2019 (9) TMI 1408 - AT - Service Tax

Reverse Charge Mechanism - Manpower Recruitment or Supply Agency Service - deployment of the employees - appellant had incurred expenditure in foreign exchange towards payment of salary to the employees - HELD THAT - The role of the man power recruitment or supply agency is confined to the area of recruitment or supplying of the man power to cater to the requirements to the service recipient. The man power supplied to the recipient of service is under the control and supervision of the agency, who deploys the same as per the directions of the recipient of service. Further, the agency has no obligation to pay the salary and other charges to the man power deployed by it. Considering the scope and ambit of the definition of Man Power Recruitment or Supply Agency Service , the CBEC vide Circular No.B1/6/2005-TRU dt. 27.7.2005 has clarified that in order to be categorized under such taxable service, the relevant aspect for consideration is that the staff are not contractually employed by the recipient, but come under his direction. On perusal of the contract entered into between both the sides, we find that there is no existence of service provider-service recipient relationship. Further, the appellant had also separately entered into contract with the employees deputed by the group companies, providing for payment of salary and other benefits. Mere transfer of fund on security reason for the benefit of the family of the employees based in abroad cannot create the tax liability under such category of taxable service. It is not the case of Revenue that over and above the amount paid to the employees or their families, any other additional amounts were charged by the overseas entities or paid by the appellant towards such deployment of the employees. Thus, under such circumstances, it cannot be said that the overseas group companies have provided the service of recruitment or supply of man power and the appellant should be liable to pay service tax as a recipient of such service under the reverse charge mechanism. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant is liable to pay service tax under reverse charge mechanism for the deployment of employees from parent companies?
2. Whether the activities undertaken by the foreign group companies can be considered as taxable service under 'Manpower Recruitment or Supply Agency Service'?

Analysis:

Issue 1:
The appellant, engaged in manufacturing dump trucks, entered into secondment agreements with parent companies for deployment of employees, incurring foreign exchange expenditure. The department considered this a taxable service under 'Manpower Recruitment or Supply Agency Service'. The adjudicating authority held the appellant liable for service tax under reverse charge mechanism. The appellant contended that no taxable service was provided by group companies, citing lack of service provider-recipient relationship and absence of additional charges. The Tribunal analyzed relevant statutory provisions and past decisions, emphasizing that the agency supplying manpower controls and supervises the deployed staff. Since no specific agreement existed between the appellant and overseas companies for manpower supply, and the appellant separately contracted with the deputed employees, the Tribunal concluded no taxable service was provided. Citing precedents, the Tribunal ruled in favor of the appellant, overturning the impugned order.

Issue 2:
The Tribunal scrutinized the definition of 'Manpower Recruitment or Supply Agency Service' under the Finance Act, 1994, emphasizing the agency's role in recruitment and supervision of manpower under the recipient's direction. The absence of a service provider-recipient relationship between the appellant and overseas companies was noted. The Tribunal highlighted that the mere transfer of funds for employee benefits did not create tax liability under the taxable service category. Relying on precedents, the Tribunal held that deputed employees under the appellant's control cannot be considered a taxable service. The Tribunal's decision aligned with previous rulings, emphasizing that social security contributions by the holding company for expatriate employees do not establish a recruitment or supply relationship. Consequently, the Tribunal found no merit in the adjudicating authority's order, allowing the appeal in favor of the appellant.