2021 (3) TMI 465 - AT - Service Tax

Manpower supply service - amounts paid as salaries to the employees of the parent company working with the appellant - staff and experts are sent by the parent overseas company to the Indian subsidiary on secondment - salaries paid by the Indian company to the employees after deducting the statutory amounts, such as, Provident Fund, TDS etc.- whether such an arrangement amounts to the parent company supplying manpower supply services to the Indian subsidiary or not? - Extended period of limitation - HELD THAT - This issue has been decided by various benches of this Tribunal in the case of M/S VOLKSWAGEN INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2013 (11) TMI 298 - CESTAT MUMBAI , M/S NISSIN BRAKE INDIA PVT. LTD. VERSUS CCE, JAIPUR I 2018 (5) TMI 1223 - CESTAT NEW DELHI , SPIRAX MARSHALL P. LTD., FORBES MARSHALL P. LTD. J.N. MARSHALL P. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE I 2015 (11) TMI 978 - CESTAT MUMBAI and COMPUTER SCIENCES CORPORATION INDIA PVT LTD. VERSUS COMMISSIONER OF SERVICE TAX, NOIDA 2014 (4) TMI 252 - CESTAT NEW DELHI . Thus, it is now a settled legal position that in an arrangement like this, the deputed employees will be working as employees of the Indian company. The parent company is not supplying manpower to Indian company. Therefore, no service tax is payable under Reverse Charge Mechanism by the Indian company on the salaries, etc. paid to the deputed employees. No reason to hold that this arrangement is supply of manpower by the parent company to the appellant - the demand, interest and penalty imposed and the impugned order cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Whether the appellant is liable to pay service tax under Reverse Charge Mechanism for receiving "Manpower supply service" from their parent organization.
2. Whether the extended period of limitation was justified in invoking Section 73(1).
3. Whether the penalty imposed under Section 78 was valid.

Analysis:

1. The appellant, a subsidiary of a Japanese company, employed experts from the parent organization on secondment basis. The audit team alleged that this constituted the parent organization supplying manpower to the appellant, making the latter liable for service tax under Reverse Charge Mechanism. A show cause notice was issued, leading to the confirmation of demand, interest, and penalty by the Commissioner. The appellant contended that previous decisions by the Tribunal and Supreme Court established that such arrangements did not amount to the parent company supplying manpower, citing cases like Volkswagen India, Nissin Brake India, and Spirax Marshall. The Tribunal agreed with the appellant, holding that the deputed employees worked as the Indian company's staff, and no service tax was payable under Reverse Charge Mechanism on their salaries. The impugned order was set aside, and the appeal was allowed.

2. The appellant challenged the invocation of the extended period of limitation, arguing that it was not justified under the proviso to Section 73(1). The Tribunal did not find merit in this argument, as the main issue revolved around the nature of the services provided by the parent organization, not the limitation period. The Tribunal's decision to set aside the demand was based on the substantive issue of whether the parent company supplied manpower, rendering the question of limitation secondary.

3. The penalty imposed under Section 78 was contested by the appellant, claiming that the necessary elements for penalty imposition were absent. The Tribunal did not delve deeply into this issue as it found in favor of the appellant on the primary issue regarding the nature of services provided. Since the demand itself was set aside due to the absence of a taxable service, the question of the validity of the penalty became moot. The Tribunal's decision to allow the appeal and set aside the impugned order encompassed the annulment of the penalty as well.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the arrangement of experts on secondment did not constitute the parent company supplying manpower to the appellant. Therefore, no service tax was payable under Reverse Charge Mechanism. The decision also addressed the issues of limitation and penalty, ultimately setting aside the demand, interest, and penalty imposed by the Commissioner.