2018 (2) TMI 1407 - AT - Service Tax

Consultancy engineering service - Certain expenditure shown in the books of the appellant with reference to income and expenditure of projects in India is sought to be taxed as a consideration for consulting engineer service - Revenue entertained a view that expenditure incurred/shown in the accounts of appellant against consultancy fees and technical fees, which was further taken into account by LIL, Canada in the overall income and expenditure is liable to be taxed under the category of engineering consultancy service on reverse charge business - Held that - the whole of the income shown in the books of accounts of the appellant, though the same is accrued to LIL, Canada has suffered tax under the category of consultancy engineering service. An expenditure, which is part of the same accounting for income, cannot be taxed for the same service, even under reverse charge tax. Secondly, the appellant has no agreement or arrangement with LIL, Canada to receive any consultancy service. No such allegation has been made. LIL, Canada apparently, procured such consultancy service from various consultants, which in turn were used for rendering service to Indian clients. In fact, such services were effectively managed and utilized by LIL, Canada. This is expenditure for LIL, Canada, which is also reflected in the appellant s accounts as per the requirement. The full income on consultancy service, as already noted, has suffered Service Tax. This is an admitted fact. The expenditure to provide such service cannot be put to Service Tax even under reverse charge basis. There is no basis either on fact or law to sustain such confirmation. Manpower Supply Service - tax liability under manpower supply in respect of staff deputed by LIL to India to render the services in terms of the agreement with the Indian clients - Held that - The Hon ble Allahabad High Court in the case of Computer Science Corporation India Pvt. Ltd. 2014 (11) TMI 125 - ALLAHABAD HIGH COURT held that in such arrangement, the deputation of employee for executing work cannot be considered as a manpower supply. It was held that the employer cannot be considered as a manpower supply agency - neither the appellant nor LIL, Canada can be considered as a manpower supply agency - tax liability cannot sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of the appellant for service tax on certain expenditure related to consulting engineer services and manpower supply.

Analysis:

Issue 1: Liability for service tax on consultancy expenditure
The appellant, a project office of an international company, was under dispute for service tax liability on expenditure shown in their books related to projects in India. The Revenue claimed the appellant received consultancy services from the international company, which was reflected in their accounts. However, the appellant argued that they were not liable for service tax as per their agreement with Indian clients, where they discharged the tax liability. The Tribunal noted that the income accruing to the international company had already suffered service tax, and the expenditure for the same service could not be taxed again, even under reverse charge. Additionally, as there was no agreement for consultancy services between the appellant and the international company, the tax liability on the expenditure was deemed unsustainable.

Issue 2: Service tax liability on manpower supply
The dispute also involved service tax liability on manpower supply, where employees were deputed by the international company to work for Indian clients. The appellant contended that they did not receive any manpower supply service as the employees were utilized by the international company. The Tribunal referred to previous judgments, including one by the Allahabad High Court, which held that deputation of employees for work did not constitute manpower supply. It was established that neither the appellant nor the international company could be considered as a manpower supply agency, leading to the conclusion that the tax liability under this category was not sustainable.

In conclusion, the Tribunal found the original order unsustainable and set it aside, allowing the appeal in favor of the appellant with consequential benefits.