processed and paid by the parent company deputing them and the same is recovered from the company to whom the employees are deputed. This recovery of reimbursement is done by means of raising an invoice on the deputed company.

•  Now, the question which arises is, whether the deputed employees qualify as the employees of those companies to whom they are deputed, or their deputation would amount to supply of manpower by the deputing company. 


Movement of employees:

•  It could be observed from the above, that the services of the employees in the role of one company, when utilized by its subsidiary companies, the salary, related allowance and other advances payable to such staff are accounted in the books of the deputing company on actual values. The deputing company and its subsidiary are different persons. This is in accordance with Section 2(84) of the CGST Act, 2017, which says that a Company is a person. Hence, these two companies are to be construed as two different persons. The payment made by the deputing Company are recovered from its subsidiaries as reimbursement by way of raising an invoice.

•  There is a possibility of viewing the above transaction when extended by the deputing Company to its subsidiary companies and collecting the consideration payable to such employees from the subsidiary companies as amounting to extending the services of the employees of the deputing company to its subsidiaries and hence the said service would constitute a "Supply of service" and as such GST is applicable to this supply of Service. In other words, it could be construed that GST is applicable on the deployment of employees to its subsidiary companies as the same is supply of Service by treating the same as "Supply of manpower".

Advance ruling: 



•  GST - Applicability of - Supply of - Movement of employees - Applicant and TANTRANSCO being two different persons, when the applicant extends the services of their employees to TANTRANSCO, and collect the considerations payable to such employees from TANTRANSCO, the said activity is a ‘Supply of Service' and GST is applicable to this supply of service - Section 7 of Central Goods and Services Tax Act, 2017.

•  GST is applicable on the deployment of employees to TANTRANSCO as the same is supply of Service

Service Tax Cases:


•  Held - Deputation of staff - Deputation of staff covered under Manpower Recruitment or Supply Agency service and not under Management Consultant service


•  Held - Deputing staff to group company - Staff deputed to group company and engaged in day to day activities - Personnel paid by assessee and amounts representing salary and allowances recovered - Management Consultant is one engaged in providing service relating to conceptualising, devising, development, modification, rectification or upgradation of any working system of organisation - Submission that activity to be considered as supply of manpower which taxable w.e.f. 16-6-2005 whereas present demand is for earlier period - Facts similar to earlier decided case law in favour of assessee - Activity not falling under Management Consultant service

Contradictory views: 

The deputed employee would be considered as an employee of the deputed company, if he works under their direction, control, and supervision. This would depend upon the contractual agreement between both the companies.

In case of a clear contractual position, it can be said that the reimbursement of salary by the secondee company to the other company does not amount to supply but such amount is towards the employer-employee relationship and thus should be covered under Schedule-III of CGST Act, 2017. 

Case Laws (During Service Tax Regime): 


•  Held - Employment of foreign nationals, i.e., Global employees, previously employed with foreign/holding company - Payment of salaries through foreign/holding company - HELD : Global employees working as employees and employee-employer relationship present - No supply of manpower service rendered by foreign company - Method of disbursement of salaries not to determine nature of transaction - activity cannot be held to be taxable as "Manpower Supply or Recruitment Agency Service" 

FRANCO INDIAN PHARMACEUTICAL (P) LTD. Versus COMMR. OF S.T., MUMBAI 2016 (42) S.T.R. 1057 (Tri. - Mumbai)

•  Whether such service are rendered by employee to one employer or to many, as in case of joint employment, cannot make any difference to tax treatment of emoluments earned by employee - If employer-company who takes employee in its own rolls does not insist on some mark-up or margin being given to it, over and above actual cost, payments received against debit notes by one employer-company upon other employer-companies, do not have character of consideration for any service; they are mere reimbursement of shared costs

•  In order to qualify as a supply, there must be reciprocity and the person providing the consideration is expected to receive something in return.

•  The true nature of rendering of services by an individual to another person shall determine his relationship with that person. 


•  Activity of deputing staff to sister unit - Taxability of amount of salary and wages reimbursed by such unit - Appellant received only reimbursement of actual amount paid to their deputed staff - Deputing staff to their own organisation/sister concern would not fall under ‘Manpower Recruitment and Supply Agency service' - Issue covered by decision in Intercontinental Consultants and Technocrats Pvt. Ltd. 


•  Employment of employees on deputation from foreign parent company - Payment of salaries and perks by foreign parent company under dispatch agreement - Appellant not liable to pay Service Tax as recipient of service under reverse charge mechanism - No supply of manpower service rendered by foreign parent company as no consideration paid to parent company for deployment of employees - Deputed employees working under control, direction and supervision of appellant who already deducted tax at source from the salary and other perks given to the employees - Employee-employer relationship present between appellant and deputed employees - Method of disbursement of salaries not to determine nature of transaction

PUNJ LLOYD LTD Versus COMMISSIONER OF SERVICE TAX, DELHI - TOG-682-CESTAT-DEL-2018- Deputation of some of appellant's employees to their subsidiary group company - Appellant not to be considered as manpower supply agency.

Case Law in Income Tax -

  AT&T Communications Services (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax – [2019] 111 201 (Delhi - Trib.)

•  AT&T India entered into a secondment agreement with AWPS, USA wherein staff of AWPS would be deputed to AT&T. The employees were required to function solely under the control, direction and supervision of AT&T India. However, they were to be paid by AWPS; accordingly, AT&T India was required to reimburse AWPS for all the costs incurred by it for such employees.

•  Held - the seconded employees of AWPS were not taking forward the business of AWPS in India but were effectively working under the control and supervision of the assessee company and by no means can be said to be rendering services on behalf of AWPS.

•   the employees seconded to the assessee company are working as the employees of the assessee company, their salary is subject to TDS u/s 192 of the Act and, therefore, provisions of section 195 are not applicable.

•  Hence, it could be viewed that there was no manpower supply by AWPS, USA to AT&T India.


•  This concept of deputation of employees by the companies is gaining popularity these days due to globalization.

•  To qualify for ‘Supply', the person providing the supply is expected to receive certain consideration for the same as provided under Section 7(1) of the CGST Act, 2017.

•  Further, it would be pertinent to note that it is only the actual salary paid to the employees on deputation that is recovered as reimbursement expenses. Hence, there appears to be no amount of service provided by the deputing company. The reimbursement does not have any amount of income embedded into it. Further the word mere reimbursement of expenses does not come within the meaning of remuneration as per Section 2(78) of the Companies Act as it is a mere reimbursement of actual expenditure by the seconder. Also, this amount does not fall within the definition of "Consideration" as provided under Section 2(31) which reads as below:

•  Section 2 (31) - consideration in relation to the supply of goods or services or both includes–

•  (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

•  Further, the reimbursement does not comply with provisions of Section 2(93) of the CGST Act, to constitute the deputed company to be considered as receiver any supply of services. In other words, there shall be no supply in the absence of response or inducement of supply goods or services. Thus, the provisions of Schedule I of the CGST Act, 2017 would not get attracted here. The said provision is reproduced below:


•  Schedule I - 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:

•  Due to the existence of employee-employer relationship between the deputed staff and the company to whom these employees are sent on deputation, the activities of these employees would be treated neither as a supply of goods nor a supply of services. Reference - SCHEDULE III - 1. Services by an employee to the employer in the course of or in relation to his employment.

•  Though there are favourable decisions during service tax regime, based on the concept of the term ‘Supply' in GST, which is more-wide, these types of arrangements are bound to be under the lens of the tax authorities as the inherent relationship always casts a doubt on its valuation. Such kind of arrangement wherein the company seconded its employee to other company and receives reimbursement in return could be litigated by the Revenue Authorities.

•  However, it is necessary look into the true nature of service rendered by the employee to the employer of the deputed company to determine the nature of relationship that exists between them. Further, it would also be important to look into the nature of agreement existing between the two companies in order to determine whether there exists an activity of "Joint employment" between the two companies.

•  As of now there appears to be no favourable decision in this regard at higher forums in GST and it would be appropriate that this issue is addressed by the Government by way of a clarificatory Circular.

[The views expressed are strictly personal.]