2019 (7) TMI 772 - AT - Service Tax

Classification of services - Employees on Deputation / secondment - Supply of manpower supply service or not? - Department observed that the appellant has paid tax, on the expenses as were being paid by them to the Japanese experts/expatriates, who were deputed in their premises by their holding company M/s Yamaha Motors Company, Japan under reverse charge mechanism - demand relating to the period from 1 April, 2012 to 1 July, 2012 i.e. pre negative list period - HELD THAT - From the facts of the present case apparently and admittedly the holding company of M/s Yamaha in Japan is not a manpower supply agency. This particular observation is sufficient for us to hold that the adjudicating authority below has wrongly concluded for the impugned arrangement to be the service of manpower recruitment and supply service. Also for the reason that the contract of employment between the appellant and the Japanese experts is clear enough to express that same is a contract of employment/appointment letter calling upon the said experts into the employment of the appellant whose reporting officer has to be employee of the appellant itself. Appellant only is disbursing the Provident Fund contributions and is also deducting tax at source. These observations are sufficient to corroborate the above observations of the impugned arrangement between the appellant and the Japanese experts to be that of a service and to not to be of manpower supply service. The circular as relied upon by the department is perused to be a draft circular. There is nothing on record about the same being ever notified. For the post negative list period - HELD THAT - When the arrangement is that of relationship of employer and employee that the same is expressly excluded from the ambit of taxability. The Hon ble High Court Gujarat in the case of COMMISSIONER OF SERVICE TAX VERSUS ARVIND MILLS LTD. 2014 (4) TMI 132 - GUJARAT HIGH COURT has held that even if the actual cost incurred by appellant in terms of salary remuneration and perquisites is only reimbursed by group of companies, there remains no element of profit or finance benefit. The arrangement is that of the continuous control and the direction of the company to whom the holding company has deputed the employee such as an arrangement is out of the ambit to be called manpower supply service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the deputation of Japanese experts/expatriates by the holding company to the appellant amounts to the supply of manpower service?
2. Whether the demand for service tax for the period from 1 April 2012 to 1 July 2012 is justified?
3. Whether the demand for service tax for the post-negative list period is valid?

Analysis:
1. The issue of whether the deputation of Japanese experts/expatriates by the holding company to the appellant amounts to the supply of manpower service was examined. The appellant argued that the employees were sent under a contract of employment, with salaries reimbursed by the appellant, and thus the service cannot be categorized as manpower supply. The department relied on a circular stating that secondment arrangements fall under manpower supply. The tribunal found that the holding company was not a manpower supply agency, and the contract of employment between the appellant and the experts indicated an employer-employee relationship, not a supply of manpower service. The tribunal held that the department erred in considering the arrangement as manpower supply.

2. Regarding the demand for service tax for the period from 1 April 2012 to 1 July 2012, the tribunal analyzed the relevant provisions defining manpower recruitment and supply agency. It was observed that the holding company was not a manpower supply agency, and the employment contract clearly indicated an employer-employee relationship. The tribunal concluded that the demand for this period was unjustified as the arrangement did not fall under the category of manpower supply service.

3. For the post-negative list period, the tribunal referred to Section 65B(44) of the Finance Act 1944, which excludes the provision of service by an employee to the employer from the ambit of taxability. Citing previous judgments, the tribunal emphasized that an employer-employee relationship existed between the appellant and the experts, and the arrangement did not constitute manpower supply service. Relying on precedents and the specific legal provisions, the tribunal held that the demand for service tax for the post-negative list period was not valid. The tribunal set aside the order confirming the demand and allowed the appeal based on the analysis and legal interpretations provided.

This detailed analysis of the judgment thoroughly examines each issue involved, providing a comprehensive understanding of the tribunal's decision and the legal reasoning behind it.