Introduction

In the modern corporate environment, cross-border and intra-group movements of personnel, along with associated cost allocations, have become commonplace. Under India’s Goods and Services Tax (GST) regime, three areas often raise compliance and valuation questions: employee secondment arrangements, the reimbursement of expenses, and inter‑company transactions. Each of these touches on core GST principles—scope of supply, valuation rules, and the treatment of related‑party dealings—and requires a nuanced understanding of the CGST Act, 2017, the CGST Rules, and key judicial and administrative pronouncements.

GST Framework: Key Provisions

• Supply Exclusions: Section 7(2) read with Schedule III, para. 1 of the CGST Act excludes “services provided by an employee to the employer in the course of or in relation to his employment” from the definition of supply, placing genuine employer‑employee relationships beyond GST’s levy.
• Valuation Rules: Section 15 mandates that taxable value equals the transaction value (the price actually paid or payable). For related‑party or distinct‑person transactions, Rule 28 of the CGST Rules prescribes that value be determined by open market value (OMV), or failing that, by comparable supplies, cost‑based methods, or residual approaches—subject to provisos such as the 90% rule for further‑supply goods and deeming the invoice value as OMV where full Input Tax Credit (ITC) is available.
• Pure Agent Concept: Rule 33 allows certain reimbursements to be excluded from taxable value if the supplier acts as a “pure agent,” incurring expenses on the recipient’s behalf under explicit authorization, separately invoicing them, and without markup or personal benefit.
• Distinct Persons under GST: Under Section 25(4) of the CGST Act, establishments of the same entity in different States or Union territories are treated as distinct persons. Supplies between such distinct persons, even without consideration, are deemed supplies under Schedule I and are liable to GST, necessitating careful documentation and valuation.
• Treatment of Employee Secondment: Judicial and advance ruling authorities have clarified that in employee secondment arrangements, where the secondee is under the control and supervision of the recipient company and the salary is paid through a cross-charge or reimbursement mechanism, GST implications can arise unless a clear employer-employee relationship is established between the secondee and the recipient entity.

GST on Employee Secondment

Background & Service‑Tax Legacy

Historically, service tax jurisprudence (e.g., CCE & ST v Northern Operating Systems Pvt. Ltd., May 2022) treated cross‑border secondment as a “manpower supply service” if the secondee’s economic employer differed from the operational controller, bringing such arrangements within the tax net.

Upon GST’s introduction in July 2017, the question arose whether secondment arrangements remained taxable. While Schedule III suggested an employer‑employee exemption, the Supreme Court’s NOS ruling—and subsequent show‑cause notices—created uncertainty.

Judicial Clarification & CBIC Circular

In Circular No. 210/4/2024‑GST, dated April 2024, the CBIC clarified GST valuation for cross‑border intra‑group services. It stated that where a foreign affiliate provides services to a related Indian entity—and the Indian entity enjoys full ITC—the invoiced value may be deemed the OMV under the second proviso to Rule 28(1).

Relying on this circular, the Delhi High Court quashed demands for GST on salaries paid to seconded expatriates, holding that absent any markup and with full ITC available, the value of supply could be treated as nil.

Practical Structuring

To mitigate GST risk in secondments, group entities should:

• Document Employer‑Employee Relationship: Ensure secondment agreements unequivocally reflect the host entity as the operational and economic employer if exemption under Schedule III is intended. Maintain clear documentation such as board resolutions, payroll records, organizational charts, and email correspondences to substantiate the nature of the employment relationship and to withstand departmental scrutiny during audits or investigations.
• Avoid Markups: Structure cost recovery on an actual‑cost basis with no profit component to align with the CBIC circular’s deeming provision.
• Leverage Circular 210: When full ITC is available, use the circular’s guidance to set invoiced value equal to cost, thereby minimizing GST exposure.

GST on Reimbursements

Pure Agent Exemption (Rule 33)

Under Rule 33, a supplier acting as a pure agent may exclude expense reimbursements from the taxable value if it meets three conditions:

• Authorization: Expenses are incurred on the recipient’s explicit authorization at or before payment.
• Separate Invoicing: Reimbursement amounts are separately indicated in the invoice.
• No Benefit Retained: The supplier derives no benefit or title from the procured goods or services and recovers only the actual amount without markup.
• Documentary Evidence: The supplier must maintain adequate documentation—such as authorization letters, third-party invoices, and reimbursement correspondence—to demonstrate compliance with pure agent conditions and support exclusion from the taxable value during assessments.

Illustrative Case Law

In Ion Trading India Pvt. Ltd. (UP AAR), the Authority for Advance Ruling held that an employer’s recovery of employee parking charges qualified as pure‑agent reimbursement. The Appellate Authority confirmed that, having met Rule 33’s conditions, the reimbursed parking fee would be excluded from taxable value, resulting in a nil GST charge on the reimbursement portion.

Key Takeaways

• Documentation Is Critical: Reimbursements must be clearly identified and supported by recipient authorization.
• No Markups Permitted: Any profit element disqualifies the pure agent treatment.
• Separate Line Items: Reimbursed expenses and principal‑supply charges must appear separately on invoices.

GST on Inter‑Company Transactions

Related‑Party Supplies & Valuation (Rule 28)

When distinct or related persons transact, Rule 28(1) mandates valuation by OMV; if unavailable, by like‑kind valuation; thereafter, by cost (Rule 30) or residual methods (Rule 31). Two key provisos temper this:

No Consideration Still Taxable: As per Schedule I of the CGST Act, supplies between related or distinct persons made in the course or furtherance of business are taxable even without consideration—necessitating valuation under Rule 28 despite the absence of payment.

• 90% Rule: For goods intended for onward supply, the supplier may opt for 90% of the recipient’s sale price to an unrelated party.
• Invoice‑Value Deeming: If the recipient is eligible for full ITC, the invoice value may be deemed OMV.

Corporate Guarantees (Rule 28(2))

Rule 28(2) deems the value of a corporate guarantee provided by a related supplier to be 1% per annum of the guaranteed amount, or actual consideration, whichever is higher.

Notification 12/2024‑CT (w.e.f. 26 Oct 2023) inserted a proviso that where full ITC is available, the invoiced value shall be deemed OMV, effectively overruling the 1% deeming for such cases.

Circular 225/19/2024‑GST reiterated that the invoice-declared value may be treated as OMV for guarantees issued or renewed on or after October 26, 2023, where full ITC is claimed.

Other Inter‑Company Supplies

• Import of Services: For cross‑border intra‑group services, IGST applies under reverse charge, with valuation guided by Rule 28 and deeming invoice value as OMV if full ITC is available.
• Loans & Financial Assistance: If interest is charged, that amount is the supply value; absent interest, Rule 28 principles apply, often leading to invoice value or cost valuation.
• Use of Intangibles: Licensing of trademarks or brand names to subsidiaries attract GST as “intellectual property services,” valued per Rule 28 or an agreed price if OMV can be demonstrated.
• Shared Services & Cost Allocations: Centralized functions like HR, IT, or legal services rendered by one group entity to others are treated as taxable supplies, even if charged on a cost-sharing basis; proper documentation and valuation under Rule 28 are essential to support GST compliance.
• Employee Secondment as a Service: Where employees are formally on one group company’s payroll but work under the control of another entity, GST may apply on cross-charge arrangements unless a clear employer-employee relationship is established with the host entity.

Conclusion & Recommendations

Employee secondments, reimbursements, and intercompany dealings all present unique GST challenges, primarily around supply scope and valuation. To ensure compliance and manage tax costs, practitioners should:

• Review Contracts: Clearly delineate employment versus service arrangements.
• Align Invoicing Practices: Separate reimbursements and principal supplies, and document authorization for pure‑agent treatment.
• Validate Valuation Approaches: Apply Rule 28 and its provisos judiciously, especially where ITC eligibility enables invoice‑value deeming.
• Monitor Regulatory Updates: Track CBIC circulars and notifications (e.g., 210/2024‑GST, 12/2024‑CT) to leverage favourable interpretations.
• Maintain Audit-Ready Documentation: Preserve secondment agreements, inter-company service contracts, cost allocation workings, and correspondence to substantiate GST positions during audits or litigation.
• Assess Reverse Charge Implications: For cross-border intra-group services, regularly evaluate reverse charge liability, especially in light of evolving interpretations around “import of services” and economic employer concepts.

By proactively refining policies, audit templates, and inter‑company agreements, businesses can harness GST’s intended neutrality while minimizing valuation disputes and compliance risks.