2015 (12) TMI 420 - AAR - Service Tax

Foreign Employees on Deputation in India - Interpretation of term service - Salary payment of US Company s employee recruited - Section 65(44) - Held that - The agreement is very clear to suggest that so long as Mr. Sloan is serving in India, he will be treated to be the employee of the applicant though his interests as the employee of NAC, US, insofar as the social security interests are concerned, will be taken care of by NAC, US. It is trite that he does not get the salary from NAC, US when he is offering services to NAC, India in that behalf, the benefits are mutually exclusive, at least so far as, they are concerned with the salary. The only obligation on NAC, US is regarding the social securities which are not reimbursed by NAC, India to NAC, US - merely because the social security of Mr. Sloan while he is in India is being taken care of by the NAC, US. The service of Mr. Sloan with NAC, India can not be viewed otherwise in view of the clear language of Section 65 (44) (b). - there shall be no liability to pay service tax on the salary and the allowances payable by the applicant to the employee in terms of the dual employment agreement and such salary will not be eligible to levy the service tax as per the provisions of the Finance Act. - Decided in favour of assessee.

Summary

Issues:

1. Interpretation of the definition of service under Section 65(44) post-2012.
2. Applicability of service tax on salary paid by NAC, India to an employee on the permanent roll of NAC, US.
3. Consideration of social security payments by NAC, US in relation to the service provided by the employee to NAC, India.

Analysis:

1. The judgment by the Advance Ruling Authority delves into the interpretation of the definition of service under Section 65(44) post-2012. The applicant, a subsidiary of a US company, sought clarification regarding the applicability of service tax on the salary paid to an employee, Mr. Sloan, who was on the permanent roll of the US company but providing services to the Indian company. The Authority emphasized the need to rely on the current definition of service post-2012, which excludes services provided by an employee to the employer in the course of employment. The applicant's reliance on this exclusion provision was deemed valid by the Authority.

2. The judgment further elaborates on the agreement between the Indian company and Mr. Sloan, highlighting that all salaries of Mr. Sloan while serving in India were to be paid by the Indian company, with his social security interests taken care of by the US company. The Authority noted that there was no agreement for the reimbursement of social security interests by the Indian company to the US company. The historical treatment of such services under the past service tax regime was also discussed, emphasizing the shift in definitions post-2012 and the exclusion of employee-employer services from the definition of service.

3. The Authority addressed the argument put forth by the Departmental Representative regarding the social security payments made by the US company, contending that it constituted consideration for employing Mr. Sloan's services by the Indian company. However, the Authority disagreed, emphasizing that the service provided by Mr. Sloan to the Indian company could not be viewed differently based on the social security arrangement. The judgment dismissed the contention and clarified that the social security payments by the US company did not alter the nature of the service provided by Mr. Sloan to the Indian company.

In conclusion, the Authority allowed the application, ruling in the negative regarding the liability to pay service tax on the salary and allowances paid by the Indian company to Mr. Sloan under the dual employment agreement. The judgment emphasized the exclusion of employee-employer services from the definition of service post-2012 and clarified the non-applicability of service tax in the given scenario.