Weekly Round-up on Secondment Tax Ruling, SEBI Ad Code, GST Developments | 22nd to 27th June 2026

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from June 22^nd to 27^th, 2026, namely:

1. This weekly newsletter analytically summarises the key stories reported at taxmannSecondment reimbursements taxable as FTS as secondees made available technical expertise to Indian entities: HC
2. SEBI proposes Common Advertisement Code for specified regulated entities
3. Lay-off and retrenchment were illegal as establishment employing over 100 workmen failed to obtain prior permission: HC
4. Extended period for tax demand upheld as petitioner failed to maintain job-work records and proof of goods receipt: HC
5. Blocking of electronic credit ledger under Rule 86A quashed as due procedure was not followed: HC
6. Does the Auditor’s Responsibility End with the Audit Report? Understanding the Requirements of SA 560.

1. Secondment reimbursements taxable as FTS as secondees made available technical expertise to Indian entities | HC

The assessee was a US-based member of the EY network. It entered into secondment agreements with EY India entities, under which its personnel were deputed to work in India. The assessee received certain amounts towards cost-to-cost reimbursement of the salary of seconded employees. The assessee claimed that the said amount was not taxable in India as it was a cost-to-cost reimbursement. However, the Assessing Officer (AO) opined that the secondees continued to be employees of the US entity who made available technical knowledge and expertise to the Indian entities. Thus, he treated the reimbursements as Fees for Technical Services (FTS).

The matter reached the Delhi High Court.

The High Court held that the AO had thoroughly examined the scope of services rendered and found that the secondees were deputed to India to impart and implement the EY Group’s culture, processes, policies, and standards within the Indian entities. Once such processes and policies were absorbed, the Indian entities could independently apply them in the future. The Court held that the secondees had made available technical knowledge, skill, and experience to the Indian entities and, therefore, the ‘make available’ condition stood satisfied.

Further, the secondees never ceased to be employees of EY US. The Indian entities had no authority to terminate their employment and could only end the secondment arrangement, enabling the secondees to rejoin EY US. The deputation agreements preserved the employment lien of the secondees with EY US, which retained overarching control over them throughout the assignment.

Additionally, Indian entities had the right to undertake legal or disciplinary action against misconduct, fraud, willful negligence, or any illegal action by any international assignee, and to terminate secondment before the agreed period, thereby relieving them from Indian entities to enable them to join the assessor. Accordingly, the Court held that the secondment arrangement was like a deputation, through which the secondees made their technical expertise and know-how available to the Indian entities.

Consequently, the payments received by the assessee from EY India entities towards secondment of employees were taxable in India as FTS under section 9(1)(vii) and Article 12 of the India–USA DTAA, as the services satisfied the ‘make available’ condition under Article 12(4)(b) of the DTAA.

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2. SEBI proposes Common Advertisement Code for specified regulated entities

On June 23, 2026, the Securities and Exchange Board of India (SEBI) had released a consultation paper proposing a Common Advertisement Code (CAC) for specified regulated entities, including stock brokers, depository participants, investment advisers, research analysts, online bond platform providers, portfolio managers and mutual funds/AMCs. The proposal seeks to replace entity-specific advertising frameworks with a unified code and introduce measures such as post-issue reporting in place of prior approval and permitting celebrity endorsements subject to prescribed conditions and disclosures. Comments on the consultation paper may be submitted by July 14, 2026.

2.1 Key Proposals

The key proposals of SEBI are as follows:

(a) Transition from prior approval to post-issue reporting: SEBI has proposed replacing the requirement for obtaining prior approval for advertisements with post-issuance reporting, which must be completed within 24 hours.

(b) Celebrity Endorsements: SEBI has proposed permitting the use of celebrities for brand-level/entity-level promotion, subject to prescribed conditions and prior approval.

(c) Unified Advertisement Code: SEBI has proposed replacing all existing entity-specific and exchange-specific advertisement codes with a single CAC. This is intended to eliminate regulatory complexity and reduce the compliance burden, ensuring a harmonised framework across regulated entities.

(d) Recognition of Ratings and Rankings: The proposed framework permits regulated entities to advertise ratings and rankings assigned by the Past Risk and Return Verification Agency (PaRRVA), subject to prescribed conditions. This would enable regulated entities to communicate legitimate distinctions and promote transparency while ensuring adequate safeguards.

(e) Greater clarity on communications constituting advertisements: To remove ambiguity, SEBI has proposed revising the definition of ‘advertisement’ to clearly distinguish communications that are promotional in nature and subject to CAC.

(f) Illustrative list of communications not regarded as advertisements: Recognising the need to distinguish routine, factual and investor-service communications from promotional content, the proposed framework provides an illustrative list of communications that will not be considered advertisements.

(g) Common Reporting Portal: SEBI has proposed that Supervisory Bodies must develop digital platforms (including a common platform for regulated entities with multiple supervisory bodies) to facilitate advertisement reporting by regulated entities. The unified reporting mechanism is expected to improve operational efficiency and strengthen regulatory oversight.

2.2 Conclusion

The proposed Common Advertisement Code marks a significant step towards creating a uniform, transparent and efficient advertising framework for SEBI-regulated entities. By replacing multiple entity-specific guidelines with a single code, simplifying compliance through post-issue reporting, permitting the use of celebrity endorsements, and introducing a common reporting mechanism, SEBI aims to enhance consistency, reduce regulatory complexity and strengthen investor protection.

Once implemented, the framework is expected to promote responsible advertising practices and enable regulated entities to communicate with investors in a more transparent and standardised manner.

Read the Press Release

3. Lay-off and retrenchment were illegal as establishment employing over 100 workmen failed to obtain prior permission | HC

The High Court, in Workmen of Karnataka Malladi Biotics Ltd. vs. Karnataka Malladi Biotics Ltd. [2026] 187 taxmann.com 481 (Karnataka), held that where an establishment directly appointed and exercised control over its security personnel along with having 92 regular workers, the evidence showed that it had employed more than 100 workmen during the preceding 12 months before lay-off, thus bringing establishment within Chapter V-B provisions of the Industrial Disputes Act, 1947. Since the establishment failed to obtain prior permission under section 25M of the Industrial Disputes Act, 1947, the lay-off and retrenchment were found to be illegal.

3.1 Brief facts of the case:

In the instant case, the Respondent-establishment was engaged in manufacturing products against orders using raw materials supplied by its customers. Wage settlements with workmen’s unions existed, the last of which expired on 31.03.2009. Thereafter, the union submitted a charter of demands on 27.03.2009, to be implemented from 01.04.2009.

The management declared a lay-off with effect from 22.06.2009 and subsequently retrenched 84 workmen on 06.08.2009. The workmen asserted that, at the relevant time, the establishment employed more than 100 persons, i.e., 92 permanent workmen, plus 17 security personnel and 28 contract/casual workers, and that no prior permission under Sections 25M and 25N of the Industrial Disputes Act, 1947, was obtained. Accordingly, the layoff and retrenchment were illegal.

Upon failure of conciliation, the Government referred the dispute regarding the legality of lay-offs and retrenchments to the Industrial Tribunal. The Tribunal held that the initial burden of proving the employment of more than 100 persons rested on workmen and that only persons qualifying as “workmen” under Section 2(s) could be counted for Section 25K of the Act. Since it found only 92 regular workmen and no material to treat that contract/casual labour and security guards were direct employees or regular workmen, it dismissed the reference.

3.2 High Court Observations:

It was noted that since the security personnel had been directly appointed by the management and were working under its direct supervision, control, and administrative authority, they would fall within the definition of “workmen” under Section 2(s) of the Act.

The High Court observed that since the initial burden was discharged by laying a foundation that the establishment employed more than 100 workers in the preceding 12 months before the date of lay-off, an adverse inference under Section 114 (g) of the Evidence Act, 1872, should have been drawn.

Further, the High Court observed that there were 92 regular workers and 17 security guards employed by management, all of whom were casual workers who had worked continuously for 8 to 10 years before the layoff. Accordingly, the respondent-establishment had employed more than 100 workmen in the preceding 12 months before the date of layoff and was therefore within the provisions of Chapter V-B.

3.3 High Court Ruling:

The High Court held that since the establishment had failed to obtain prior permission from the competent authority, as provided under Section 25M of the Act, before laying off and retrenching workmen, the lay-off and retrenchment were illegal. Therefore, the respondent management was directed to pay a sum of Rs. 3,00,000/- to each retrenched worker.Top of Form

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4. Extended period for tax demand upheld as petitioner failed to maintain job-work records and proof of goods receipt | HC

The High Court held that failure to maintain prescribed job-work records, furnish Form GST ITC-04, and establish receipt of goods within the period prescribed under Section 143 of the CGST Act, attracted the deeming fiction that treated the movement of goods as a taxable supply. It was observed that the petitioner had failed to comply with the statutory job-work procedure and uphold the invocation of the extended period under Section 74. However, the matter was remanded to examine the petitioner’s plea of revenue neutrality.

Facts of Case 

The petitioner, a registered manufacturer, challenged orders passed under Section 74 of the CGST Act, whereby tax, interest and equal penalty were confirmed on goods sent to its sister concern for job work. Pursuant to an inspection, the Department alleged non-compliance with the job-work procedure, including failure to maintain job-work records, furnish Form GST ITC-04 and establish return of goods within the prescribed period. The petitioner contended that the non-compliance arose due to technical glitches and that the transactions constituted job-work transfers. It was further submitted that tax liability, if any, may already have been discharged by the principal or the job worker, warranting examination of revenue neutrality. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that, in the absence of records evidencing receipt of goods within the period prescribed under Section 143 of the CGST Act read with Rule 45 of the CGST Rules, the deeming fiction treating such movement as supply was attracted, resulting in tax liability. The Court further held that the exceptions under the proviso to Section 143 were inapplicable and that the petitioner was under a statutory obligation to maintain proper records and to comply with the prescribed job-work procedure. Applying Section 74, the Court upheld the invocation of the extended period of limitation, observing that the GST framework permits such action where short payment or discrepancies emerge from the taxpayer’s records and the case did not fall within the recognised exceptions. However, considering the petitioner’s plea of revenue neutrality, the Court remanded the matter to the adjudicating authority.

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5. Blocking of electronic credit ledger under Rule 86A quashed as due procedure was not followed | HC

The High Court held that the blocking of the electronic credit ledger under Rule 86A of the CGST Rules was unsustainable where the jurisdictional officer failed to follow the prescribed procedure before restricting ITC. It directed the immediate unblocking of the electronic credit ledger while reserving liberty to the Department to initiate fresh proceedings in accordance with Rule 86A of the CGST Rules.

Facts of Case 

The petitioner was a registered taxpayer maintaining input tax credit (ITC) in its electronic credit ledger. The jurisdictional officer under CGST invoked Rule 86A of the CGST Rules and the Karnataka GST Rules to block the electronic credit ledger on the allegation that the petitioner’s supplier was operating from non-existent premises. The petitioner contended that the blocking of the ledger without prior notice was contrary to the principles of natural justice and the procedure recognised by a Division Bench. The Department did not dispute the legal proposition regarding adherence to the prescribed procedure and submitted that independent proceedings had also been initiated. The petitioner confined its challenge to the blocking proceedings. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 86A of the CGST Rules and the Karnataka GST Rules, read with Section 169 of the CGST Act and the Karnataka GST Act, required adherence to the procedure laid down by the Division Bench before restricting ITC. The Court held that the impugned blocking proceedings did not conform to the prescribed procedure and warranted limited interference. Accordingly, the proceedings were quashed, the jurisdictional officer under CGST was directed to immediately unblock the electronic credit ledger, and liberty was reserved to initiate fresh proceedings in accordance with the prescribed procedure under Rule 86A.

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6. Does the Auditor’s Responsibility End with the Audit Report? Understanding the Requirements of SA 560

For many practitioners, the signing of the auditor’s report marks the completion of the audit engagement and is often perceived as the point at which the auditor’s responsibilities come to an end. However, this assumption is only partly correct. Material facts may emerge after the auditor’s report has been signed but before, or even after, the financial statements are issued, potentially affecting the reliability of the auditor’s opinion. SA 560, Subsequent Events, prescribes the auditor’s responsibilities in such circumstances and distinguishes the obligations arising at different stages of the reporting process.

Under SA 560, the auditor’s responsibilities vary depending on when the subsequent event or fact becomes known. Before the date of the auditor’s report, the auditor is required to perform procedures to identify events requiring adjustment or disclosure in the financial statements. Once the auditor’s report has been signed, there is no obligation to perform continuous audit procedures. However, if a material fact comes to the auditor’s attention before the financial statements are issued, the auditor must discuss the matter with management, determine whether the financial statements require amendment, perform appropriate audit procedures on any revisions, and issue a new auditor’s report where necessary. If management refuses to amend materially misstated financial statements, the auditor is required to take appropriate steps to prevent reliance on the original audit report.

To understand the application of these requirements, consider the case of Gamma Limited. The auditor signed the audit report after completing the audit and the financial statements were approved by the Board, but before the financial statements were circulated among the shareholders, the auditor became aware of a material fraud involving fictitious sales that existed before the reporting date. Although management acknowledged the fraud, it argued that no further action was required because the audit report had already been signed. This raises an important question, does the signing of the audit report discharge the auditor from any further responsibility?

The answer lies in the principles of SA 560. While the auditor is not expected to actively search for subsequent events after signing the report, any material fact that comes to the auditor’s attention cannot be ignored. Since the fraud relates to the period under audit and could have affected the auditor’s opinion, the auditor must evaluate its impact, perform additional audit procedures, and assess whether the financial statements require amendment. If the financial statements are revised, a new auditor’s report must be issued. Conversely, if management refuses to make the necessary amendments, the auditor must take appropriate action to prevent users from relying on an audit report that is no longer supported by the underlying financial statements.

Accordingly, the signing of the auditor’s report does not invariably bring the auditor’s responsibilities to an end. SA 560 strikes a balance by relieving the auditor of any obligation to perform continuous audit procedures after the report date while requiring appropriate action whenever a material fact becomes known before the financial statements are issued. The Standard reinforces that the reliability of the auditor’s opinion must not be compromised merely because significant information comes to light after the report has been signed.

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