2023 (7) TMI 635 - AT - Service Tax

Levy of Service tax - manpower recruitment or supply agency service - separate employment contract with foreign expatriates - payments directly to the expats like salary and other allowances, which are not reimbursement of any expenditure - suppression of facts or not - time limitation - revenue neutrality - HELD THAT - In terms of the agreement between the parties, specifically Article 4, where salary, bonus and others have been provided for, it is clear that it is for the appellant to pay the salary, bonus, perks, etc., to the secondees working for it in India, and there is also no dispute that the above clauses of the agreement are binding on both the parties - It is thus clear that what is paid is towards the cost incurred for making available the service which the appellant has received. Further, in terms of the definition under Section 67 ibid., consideration would include any amount that is payable for the taxable services provided or to be provided and thus, there is no doubt in our mind that what is provided by M/s. NMC is nothing but manpower recruitment service. The decisions of the Hon ble Apex Court in C.C.,C.E. S.T. BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD. 2022 (5) TMI 967 - SUPREME COURT , clearly hold that the definition of manpower recruitment or supply agency is wide enough to include recruitment as well as supply of manpower. The expression supply is of a wider connotation than recruitment - thus the ratio of the above rulings squarely apply to this case and thus, there is no escape for the appellant before us from Service Tax liability in respect of manpower recruitment or supply agency service under reverse charge mechanism - the appellant is required to pay applicable Service Tax for the normal period along with interest. Time limitation - suppression of facts or not - HELD THAT - On perusal of the table indicating the dates of SCN/SODs and periods covered vis- -vis the other table wherein the visit by the officers of the Revenue on various dates is depicted. From the above, even if it were to be assumed that the appellant had received manpower supply services, the fact remains that the whole of the activities were within the knowledge of the Revenue / officials of the Department and hence, there is no scope whatsoever to allege suppression of any facts - the issue, therefore, involved classification and interpretation of taxing statute, for which reason also suppression of facts could not be alleged. Revenue Neutrality - HELD THAT - There are no doubt that it is the case of a revenue neutral situation and that by suppressing the same, the appellant / assessee could not have achieved any benefit - In the case of M/s. Northern Operating Systems Pvt. Ltd. the Hon ble Court held that This Court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. Thus, on merits, the appellant has to fail, but however, the appellant s claim as to this case being revenue neutral, deserves merit, for which reason the extended period of limitation cannot be invoked. Further, even on the issue of limitation, following the decision in the case of M/s. Northern Operating Systems Pvt. Ltd. specifically paragraphs 64 and 66 which are extracted by us elsewhere in this order, we hold that the demand, if any, would survive only for the normal period.

Summary

Issues Involved:
1. Liability to pay Service Tax on Secondment Agreement.
2. Wrong availment of CENVAT Credit.
3. Invocation of the extended period of limitation.
4. Revenue neutrality.

Summary:

Issue 1: Liability to pay Service Tax on Secondment Agreement
The Department argued that the Secondment Agreement (SA) between the appellant and M/s. Nissan Motor Company Ltd. (NMC) constituted a "manpower recruitment or supply agency" service under Section 65(68) of the Finance Act, 1994. The appellant contended that the secondees were treated as its employees, with TDS deducted on their salaries and other employment benefits provided, thus negating a service provider-service recipient relationship. The Commissioner held that the appellant was liable to pay Service Tax on the supply of manpower services for the period from 2008-09 to 2013-14, along with applicable interest and penalty. The Tribunal, referencing the Hon'ble Supreme Court's decisions in M/s. Northern Operating Systems Pvt. Ltd. and M/s. International Merchandising Company, LLC, concluded that the definition of manpower recruitment or supply agency is broad enough to include the appellant's arrangement with NMC. Thus, the appellant is required to pay applicable Service Tax for the normal period along with interest, but penalties were set aside.

Issue 2: Wrong availment of CENVAT Credit
The Commissioner found that the appellant was entitled to the CENVAT Credit availed on the basis of ISD invoices. Consequently, the proposed demand in the Show Cause Notice regarding this issue was dropped.

Issue 3: Invocation of the extended period of limitation
The appellant argued that the extended period of limitation was unjustified as the Department was aware of all facts through regular audits. The Tribunal agreed, citing the Hon'ble Supreme Court's decision in M/s. Northern Operating Systems Pvt. Ltd., which held that the extended period could not be invoked due to the absence of wilful suppression of facts. Therefore, the demand for the extended period was not justified, and the appellant is liable only for the normal period.

Issue 4: Revenue neutrality
The appellant argued that any Service Tax paid on the salary of secondees would entitle them to avail CENVAT Credit, making the issue revenue neutral. The Tribunal acknowledged this argument, referencing the Hon'ble Supreme Court's decisions in cases like M/s. Nirlon Ltd. and M/s. Narmada Chematur Pharmaceuticals Ltd., which supported the concept of revenue neutrality. Consequently, the Tribunal held that the issue was revenue neutral, further supporting the decision not to invoke the extended period of limitation.

Conclusion:
The appeal was partly allowed, sustaining the demand for the normal period but dismissing the extended period of limitation and penalties. The Tribunal emphasized that the appellant's case was revenue neutral and there was no suppression of facts.