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2020 (12) TMI 1018 - AT - Service TaxManpower recruitment or supply agency service - Non-payment of service tax - agreements entered into by the appellant with its group companies located in the USA, UK, Dublin (Ireland), Singapore etc. and provide general back office and operational support to such group companies - certain employees who were seconded to the appellant by the foreign group companies - amounts are remitted by the Appellant in foreign currency and accounted in their financial statements - Demand alongwith interest and penalty - Circular F.No. B1/6/2005-TRU dated 27.07.2005 - HELD THAT - The definition of Manpower Recruitment or Supply Agency seeks to bring under its ambit, two types of activities i.e. recruitment of manpower and supply of manpower and further the service becomes the taxable service only if provided by a manpower recruitment or supply agency but in the present case, we are concerned only with the supply of manpower. Further, it is found that after the post July 2012, the definition of service specifically incorporated seeks to exclude certain transactions from the ambit of service and provision of service by an employee to the employer in the course of or in relation to his employment stands excluded from the definition of service. Also, the legal position post negative list regime does not make any departure from the settled position of law as existed before 2012 with respect to the service tax implications on deputation of employees. In fact, the above exclusion in the definition of service amplifies the position of law to keep employees providing service to the employer in the course of their employment out of the purview of service tax. We have also examined the agreements entered into by the appellant with a group company which are specifically for provision of certain specialized services and are not related to supply of manpower which is evident from various clauses in the Agreements and we also find that group companies are not in the business of supplying manpower. The persons seconded to the appellant working in the capacity of employees and payment of salaries etc is made to such employees by group companies only for disbursement purposes and hence employee-employer relationship exist and such an activity cannot be termed as manpower recruitment or supply agency and the whole arrangement between the appellant and its group companies does not fall under the taxable service of manpower recruitment or supply agency service as defined under the Finance Act, 1994 - Also, there is no service provider-recipient relationship in the present case, as required by Section 65(105)(k). The method of disbursement of salary cannot determine the nature of the transaction and this issue was considered in the case of M/S VOLKSWAGEN INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2013 (11) TMI 298 - CESTAT MUMBAI which has been upheld by the Hon ble Apex Court in the case of COMMISSIONER VERSUS VOLKSWAGEN INDIA (PVT.) LTD. 2016 (1) TMI 1320 - SC ORDER . The Hon ble High Court of 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 an arrangement is out of the ambit to be called manpower supply service. As such, there is no supply of manpower service which is rendered to the appellant by the foreign/holding company. As far as short payment of service tax of ₹ 41,11,742 and the interest of ₹ 16,82,810 is concerned, the learned Counsel has submitted that the entire amount totaling ₹ 47,17,537/- (service tax and interest) has been paid vide GAR Challan and the challans have also been annexed but the learned Commissioner has not considered the same and appropriated the same also - For this discrepancy, matter remanded to the learned Commissioner to examine the payment of service tax paid by the appellant through various challans and thereafter determine the demand of service tax and interest due from the appellant, if any. Appeal allowed by way of remand.
Issues Involved:
1. Demand of service tax under "Manpower Recruitment or Supply Agency Service". 2. Employer-employee relationship and its implications on service tax liability. 3. Reimbursement of salaries and other expenses. 4. Invocation of extended period of limitation. 5. Eligibility of CENVAT Credit. 6. Appropriation of amounts paid by the appellant. Issue-wise Detailed Analysis: 1. Demand of Service Tax under "Manpower Recruitment or Supply Agency Service": The appellant was demanded service tax under the category of "Manpower Recruitment or Supply Agency Service" for the period from October 2006 to September 2014. The Commissioner confirmed the demand based on the interpretation that the secondment of employees from foreign group companies to the appellant constituted a taxable service under Section 65(68) read with Section 65(105)(k) of the Finance Act, 1994. The Commissioner argued that the activity involved providing skilled manpower on a temporary basis, which fell under the domain of the said service. 2. Employer-Employee Relationship and its Implications on Service Tax Liability: The appellant contended that the seconded employees were under their control and direction, creating an employer-employee relationship. The appellant issued employment letters, Form 16 for income tax purposes, and contributed to the provident fund for these employees. Therefore, the appellant argued that the arrangement did not constitute "manpower recruitment or supply agency service" as there was no service provider-recipient relationship. The Tribunal agreed with this view, citing similar cases where such relationships were deemed outside the scope of taxable services. 3. Reimbursement of Salaries and Other Expenses: The appellant reimbursed the foreign group companies for the salaries and other expenses of the seconded employees without any markup. The Tribunal noted that these reimbursements did not constitute consideration for the provision of service. The Commissioner had also observed that the remittances were reimbursements of expenses, not payments for services rendered. 4. Invocation of Extended Period of Limitation: The Department invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, arguing that the non-payment of service tax was discovered only during an audit. The appellant countered that there was no intention to evade tax as the tax paid would be available as credit. The Tribunal did not find sufficient grounds for invoking the extended period. 5. Eligibility of CENVAT Credit: The Commissioner had questioned the appellant's eligibility for CENVAT credit, stating that the appellant did not furnish sufficient evidence. The Tribunal did not delve deeply into this issue but noted the appellant's argument that the entire amount of service tax and interest had been paid and should be appropriated. 6. Appropriation of Amounts Paid by the Appellant: The appellant claimed that they had paid the service tax and interest totaling ?47,17,537/- through GAR-7 challans, but these payments were not appropriated by the Commissioner. The Tribunal remanded the matter to the Commissioner to verify these payments and adjust the demand accordingly. Conclusion: The Tribunal allowed the appeals of the assessee, dismissing the Department's appeal. The Tribunal held that the secondment arrangement did not constitute "manpower recruitment or supply agency service" due to the employer-employee relationship and the nature of reimbursements. The matter was remanded to the Commissioner for the limited purpose of verifying and appropriating the payments made by the appellant.
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