2022 (4) TMI 564 - AT - Service Tax

Classification of services - business of development and export of Software and Information Technology enabled support service and other auxiliary and support services - Manpower Recruitment or Supply Agency Service - Telecommunication Service - HELD THAT - As regards the demand on Manpower Recruitment or Supply Agency Service, in the appellant s own case HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX BANGALORE SERVICE TAX- I 2020 (9) TMI 7 - CESTAT BANGALORE , this Tribunal held that arrangement for availing the services of executive appointed in the appellant s company by the foreign vendor does not amount to Manpower Recruitment or Supply Agency Service. Accordingly, the demand was dropped - the demand under Manpower Recruitment or Supply Agency Service is not sustainable and hence, the same is set aside. Telecommunication Service - HELD THAT - It is undisputed fact that the service provider is located outside India in respect of service received from M/s. AT T and Genysis through data link / leased circuit. As per the definition of Telecommunication Service in Section 65(105)(zzzx) of the Finance Act, 1994, the taxable service means any service provided or to be provided to any person by the Telegraph Authority in relation to Telecommunication Service , In the present case, the service provider is located outside India. He cannot be treated as Telegraph Authority as Telegraph Authority has to be recognised by an authority of law prevailing in India, therefore, service provider cannot be treated as Telegraph Authority. Accordingly, the condition of the definition is not satisfied - In the facts of the present case, service is provided by a foreign entity will not fall under the definition of Telecommunication Service . Therefore, the appellant is not liable to pay service under Reverse Charge Mechanism. This identical issue has been considered by this Tribunal in the case of TCS E-SERVE LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI 2014 (6) TMI 655 - CESTAT MUMBAI has held that Only leased circuit services rendered by a telegraph authority is taxable and since the foreign vendor is not such an authority, the question of levy of Service Tax from the recipient of the service under reverse charge basis does not arise - in the present case, the issue is absolutely identical and the Tribunal held that the foreign service provider being not covered under the term Telegraph Authority , the service provided by them will not fall under the definition of Telecommunication Service. In the present case since the service provider is not a Telegraph Authority and the appellant being a service recipient cannot be fastened with service tax demand under Telecommunication Service. Accordingly, the demand on Telecommunication Service is also not sustainable and the same is set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Manpower Recruitment or Supply Agency Service
2. Telecommunication Service

Issue-Wise Detailed Analysis:

1. Manpower Recruitment or Supply Agency Service:
The appellant, a wholly-owned subsidiary of Honeywell International Inc. (HII), was engaged in development and export of software and IT-enabled support services. An Assignment Agreement dated 1.1.2003 facilitated the provision of managerial and technical personnel from HII to the appellant. The appellant reimbursed HII for the remuneration and expenses of these seconded employees. The adjudicating authority considered this arrangement as Manpower Recruitment or Supply Agency Service and confirmed service tax for the period from April 2007 to March 2011.

The appellant argued that a similar demand was dropped in their own previous case (Honeywell Technology Solutions Lub Pvt. Ltd. Vs. Commissioner of Service Tax, Bangalore: 2020-TIOL-1277-CESTAT-BANG), where the Tribunal held that such an arrangement does not amount to Manpower Recruitment or Supply Agency Service. The Tribunal in the present case agreed, referencing the precedent set in the Honeywell case and other similar cases such as M/s. Volkswagen India (Pvt.) Ltd. and Nissin Brake India Pvt. Ltd. The Tribunal concluded that the arrangement for availing the services of executives appointed in the appellant’s company by the foreign vendor does not constitute Manpower Recruitment or Supply Agency Service. Consequently, the demand under this head was set aside.

2. Telecommunication Service:
The appellant had received leased circuit services from M/s. AT & T and Genysis, allowing access to servers located abroad. The adjudicating authority confirmed the demand under Telecommunication Service for the period from April 2007 to March 2011. The appellant contended that the service providers were not 'Telegraph Authorities' as defined in Section 65(105)(zzzx) of the Finance Act, 1994, and thus the service tax was not payable. They cited the Tribunal’s decision in TCS E-Serve Ltd. Vs. Commissioner of Service Tax, Mumbai, which held that services provided by a foreign vendor not recognized as a Telegraph Authority are not taxable under Telecommunication Service.

The Tribunal agreed, noting that the service providers were located outside India and did not qualify as Telegraph Authorities under Indian law. Therefore, the condition of the definition of Telecommunication Service was not satisfied. The Tribunal referenced CBEC’s Circular F. No.137/21/2011-ST dated 15.7.2011, which clarified that service tax is not payable when the service is provided by a foreign vendor. Consequently, the demand under Telecommunication Service was also set aside.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, determining that the demands under both Manpower Recruitment or Supply Agency Service and Telecommunication Service were not sustainable. The order was pronounced in the Open Court on 11/04/2022.