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Judgment
,Particulars,
1.,Period involved,April 2014 to September 2015
2.,Show Cause Notice,No. 221/2016 dated 10.11.2016
3.,Order-in-Original,No. 04/2017 dated 09.10.2017
4.,Order-in-Appeal,No. 592/2018 CT dated 14.02.2019
5.,Demand of service tax,"Rs.47,23,600/- under Section 73(1) of the Finance Act, 1994 along
with interest.
6.,Penalty,"Under Section 78(1) of Finance Act, 1994 (Not quantified).
The Appellants shall have sole responsibility for payment of all employee taxes, compensation, wages, benefits, contributions, insurance and like",,
expenses, if any, of the seconded employees in India;",,
iv. The Appellants shall reimburse the Parent company for the remuneration paid to the seconded employees on behalf of Appellants including but not,,
limited to salary, bonus, social security contribution, stock based compensation, other benefits and allowances and all out of pocket expenses incurred",,
by the seconded employees paid by the Parent Company, including but not limited to business travel expenses and other miscellaneous expenses",,
directly related to the secondment. The amount reimbursable shall be at actual costs incurred by the Parent Company, without any mark up;",,
v. The Parent Company shall raise the debit note in United State Dollars on a monthly basis towards the reimbursements for the salaries and benefits,,
paid to the seconded employees and such amounts shall be settled by the Appellants;,,
vi. During the period of secondment of the employees to the Appellants, the employees shall be in the sole employment of the Appellants;",,
vii. It is expressly agreed that the Parent company is merely seconding employees to the Appellants and the Parent Company is not acting as a,,
provider of manpower to the Appellants.,,
4.1. Learned Counsel also referred to the Letter of Assignment issued by the Parent Company to the seconded employee and its terms inter alia,,
stipulates as under:,,
a) The assignee shall not represent the Parent Company for the duration of the assignment; during the assignment, the Parent Company shall not be",,
responsible for any acts or omissions committed by the assignee;,,
b) The assignee shall act under the direction and supervision of the Appellant Company for rending their services to the latter;,,
c) At the completion of the assignment, the assignee can return to the Parent Company. However, the letter of assignment does not constitute an",,
employment contract or a guarantee of employment with the Parent Company;,,
d) For convenience, the assignee shall be paid their base salary and other earnings in US Dollars to the extent allowable under the applicable laws of",,
India on behalf of the Appellant Company.,,
4.2. He also referred to the Letter of Employment issued by the appellant to the seconded employee which provides the terms of employment which,,
summarised as under:,,
a) The term of employment contract is for a period of one year from the effective date and any extension there to will be at the discretion of the,,
Appellants;,,
b) For administrative convenience, the employee will be paid the base salary in US Dollars on behalf of the Appellant Company. However, the",,
employee can choose to receive a portion of their salary in local currency;,,
c) The Appellants shall deduct taxes and other statutory dues as may be applicable from time to time from the remuneration payable to the employee,,
in India;,,
d) During the period of employment, the employee shall be under the exclusive employment of the Appellants and will be rendering services to the",,
Appellants alone;,,
e) The right of termination of employment is with the Appellants.,,
4.3. He further submitted that as per Clause 2.02 of the Secondment Agreement dated 01.07.2014, the Parent Company during the relevant period has",,
raised debit notes on the appellants towards reimbursement of expenses in the foreign currency which has been paid by the appellant accordingly at,,
cost without any mark-up. Learned Counsel also submitted that for the period prior to 01.07.2012, the taxable service of Manpower Recruitment and",,
Supply Service was defined under Section 65(105)(k) of the Finance Act, 1994 read with Section 65(68) which defines expression Manpower",,
Recruitment and Supply Service. He also submitted that in view of the definition of the Manpower Recruitment and Supply Service, the Parent",,
Company cannot be considered as an Agency which is in the business of supplying manpower. He also submitted that the appellants are paying the,,
salaries to the expats through the Parent Company only for administrative convenience and there is employer-employee relationship exists between,,
the two. For this submission, he relied upon the decision in the case of Airbus Group India Pvt. Ltd. - 2016 (45) S.T.R. 120 (Tri.-Del.) and Taisei",,
Corporation v. Commissioner of Central Excise, New Delhi 2017 (5) G.S.T.L. 61 (Tri. - Del.) wherein based on similar circumstance, the demand of",,
service tax on manpower recruitment or supply agency was set aside holding that the service provider therein was ‘not in the business of supplying,,
manpower’. He also submitted that secondment of employee is not a ‘service’ under the Finance Act, 1994 which specifically exclude",,
certain transactions from the ambit of service, such as the provision of service by an employee to the employer in the course of or in relation to his",,
employment. He also submitted that the appellants have deducted tax in terms of Section 192 of the Income Tax Act, 1961 and deposited the same",,
with the Government as evidenced by the Form 16 issued to the seconded employees, with details of the salary, allowances, deductions and tax",,
deductions. He further submitted that this issue is no more res integra and has been settled by various decisions of this Tribunal, the High Courts and",,
the Hon’ble Supreme Court and relied upon the following decisions: Â,,
· Volkswagen India Pvt. Ltd. Vs CCE, Pune-I, 2014 (34) STR 135 (Tri. Mumbai). Â",,
· Paramount Communication Ltd. Vs CCE, Jaipur, 2013-TIOL-37- CESTAT-DEL. Â",,
· Nissin Brake India Pvt. Ltd. Vs CCE, 2019 (24) GSTL 563 (Tri. Del.). Â",,
· Computer Sciences Corporation India Pvt. Ltd. Vs Commissioner of Service Tax, Noida, 2014 (35) STR 94 (Tri. Del.), 2015(37) STR 62 (All.).",,
Â,,
· Honeywell Technology Solutions Lab Pvt. Ltd. Vs CST, Bangalore, 2020-TIOL-1277-CESTAT-BANG. Â",,
· Northern Operating System Pvt. Ltd. Vs CCE, 2020-VIL-562- CESTAT-BLR-ST. Â",,
· Target Corporation India Pvt. Ltd. Vs CCE, Bangalore, Final Order No.20008/2021 dated 19.01.2021. Â",,
· Commissioner of Service Tax Vs Arvind Mills Ltd., 2014-TIOL441-HC-AHM-ST.",,
On the other hand, learned AR reiterated the findings of the impugned order.",,
After considering the submissions of both the parties and perusal of the material on record as well as the perusal of various decisions relied upon by,,
the appellant cited supra, we think that before we answer the question involved in the present case, it is pertinent to examine and analyse the relevant",,
definitions involved in the present case which are reproduced herein below:,,
Section 65 â€" definitions â€",,
(105) “taxable service†means any service provided or to be provided, -",,
(k) to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or",,
otherwise, in any manner;",,
Explanation. â€" For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, recruitment or supply of",,
manpower includes services in relation to pre-recruitment screening, verification of the credentials and antecedents of the candidate and",,
authenticity of documents submitted by the candidate;,,
6.1. Further, we note that the scope of ‘Manpower Recruitment or Supply Agency’ service has been explained by Circular F.No. B1/6/2005-",,
TRU dated 27.07.2005 as follows:,,
22.3 In these cases, the individuals are generally contractually employed by the manpower supplier. The supplier agrees for use of the",,
services of an individual employed by him to another person for a consideration. The terms of the individual’s employment may be laid,,
down in a formal contract or letter of appointment or on a less formal basis. What is relevant is that the staff are not contractually employed,,
by the recipient but come under his direction.â€,,
6.2. Further, for the period post July 2012, the nomenclature bases classification of service tax was done away with and ‘service’ was",,
specifically defined under Section 65B (44) of the Finance Act, 1994. Clause 44 of Section 65B read as:",,
(44) “service†means any activity carried out by a person for another for consideration, and includes a declared service, but shall not",,
includeâ€",,
(a) an activity which constitutes merely,â€"",,
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or",,
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the",,
Constitution; or,,
(iii) a transaction in money or actionable claim;,,
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;,,
(c) fees taken in any Court or tribunal established under any law for the time being in force.,,
6.3. Further, after examining the various definitions cited supra, we find that in order to classify any service under the manpower recruitment or supply",,
agency service the following conditions need to be satisfied:,,
i. The agency must be any person,,
ii. It must be engaged in providing a specified service,,
iii. The specified service is recruitment or supply of manpower,,
iv. The service can be provided ‘temporarily or otherwise’,,
v. The service may be provided directly or indirectly,,
vi. The service may be provided in any manner,,
vii. The service must be provided to any other person,,
6.4. Further, we find that identical issue was decided by this Tribunal in the case of Target Corporation India Ltd. cited supra relied upon by the",,
appellant, it is pertinent to reproduce the relevant findings which are contained in Para 7.4 onwards:",,
7.4. Further, we find that the definition of “Manpower Recruitment or Supply Agency†seeks to bring under its ambit, two types of",,
activities i.e. recruitment of manpower and supply of manpower and further the service becomes the taxable service only if provided by a,,
manpower recruitment or supply agency but in the present case, we are concerned only with the supply of manpower. Further, we find that",,
post July 2012, the definition of service specifically incorporated seeks to exclude certain transactions from the ambit of service and",,
provision of service by an employee to the employer in the course of or in relation to his employment stands excluded from the definition of,,
service. We also note that the legal position post negative list regime does not make any departure from the settled position of law as existed,,
before 2012 with respect to the service tax implications on deputation of employees. In fact, the above exclusion in the definition of service",,
amplifies the position of law to keep employees providing service to the employer in the course of their employment out of the purview of,,
service tax. We have also examined the agreements entered into by the appellant with a group company which are specifically for provision,,
of certain specialized services and are not related to ‘supply of manpower’ which is evident from various clauses in the Agreements,,
and we also find that group companies are not in the business of supplying manpower. Further, we find that the persons seconded to the",,
appellant working in the capacity of employees and payment of salaries etc is made to such employees by group companies only for,,
disbursement purposes and hence employeeemployer relationship exist and such an activity cannot be termed as “manpower recruitment,,
or supply agency†and the whole arrangement between the appellant and its group companies does not fall under the taxable service of,,
manpower recruitment or supply agency service as defined under the Finance Act, 1994. We also find that there is no service provider-",,
recipient relationship in the present case, as required by Section 65(105)(k). This issue is no more res integra and has been settled by",,
various decisions of the Tribunals and the High Courts and upheld by the Hon’ble Apex Court. We may refer to few of the decisions, in",,
the case of Honeywell Technology Solutions Pvt. Ltd. Vs CST, Bangalore, 2020-TIOL-1277-CESTAT-BANG wherein recently this Tribunal",,
based on identical set of facts set aside the demand in as much as there was a distinct employee-employer relationship between the seconded,,
employee and the assessee. We also hold that method of disbursement of salary cannot determine the nature of the transaction and this issue,,
was considered in the case of M/s. Volkswagen India Pvt. Ltd. v. CCE, Pune-I reported in 2014 (34) S.T.R. 135 (Tri. - Mumbai) which has",,
been upheld by the Hon’ble Apex Court in the case of Commissioner Vs Volkswagen India (Pvt.) Ltd. - 2016 (42) S.T.R. J145 (S.C.). We,,
also find that in the case of Computer Sciences Corporation India Pvt. Ltd. v. Commissioner of Service Tax, Noida reported in 2014-TIOL-",,
434- CESTAT DEL as affirmed by Commissioner of Central Excise v. M/s Computer Science Corporation India Pvt. Ltd. 2015 (37) S.T.R. 62,,
(All.) wherein the facts of the case were similar to the present case. The Hon’ble High Court of Allahabad has dealt with the said issue,,
and has held as under:,,
“8.In the present case, the Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by",,
a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained",,
from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the",,
employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also",,
required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the",,
employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service",,
involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical,,
requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise.â€",,
Further, the Hon’ble High Court of Gujarat in the case of Commissioner of Service Tax Vs Arvind Mills Ltd, 2014(35) STR",,
496=2014-TIOL-441-HC-AHM-ST has held that even if the actual cost incurred by appellant in terms of salary remuneration and,,
perquisites is only reimbursed by group of companies, there remains no element of profit or finance benefit. The arrangement is that of the",,
continuous control and the direction of the company to whom the holding company has deputed the employee, such an arrangement is out",,
of the ambit to be called manpower supply service. This Tribunal also in an identical case decided by Final Order No. 70436/2019,,
dated11.10.2019 by relying upon the case of Volkswagen India Pvt. Ltd. Vs. CCE, Pune-I -2014 (34) STR 135(Tri.-Mumbai) and the above",,
discussed case law has held that the expatriates working under the assessee are the employees of the assessee as there is an employer-,,
employee relationship. As such, there is no supply of manpower service which is rendered to the appellant by the foreign/holding company.",,
Further, in the case of M/s India Yamaha Motor (supra) the Division Bench of this Tribunal by relying upon the decision of Computer",,
Science Corporation India Pvt. Ltd and CST Vs Arvind Mills Ltd came to the conclusion that in the case of seconded employees, service tax",,
is not leviable under the category of manpower recruitment or supply of manpower service. Further, the Division Bench of this Tribunal",,
recently in the case of Northern Operating Services Pvt. Ltd. Vide Final Order No. 20852-20854/2020 dated 23.12.2020 has allowed the,,
appeal of the assessee and set aside the demand raised by the Department under the category of manpower recruitment or supply agency,,
service.,,
In view of our discussion above and by following the ratio of various decisions relied upon by the appellant, we are of the considered view that the",,
impugned order is not sustainable in law and hence we set aside the same by allowing the appeal of the appellant.,,
(Order pronounced in the open court on 18/02/2021),,