2017 (10) TMI 1439 - AT - Service Tax

Levy of service tax - payment made to the expatriate employees - employer employee relationship or not - Held that - The expatriates working under the appellant are their employees and there is an employer employee relationship and thus, there is no supply of Manpower Service which is rendered to the appellant by the foreign/Holding Company. Further, no payment was made by the appellant to the Holding Company. As the issue involved in the present matter is covered by the order of the Hon ble Allahabad High Court in CCE vs Computer Sciences Corporation India Pvt. Ltd. 2014 (11) TMI 125 - ALLAHABAD HIGH COURT , hence the service tax could not be levied on the impugned amount. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax is payable on the expenses incurred for expatriate employees.
2. Whether an employer-employee relationship exists between the appellant and the expatriates.
3. Whether the demand raised by the department is correctly computed.
4. Whether penalties imposed are justified.

Analysis:
Issue 1: The appeal centered around the question of whether service tax was payable on the expenses incurred for expatriate employees. The appellant, a motorcycle manufacturer, had expatriates appointed by its Holding Company as employees. The department raised objections regarding the payment of service tax on these expenses, leading to a show cause notice for recovery. The appellant argued that no service tax was payable on the salary paid to expatriates as they had an employer-employee relationship and no consideration was paid to the Holding Company for the services provided.

Issue 2: The Tribunal examined the nature of the relationship between the appellant and the expatriates to determine if an employer-employee relationship existed. It was established that the expatriates were indeed employees of the appellant, and there was no supply of Manpower Service from the Holding Company to the appellant. The absence of payment from the appellant to the Holding Company further supported the conclusion that no service tax could be levied on the impugned amount.

Issue 3: The appellant contested the correctness of the demand raised by the department, arguing that the computation was erroneous. They highlighted discrepancies in the calculation, such as the inclusion of contributions made to the Provident Fund for all employees, including expatriates. The Tribunal considered these arguments and found merit in the appellant's contentions, ultimately setting aside the impugned order.

Issue 4: Penalties were imposed on the appellant under Sections 77 and 78 of the Act. However, the Tribunal, after hearing arguments from both sides, concluded that the service tax demand itself was not justified due to the employer-employee relationship and the absence of payment to the Holding Company. Consequently, the penalties imposed were also set aside, and the appeal filed by the appellant was allowed. The appellant was granted consequential relief in accordance with the law, and the Miscellaneous Application was disposed of as infructuous.