2018 (4) TMI 1464 - AT - Service Tax

Manpower Recruitment and Supply Agency Services - reverse charge mechanism - Department was of the view that such employees were being paid by the foreign principal and not the appellant, and hence, MCI has supplied manpower from abroad to the appellant - Held that - this issue has been considered by the Tribunal in the case of Airbus Group India Pvt. Ltd. vs. Commissioner of Service Tax, Delhi 2016 (7) TMI 1209 - CESTAT NEW DELHI and stands decided in favor of the appellant, where reliance placed in CCE vs. Arvind Mills Ltd. (2014 (4) TMI 132 - GUJARAT HIGH COURT), the Hon ble Gujarat High Court held that deputation of employees from one company to another does not involve profit or finance benefit there is no relationship of agency and client involved in such deputation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the employees deputed from a foreign principal to work in the appellant's factory establish an employer-employee relationship with the appellant, thereby exempting them from Service Tax liability under the category of Manpower Recruitment and Supply Agency Services.

Analysis:
The case involved an appeal against an Order-in-Original confirming the demand for Service Tax under the taxable service of Manpower Recruitment and Supply Agency Services. The appellant, engaged in the manufacture of PP compounds, had employees deputed by their foreign principal, Mitsui Chemical Industries (MCI) Japan, to work in their factory. The department contended that MCI supplied manpower from abroad to the appellant, triggering the Service Tax liability. The appellant argued that an employer-employee relationship existed between them and the deputed personnel, supported by agreements and the payment of salaries and benefits by the appellant.

The appellant's advocate highlighted that there were two agreements - one between MCI and the appellant, and another governing the terms of employment for the deputed personnel. The Employee Contract indicated an employer-employee relationship between the appellant and the deputees, with salary payments and Provident Fund contributions made by the appellant. The advocate cited precedents such as Volkswagen India (Pvt.) Ltd. and Airbus Group India Pvt. Ltd. where similar issues were decided in favor of the appellant, emphasizing the absence of a manpower recruitment agency relationship.

Upon review, the Tribunal found that during the disputed period, an employer-employee relationship existed between the appellant and the deputed personnel working in their factory. The salary payments, Provident Fund contributions, and control over the deputees by the appellant supported this finding. The Tribunal referenced previous decisions to support its conclusion that the appellant did not fall under the category of Manpower Recruitment and Supply Agency Services, as the deputation did not involve a manpower supply service from foreign entities. Consequently, the impugned order demanding Service Tax was set aside, and the appeal was allowed based on the established employer-employee relationship and legal precedents.