2021 (2) TMI 1022 - AT - Service Tax

Manpower Recruitment or Supply Agency Service - seconded employees - demand on the ground that the appellants have not paid service tax on receipt of Manpower Supply Service and had not complied with the conditions prescribed in Notification No. 12/2013-ST dated 01.07.2013 - HELD THAT - In order to classify any service under the manpower recruitment or supply agency service the following conditions need to be satisfied i. The agency must be any person ii. It must be engaged in providing a specified service iii. The specified service is recruitment or supply of manpower iv. The service can be provided temporarily or otherwise v. The service may be provided directly or indirectly vi. The service may be provided in any manner vii. The service must be provided to any other person. An identical issue was decided by this Tribunal in the case of Target Corporation India Ltd. 2021 (1) TMI 712 - CESTAT BANGALORE where it was held that in the case of seconded employees, service tax is not leviable under the category of manpower recruitment or supply of manpower service. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved
1. Classification of services under "Manpower Recruitment or Supply Agency Service."
2. Existence of employer-employee relationship.
3. Reimbursement of expenses and its implications.
4. Applicability of service tax on seconded employees.
5. Interpretation of relevant legal definitions and precedents.

Detailed Analysis

1. Classification of Services under "Manpower Recruitment or Supply Agency Service"
The core issue was whether the services provided by the parent company to the appellant could be classified under "Manpower Recruitment or Supply Agency Service." The appellant argued that the parent company was not in the business of supplying manpower and that the reimbursement was made at actual costs without any markup. The Tribunal found that the parent company merely seconded employees to the appellant and was not acting as a provider of manpower. The appellant had the authority over the selection, direction, and termination of the seconded employees, indicating an employer-employee relationship rather than a service provider-recipient relationship.

2. Existence of Employer-Employee Relationship
The Tribunal examined various clauses of the Secondment Agreement and Letters of Assignment and Employment, which established that the seconded employees were under the exclusive employment of the appellant during the secondment period. The appellant had the final authority on selection, direction, control, supervision, and termination of the seconded employees. The employees were deemed to be the employees of the appellant company, and the parent company did not assume any rights over them during the secondment period. This clearly indicated an employer-employee relationship, which is excluded from the definition of "service" under Section 65B(44) of the Finance Act, 1994.

3. Reimbursement of Expenses and Its Implications
The appellant reimbursed the parent company for the remuneration paid to the seconded employees, including salary, bonus, social security contributions, and other benefits, at actual costs without any markup. The Tribunal noted that the reimbursement was made for administrative convenience and did not include any profit element. This further supported the argument that the parent company was not providing a taxable service but merely facilitating the payment of salaries.

4. Applicability of Service Tax on Seconded Employees
The Tribunal relied on various precedents, including decisions in the cases of Airbus Group India Pvt. Ltd., Taisei Corporation, and Volkswagen India Pvt. Ltd., which held that secondment of employees does not constitute a "service" under the Finance Act, 1994. The Tribunal also noted that the method of disbursement of salary does not determine the nature of the transaction. The legal position post-July 2012, which introduced the negative list regime, did not change the settled law that services provided by an employee to an employer in the course of employment are not subject to service tax.

5. Interpretation of Relevant Legal Definitions and Precedents
The Tribunal examined the definitions of "taxable service" and "Manpower Recruitment or Supply Agency Service" under Section 65(105)(k) and Section 65(68) of the Finance Act, 1994. It also considered the Circular F.No. B1/6/2005-TRU dated 27.07.2005, which explained the scope of "Manpower Recruitment or Supply Agency Service." The Tribunal found that the parent company did not meet the criteria of an agency engaged in the business of supplying manpower. The Tribunal also referred to various decisions, including those of the High Courts and the Supreme Court, which consistently held that seconded employees working under the control of the appellant do not constitute "Manpower Recruitment or Supply Agency Service."

Conclusion
The Tribunal concluded that the impugned order was not sustainable in law and set aside the same, allowing the appeal of the appellant. The Tribunal emphasized that the seconded employees were under the exclusive employment of the appellant, and there was an employer-employee relationship, which is excluded from the definition of "service" under the Finance Act, 1994. The reimbursement of expenses was at actual costs without any markup, and the parent company was not in the business of supplying manpower. Therefore, the appellant was not liable to pay service tax under the category of "Manpower Recruitment or Supply Agency Service."