2020 (9) TMI 432 - AT - Service Tax

Principles of Estoppel - levy of service tax in respect of payments of salary to expats - Nature of transaction between Appellant and its Parent Company - Deduction of TDS by the Appellant from remuneration paid - employer-employee relationship or not - Demand of service tax alongwith interest and penalties - receipt of services from Canon Inc. Japan (Foreign Company) - reverse charge mechanism - period 01.04.2015 to 30.06.2017 - Difference of Opinion - Matter referred to Third Member. HELD THAT - In view of the difference in opinion as stated in the order of proposed by the learned brother Member (Judicial) matter is referred to the Hon ble President for resolving the difference between the two members of the bench - Following question is proposed for reference to third member i. Whether in view of the para 4.17 of the order proposed by Member (Technical), Member (Judicial) is correct in making the observation to effect that the decision of Delhi Bench which as per him are contrary to the view being taken in this case have not been considered in the order proposed by Member (technical) ii. Whether in view of the observations made by Member (Judicial) matter needs to be referred to larger bench or in view of para 4.17 of the order proposed by the Member (Technical) appeal needs to be dismissed.

Summary

Issues Involved:
1. Issue Estoppel
2. Issue Not Res-integra
3. Nature of Transaction Between Appellant and Parent Company
4. Deduction of TDS and Employer-Employee Relationship
5. Interest
6. Penalty Under Section 76 and 77 of Finance Act, 1994

Detailed Analysis:
1. Issue Estoppel:
The appellants argued that the issue of service tax on salary payments to expatriates had been settled in their favor for previous periods, and thus, reopening the issue for subsequent periods would be barred by the principle of "Issue Estoppel." However, the tribunal held that estoppel does not operate against a statute, especially in fiscal matters. The tribunal cited several Supreme Court decisions, including Elson Machinery and Palsmac Manufacturing, which established that previous approvals do not prevent the department from revising classifications or demands if the law requires it. Therefore, the tribunal rejected the appellants' argument on estoppel.

2. Issue Not Res-integra:
The appellants contended that the issue was already settled in their favor by various tribunal decisions for periods before July 2012, arguing that the services provided by expatriates did not qualify as "Manpower Supply Services." However, the tribunal clarified that the scheme of taxation of services changed post-01.07.2012 with the introduction of Section 65B(44) and 65B(51) in the Finance Act, 1994. Therefore, the decisions for periods before July 2012 were not applicable to the current case. The tribunal concluded that the issue was not res-integra and needed to be examined under the new provisions.

3. Nature of Transaction Between Appellant and Parent Company:
The tribunal examined the nature of the transaction between the appellant and its parent company. It analyzed documents like the International Assignment Letter and the cost reimbursement agreements, which indicated that expatriates were employees of the foreign company and were temporarily transferred to the appellant. The tribunal noted that the services provided by expatriates could not be considered as services provided by an employee to an employer under the exclusion clause of Section 65B(44) of the Finance Act, 1994. Therefore, the tribunal held that these services were taxable.

4. Deduction of TDS and Employer-Employee Relationship:
The appellants argued that the deduction of TDS on remuneration paid to expatriates established an employer-employee relationship. However, the tribunal referred to the Supreme Court decision in GVK Industries, which held that liability to income tax and TDS deduction is based on the source rule and does not conclusively prove an employer-employee relationship. The tribunal also noted that the deduction of TDS was in accordance with FEMA regulations and could not be considered as evidence of an employer-employee relationship. Thus, the tribunal rejected this argument.

5. Interest:
The tribunal upheld the demand for interest on the unpaid service tax under Section 75 of the Finance Act, 1994. It cited several decisions, including P V Vikhe Patil SSK and Kanhai Ram Thakedar, which established that interest is for the delay in payment of tax from the due date. Since the appellants failed to pay the service tax by the due date, the interest demanded was justified.

6. Penalty Under Section 76 and 77 of Finance Act, 1994:
The tribunal upheld the penalties imposed under Sections 76 and 77 of the Finance Act, 1994. It noted that penalties under Section 77 are civil in nature and imposed for infractions noticed. The tribunal referred to the Supreme Court decision in Gujarat Travancore Agency, which held that penalties serve as a deterrent and do not require proof of mens rea. The tribunal also upheld the penalty under Section 76, citing the Kerala High Court decision in Krishna Poduval, which held that penalties under Sections 76 and 78 are distinct and can be imposed separately.

Separate Judgment by Member (Judicial):
The Member (Judicial) disagreed with the decision of the Member (Technical) and cited decisions of the Principal Bench of Delhi in Mikuni India Pvt. Ltd. and India Yamaha Motor Private Limited, which held that similar services were not liable to service tax post-01.07.2012. The Member (Judicial) argued that the matter should be referred to a larger bench for consideration, as per the Bombay High Court decision in Mercedes Benz India Pvt. Ltd., which emphasized judicial discipline and the need for consistency in tribunal decisions.

Conclusion:
The appeals were dismissed by the Member (Technical), who upheld the demand for service tax, interest, and penalties. However, the Member (Judicial) disagreed and proposed referring the matter to a larger bench for resolution. The case was referred to the Hon'ble President for resolving the difference in opinion between the two members.