2013 (10) TMI 340 - AT - Service Tax

Manpower Supply Service Held that - From the agreement it appears that the employees deputed by TPSC were actually appointed by the appellant in India and a portion of their salary which was required to be delivered in their home country was paid to the employee by the Japanese counterpart and this was reimbursed on actual basis - We also find that the reliance of the appellant on the decisions in the case of ITC Ltd. 2012 (7) TMI 744 - CESTAT, NEW DELHI and in the case of M/s. Bain & Company India Pvt. Ltd. Versus CST, DELHI 2012 (6) TMI 524 - CESTAT, NEW DELHI was also appropriate - one of the features of manpower supply service was that the salary of the persons supplied was paid by the manpower supply agency in full and payment by the service receiver was made to the supplier of the service and not to the employee - This significant feature does not appear to be in existence in the present case - Under these circumstances, the appellant had made a prima facie case for waiver and accordingly the requirement of pre-deposit was waived and stay against recovery granted during the pendency of appeal Stay granted.

Summary

Issues:
1. Whether the deputation of employees by a foreign company to an Indian company amounts to manpower supply service requiring payment of service tax.
2. Whether the appellant is liable to pay service tax on the deputation of employees from a foreign company.
3. Whether the appellant is eligible to avail CENVAT credit for service tax paid on such services.
4. Whether penalties under Sections 75, 76, and 77 of the Finance Act 1994 are justified.

Analysis:

1. The appellant company entered into an agreement with a foreign company for deputation of employees to work in India. The issue was whether this arrangement constituted manpower supply service, attracting service tax liability. The appellant argued that the deputed employees became their own employees and the payment made to the foreign company was for administrative convenience. The Tribunal examined the agreement and found that the employees deputed by the foreign company were actually appointed by the appellant in India. The Tribunal also noted that the salary paid to the employees' home country was reimbursed by the Japanese counterpart on an actual basis. The Tribunal referred to previous decisions and highlighted that the significant feature of manpower supply service is the payment of the employees' salary by the manpower supply agency, which was not the case here. Consequently, the Tribunal held that the appellant made a prima facie case for waiver of the service tax liability, and the requirement of pre-deposit was waived.

2. The appellant contended that even if the deputation of employees was taxable, it would be revenue-neutral as they could avail CENVAT credit for the service tax paid. The Tribunal acknowledged this argument and considered it in conjunction with the nature of the deputation arrangement. Since the Tribunal found that the deputation did not constitute manpower supply service, the question of service tax liability and the eligibility for CENVAT credit became intertwined. The Tribunal's decision to waive the pre-deposit requirement also indirectly addressed the issue of service tax liability on the deputation of employees.

3. The imposition of penalties under Sections 75, 76, and 77 of the Finance Act 1994 was also a subject of consideration. The Tribunal's decision to waive the pre-deposit requirement and grant a stay against recovery during the appeal process indicated a favorable view towards the appellant's case. By waiving the pre-deposit, the Tribunal implicitly acknowledged that the appellant had raised substantial arguments against the imposition of penalties. However, the judgment did not provide explicit reasoning or analysis regarding the justification for or against the penalties imposed. The focus of the Tribunal's decision primarily revolved around the nature of the deputation arrangement and the applicability of service tax.

4. In conclusion, the judgment by the Appellate Tribunal CESTAT Bangalore addressed the issues surrounding the deputation of employees from a foreign company to an Indian company, the service tax liability arising from such deputation, the eligibility for CENVAT credit, and the imposition of penalties under the Finance Act 1994. The Tribunal's analysis primarily focused on the nature of the deputation arrangement, emphasizing the distinction between manpower supply service and employee deputation. The decision to waive the pre-deposit requirement signaled a favorable stance towards the appellant's arguments, indicating a prima facie case for waiver of service tax liability.