2014 (4) TMI 252 - AT - Service Tax

Levy of Service Tax on reverse charge basis Employees working in foreign holding Company - Whether Manpower recruitment or supply agency service u/s 65(105)(k) of the Finance Act, 1994 was provided by the appellant - Appellant contended that there is no supply of labour or manpower, and/or recruitment service provided by its holding company of the appellant - Merely because a part of the salary of global employee was paid in their home country through the holding/foreign company, it cannot be said that the foreign/holding company rendered supply of manpower or labour to the appellant Held that - The global employees working under the appellant are working as their employees and having employee-employer relationship - There is no supply of manpower service rendered to the appellant by the foreign/holding company - The method of disbursement of salary cannot determine the nature of transaction Order set aside Following decision of M/s VOLKSWAGEN INDIA PVT LTD Versus COMMISSIONER OF CENTRAL EXCISE 2013 (11) TMI 298 - CESTAT MUMBAI - Decided in favour of assessee. Adjustment of amount assessed - Refund already granted to assessee by preceding proceeding - Revenue adjustment assessed amount in refunds - Held that - As the assessed liability of the petitioner under the adjudication order has thus suffered a plenary eclipse, the petitioner would be entitled to refund. The petitioner is at liberty to apply for refund. When made, such application shall be disposed of by the appropriate authority, in accordance with law and expeditiously - Decided in favour of assessee.

Summary

Issues:
1. Service tax demand confirmation
2. Classification of service under Section 65(105)(k) of the Act
3. Applicability of reverse charge mechanism under Section 66A
4. Legal precedent from Volkswagen India (Pvt.) Ltd. case
5. Refund adjustment issue

Service Tax Demand Confirmation:
The appellant challenged the adjudication order confirming a service tax demand of Rs.3,78,49,744/- along with interest and penalties. The dispute arose from the classification of the service provided by the appellant as 'Man-power Recruitment or Supply Agency' service under Section 65(105)(k) of the Act. The appellant argued that expatriate employees hired by them were essentially treated as employees, and various deductions and remittances were made in compliance with Indian and foreign laws. However, the impugned order considered the remittances to overseas group companies as part of the taxable service provided by the appellant.

Classification of Service under Section 65(105)(k) of the Act:
The impugned order categorized the transaction as 'Man-power Recruitment or Supply Agency' service, leading to the tax liability. The appellant's defense was rejected, emphasizing that the remittances to overseas group companies constituted consideration for the taxable service. The dispute revolved around the nature of the relationship between the appellant and the expatriate employees, with the authorities viewing it as falling under the specified taxable service.

Applicability of Reverse Charge Mechanism under Section 66A:
The impugned order applied the reverse charge mechanism under Section 66A of the Act to tax the remittances made by the appellant to overseas group companies. This mechanism shifted the tax liability to the recipient of the service, in this case, the appellant, for payments made to non-resident entities for specified services.

Legal Precedent from Volkswagen India (Pvt.) Ltd. Case:
Both parties agreed that the issue was similar to a Final Order of the Tribunal in the Volkswagen India (Pvt.) Ltd. case. Citing the judgment in the Volkswagen case, the Tribunal allowed the appeal, quashing the impugned adjudication order. The appellant was granted relief based on the legal principles established in the Volkswagen case.

Refund Adjustment Issue:
A miscellaneous application was filed regarding the adjustment of the demand raised in the adjudication order from the refunds sanctioned to the appellant. The application challenged the legality of adjusting the refundable amounts against the confirmed service tax liability. Following the disposal of the substantive appeal and the quashing of the adjudication order, the Tribunal declared the appellant entitled to a refund. The Tribunal clarified that it was not granting a direct refund order but recognized the appellant's right to refund ex debito justitia.

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