2017 (6) TMI 1028 - AT - Service Tax

Manpower supply service - deployment of employees by the Japanese Company to their project office in India - whether or not the appellants are liable to pay service tax as a recipient of taxable service in terms of Section 66A? - Held that - the appellants are an establishment in India and the provisions of Section 66A is made applicable to any permanent establishment in India. Section 66 A (2) Explanation 1, clearly stipulates that a person carrying on a business through a branch or agency in any country to be treated as having business establishment in that country. Admittedly, the appellants are a branch of Japanese company, undertaking the project work in India. As such, we hold that the appellants are covered by the provisions of Section 66A for any tax liability, on reverse charge basis, when such taxable services were received from outside India. The deputation of employees within the company cannot be considered as supply of manpower. Further, the Japanese company is not shown to have been engaged in the activity of manpower recruitment or supply services. In these factual situations, we find that the liability of the appellant on such tax entry cannot be held as legally sustainable. Determination of consideration for taxable services - amount debited to the books of accounts - Held that - The transaction in the present case is not between two associated enterprises. There is nothing on the record to indicate that the branch project office in India can be considered as an associated enterprise of Japanese company. The admitted facts are that the appellant is a branch project office of the Japanese company and not an associated enterprise of the Japanese company. The above said explanation will cover only transactions between associated enterprises as clarified by the Board vide letter dated 29.02.2008. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of Section 66A of the Finance Act, 1994 to a branch office of a Japanese company in India.
2. Whether the deployment of employees by the Japanese Company to their project office in India amounts to taxable activity of 'manpower supply service'.
3. Tax liability of the appellant regarding the consideration shown as a debit in the books of account.
4. Interpretation of Section 67(2) Explanation-(c) in relation to the transaction between the branch office and the head office of the Japanese Company.

Analysis:
1. The Tribunal deliberated on the applicability of Section 66A to the appellant, a branch office of a Japanese company in India. It was established that the appellant's status as a branch undertaking project work in India falls under the purview of Section 66A, making them liable for tax on reverse charge basis for services received from outside India.

2. The issue of whether the deployment of employees by the Japanese Company to their project office in India constitutes 'manpower supply service' was examined. The Tribunal concluded that such internal employee deputation does not amount to 'manpower supply service', especially since the Japanese company was not engaged in manpower recruitment or supply activities.

3. The tax liability of the appellant concerning the consideration shown as a debit in their books of account was thoroughly analyzed. The Tribunal found that the appellant did not pay any amount to the Japanese parent company for the deputation of employees, and the salaries were merely shown as debits for compliance with Indian laws, indicating that the tax entry was not legally sustainable.

4. Regarding the interpretation of Section 67(2) Explanation-(c) concerning the gross amount debited in the appellant's accounts, the Tribunal clarified that this provision applies to transactions between associated enterprises. Since the appellant was a branch project office and not an associated enterprise of the Japanese company, the explanation did not cover their transaction, rendering the impugned orders legally unsustainable.

In conclusion, the Tribunal set aside the impugned orders and allowed the appeals based on the detailed analysis of the issues involved, emphasizing the legal aspects and factual circumstances of the case.