2018 (2) TMI 1679 - AT - Service Tax

Levy of service tax - Debit entries made in the books for deployment of Officers - Revenue entertained a view that the appellant is liable to Service Tax on such consideration, on reverse charge basis in terms of Section 66A of the Finance Act, 1994 under the category of manpower recruitment or supply agency service - Held that - the appellant has not received any service to be taxed in the present situation. The debit entries are for maintaining complete financial transaction on behalf of SNC, Canada - it is clear that SNC, Canada cannot be categorized as a manpower recruitment or supply agency while involving deputing their own staff to execute their own contract in India - liability set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on expenses related to deployment of officers by a foreign entity in India.

Analysis:
The appellant, a project office of a foreign entity, was registered with the Service Tax Department and discharged service tax on the full amount paid by the client to the foreign entity. The dispute arose concerning the tax liability on expenses for deploying officers of the foreign entity in India. The Revenue contended that the appellant was liable to service tax on reverse charge basis under the category of 'manpower recruitment or supply agency service'. The original authority confirmed the service tax liability and imposed penalties under the Finance Act, 1994.

The appellant argued that the deployment of officers by the foreign entity cannot be considered as manpower supply for the appellant. They maintained that the gross amount for the project had already suffered service tax, and the expenses for officers' salary and traveling were part of executing the project, not to be taxed separately. The appellant emphasized that they were not a manpower recruitment agency and that the officers were deployed as per the contract between the foreign entity and the Indian client. The appellant cited relevant case laws to support their position.

The Revenue argued that the appellant was a separate legal entity in India and that the debit entries for officer deployments satisfied the transaction for tax. They contended that the legal fiction of the appellant's independent existence in India warranted tax liability. The Revenue distinguished the case laws cited by the appellant, emphasizing the examination of the appellant's independent existence in India in the present case.

The Tribunal noted that the appellant paid service tax on all invoices raised by the foreign entity to the client in India. Referring to a similar case, the Tribunal highlighted that income accrued to the foreign entity had already suffered tax, and expenses related to the same income could not be taxed separately. The Tribunal also addressed the issue of service tax liability under manpower supply, citing relevant decisions that clarified the concept of manpower supply agency. The Tribunal concluded that the appellant had no service to be taxed, as the debit entries were for financial transactions on behalf of the foreign entity, and the foreign entity could not be categorized as a manpower recruitment agency.

In light of the arguments and analysis, the Tribunal found the impugned order not legally sustainable and allowed the appeal, setting aside the service tax liability imposed on the appellant.