2013 (11) TMI 345 - AT - Service Tax

Manpower recruitment and supply agency services - employees on deputation - waiver of pre-deposit, interest and penalty - Held that - As the applicant are deputing their employees to the other associate companies of UTI therefore has made out a strong case in their favour in view of the stay order passed by the Tribunal in the case of ITC 2012 (7) TMI 744 - CESTAT, NEW DELHI therefore, pre-deposit of the dues are waived and recovery, thereof, stayed during the pendency of the appeal - Following decision of UTI ASSET MANAGEMENT CO LTD. Versus COMMISSIONER OF SERVICE TAX, MUMBAI - I 2013 (1) TMI 405 - CESTAT MUMBAI stay granted.

Summary

Issues:
1. Whether the transaction between the Indian entity and the Italian holding-company involves the supply of labor services and is liable to service tax.
2. Whether the personnel seconded by the holding-company to the Indian entity should be considered employees of the Indian company during the deputation period.
3. Whether the method of salary disbursement, including payment through the holding-company, determines the nature of the transaction.
4. Whether the inter-company secondment agreement clarifies the relationship between the parties regarding control, direction, and payment of salaries during the deputation period.

Analysis:

Issue 1: The main issue in this case is whether the transaction between the Indian entity and the Italian holding-company constitutes the supply of labor services and is subject to service tax. The department contended that the transaction involved the supply of labor by the foreign entity to the Indian entity, leading to a demand for service tax. However, the appellant argued that the personnel seconded by the holding-company remained employees of the Indian entity during the deputation, and the salaries were paid for the services rendered, not for the supply of labor.

Issue 2: The appellant emphasized that the personnel seconded by the holding-company were considered employees of the Indian company during the deputation period. The inter-company secondment agreement clearly outlined that the international assignees were under the control, direction, and supervision of the Indian entity, working as its direct employees. This aspect was crucial in determining the nature of the relationship between the parties during the deputation.

Issue 3: The method of salary disbursement, including part of the salary being paid in Italy through the holding-company, was a point of contention. The appellant argued that the mere fact that part of the salary was remitted abroad through the Italian holding-company did not imply that the Italian company provided supply of labor services. The tribunal referred to previous decisions where the method of salary disbursement did not determine the nature of the transaction.

Issue 4: The inter-company secondment agreement played a significant role in clarifying the relationship between the parties. The agreement specified that the assignees were to work under the control, direction, and supervision of the Indian entity, with salaries to be borne by the Indian company. The tribunal, considering the clauses of the agreement, concluded that the deputation of employees within the group companies did not amount to the supply of labor services, as the assignees were functioning as employees of the Indian entity.

In conclusion, the tribunal granted waiver from pre-deposit of the dues adjudged against the appellant and stayed the recovery during the appeal period, following the decisions in similar cases where the deputation of employees within group companies did not constitute the supply of labor services.