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2021 (10) TMI 1171 - AT - Service TaxLevy of penalty u/s 78 of FA - Non-payment of service tax - services received from abroad, but service tax not paid - Online Information Database Access and Retrieval service - Consulting Engineer services - demand of service tax on Manpower Recruitment or Supply Agency Service - Management, Maintenance and Repair service - reverse charge mechanism - Section 66A of the Finance Act, 1994 - HELD THAT - The question as to whether service tax has to be paid under reverse charge mechanism prior to the introduction of Section 66A in the Finance Act, 1994 was debated before various forums. In the case of INDIAN NATIONAL SHIPOWNERS ASSOCIATION VERSUS UNION OF INDIA 2008 (12) TMI 41 - BOMBAY HIGH COURT , the Hon ble Bombay High Court held that only with effect from 19.04.2006, service recipients are liable to service tax under reverse charge mechanism. It is also to be noted that even if the appellant pays service tax, they would be eligible for the credit and the situation is entirely revenue-neutral. The appellant has paid service tax along with interest - Taking into consideration all these aspects, it is opined that the penalties cannot sustain and the same require to be set aside - penalties set aside. Demand of service tax - Manpower Recruitment or Supply Agency Service - HELD THAT - The parent company has deputed its employees to work in the appellant s factory for doing after-sales work and other related works. It is seen in para 2.3 of the agreement that the payment made by the appellant to the parent company is nothing but part of the salary. We do not find any payment of consideration towards rendering of Manpower Recruitment or Supply Agency Service. The appellant company and the parent company being of same group, the secondment employees cannot be said to have been recruited by the parent company to the appellant company. Once the employees are deputed to the appellant, the appellant would enter into individual contract for employment with such employees. A part of the salary that is to be paid to these employees is paid to the parent company in foreign currency for payment to their families. The said amount is not a consideration for services of man power recruitment - the payment made to the foreign company which has been subjected to service tax under Manpower Recruitment or Supply Agency Service cannot sustain - demand set aside. Demand under Management, Maintenance and Repair service - HELD THAT - From the agreement, it can be seen that agreement is entered between parties for marketing, sales promotion and products support service activities undertaken by KIPL for Komatsu Construction and Mining Equipment sold in Indian market by the foreign company - since the essential character of the agreement is marketing and sales promotion, the activity has to be classified under Business Auxiliary Service . In the case of BAS, as the recipient is situated outside India, such services are to be treated as Export of Service - the demand under Management, Maintenance and Repair Service cannot sustain. The impugned order is modified to the extent of setting aside demands under the category of Manpower Recruitment or Supply Agency Service , Management, Maintenance and Repair Service - demands under Consultancy Engineering Service and Online Database Access and Retrieval Services are upheld along with interest. However, penalties imposed under these services are set aside - Appeal allowed in part.
Issues Involved:
1. Demand of service tax under "Manpower Recruitment or Supply Agency Service". 2. Demand of service tax under "Management, Maintenance and Repair Service". 3. Penalties under "Consulting Engineering Service" and "Online Information and Database Access and Retrieval Service". Issue-wise Detailed Analysis: 1. Demand of Service Tax under "Manpower Recruitment or Supply Agency Service": The appellants entered into a Secondment Agreement with their parent companies for the deputation of employees to work in the appellant’s factory. The department alleged that payments made to the parent companies fell under "Manpower Recruitment or Supply Agency Service" as defined under Section 65(105)(k) read with Section 65(68) of the Finance Act, 1994. The Tribunal observed that the agreement was for the secondment of service engineers, and the payments made were part of the salary, not for manpower recruitment services. The Tribunal referenced previous cases, including Ivanhoe Cambridge Investment Advisory India (P) Ltd. vs CST Delhi and Nortel Networks (I) Pvt. Ltd. vs CST New Delhi, which established that secondment of employees does not constitute manpower supply. Consequently, the demand under this category was set aside. 2. Demand of Service Tax under "Management, Maintenance and Repair Service": The agreement between the appellant and the foreign company was primarily for marketing, sales promotion, and product support services for Komatsu construction and mining equipment sold in India. The Tribunal noted that the main activity was marketing and sales promotion, with after-sales service being incidental. Citing Section 65A(2)(b) of the Finance Act, 1994, which deals with the classification of composite services, the Tribunal concluded that the essential character of the service was "Business Auxiliary Service". Since the service recipient was outside India, it qualified as "Export of Service" under Rule 3(1)(iii) of the Export of Service Rules, 2005, and was not taxable in India. The Tribunal relied on similar cases, including CST vs Life Care Medical Systems, and set aside the demand under this category. 3. Penalties under "Consulting Engineering Service" and "Online Information and Database Access and Retrieval Service": The appellants did not contest the service tax liability for these services but challenged the penalties imposed under Section 78 of the Finance Act, 1994. The Tribunal acknowledged that the liability to pay service tax under reverse charge mechanism was debated before various forums and was only clarified with the introduction of Section 66A of the Finance Act, 1994. Given that the appellant had paid the service tax along with interest and the situation was revenue-neutral, the Tribunal found that the penalties could not be sustained and set them aside. Conclusion: The Tribunal modified the impugned order by setting aside the demands under "Manpower Recruitment or Supply Agency Service" and "Management, Maintenance and Repair Service". The demands under "Consulting Engineering Service" and "Online Information and Database Access and Retrieval Service" were upheld along with interest, but the penalties imposed under these services were set aside. The appeal was partly allowed with consequential reliefs.
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