2024 (10) TMI 821 - AT - Service Tax

Levy of service tax under the reverse charge mechanism for the manpower services imported from Mitsui Japan - secondment of employees - Mitsui Japan deputed its employees to Mitsui India and the reimbursements of salary costs of the expats by Mitsui India to Mitsui Japan is the consideration for receipt of manpower supply services - HELD THAT - A perusal of the Agreement indicates that; (i) Mitsui Japan shall assign certain of its employees to Mitsui India as officers or employees of Mitsui India and Mitsui India shall accept such employees who shall continue to be employee of Mitsui Japan; (ii) Rules of Mitsui India shall, in principle, apply to matters relating to the services of the seconded employees; (iii) Salary and bonuses payable to the seconded employees shall be paid by Mitsui Japan in accordance with their rules; and (iv) Mitsui Japan shall send to Mitsui India an invoice for the amount of the expenses incurred by Mitsui Japan in a month under the Agreement and Mitsui India shall be pay the invoice amount. The Supreme 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 examined almost a similar Agreement as has been executed in this appeal and ultimately held that the overseas group company provided manpower supply service to the Indian company - It transpire from paragraph 32 of the judgment of the Supreme Court in Northern Operating Systems that the Indian company would request the UK company to provide employees for the expertise required by the Indian company and the UK company would thereafter select the employees and second them to the Indian company. The employees seconded shall continue to be remunerated by the UK company. However, during the secondment period, the Indian company shall reimburse the UK company of all the remuneration of the employees, including but not limited to salary incentives and employment benefit. Thus, the basic agreement between Mitsui India and Mitsui Japan in the present matter and the UK company and the Indian company in Northern Operating Systems are almost similar. Thus, in view of the reasons given by the Supreme Court in the aforesaid judgment in Northern Operating Systems, it has to be held that Mitsui Japan provided manpower services to Mitsui India. The contentions raised by Mitsui Japan run contrary to the aforesaid judgment to the Supreme Court - the decision of the Commissioner holding that Mitsui Japan provided manpower services to Mitsui India, therefore, does not call for any interference in this appeal. Appeal dismissed.

Summary

Issues Involved:

1. Whether the secondment of employees from Mitsui Japan to Mitsui India constitutes a "manpower supply service" subject to service tax under the reverse charge mechanism.
2. The applicability of the Supreme Court's decision in Northern Operating Systems Pvt. Ltd. to the present case.
3. Determination of the employer-employee relationship between the seconded employees and Mitsui India.
4. The relevance of previous Tribunal decisions in similar cases to the present matter.

Detailed Analysis:

1. Manpower Supply Service and Service Tax Liability:

The primary issue revolves around whether the arrangement between Mitsui Japan and Mitsui India, wherein employees are seconded to the latter, constitutes a "manpower supply service" under the service tax regime. The department contended that the reimbursements made by Mitsui India to Mitsui Japan for the salaries of seconded employees were consideration for manpower supply services. This view was supported by the order of the Deputy Commissioner, which emphasized that the seconded employees were providing services to Mitsui India, thereby benefiting the company. The department argued that the entire arrangement fell under the taxable category of "Manpower Recruitment and Supply Agency Services," making Mitsui India liable for service tax under the reverse charge mechanism.

2. Applicability of Northern Operating Systems Pvt. Ltd. Judgment:

The judgment heavily relied on the Supreme Court's decision in Northern Operating Systems Pvt. Ltd., which dealt with a similar arrangement involving the secondment of employees. The Supreme Court in that case held that such arrangements typically constitute manpower supply services, as the overseas entity retains the employees on its payroll and the Indian entity reimburses the costs, thereby implying a service relationship. The Tribunal in the present case found that the basic agreement between Mitsui India and Mitsui Japan was almost identical to the one considered by the Supreme Court, thereby making the Supreme Court's reasoning applicable to the current dispute.

3. Employer-Employee Relationship:

Mitsui India's defense was predicated on the assertion that the seconded employees were its employees, thus negating any service element in the arrangement. This argument was based on the control and supervision exercised by Mitsui India over the seconded employees, as well as the adherence to Mitsui India's employment rules. However, the Tribunal, guided by the Supreme Court's judgment, concluded that despite the operational control exercised by Mitsui India, the seconded employees remained on the payroll of Mitsui Japan, indicating that the latter was the employer. This arrangement was seen as a typical manpower supply service, where the economic benefit derived by Mitsui India from the expertise of the seconded employees was considered the quid pro quo for the service.

4. Relevance of Previous Tribunal Decisions:

Mitsui India cited previous Tribunal decisions, including those in Volkswagen India and Computer Sciences Corporation, to argue against the imposition of service tax. However, the Supreme Court in Northern Operating Systems had already dismissed these decisions as unreasoned and lacking precedential value. Consequently, the Tribunal in the present case found no merit in Mitsui India's reliance on these decisions to contest the service tax liability.

Conclusion:

The Tribunal upheld the decision of the Commissioner, confirming that Mitsui Japan provided manpower supply services to Mitsui India, and dismissed the appeal. The Tribunal's decision was firmly rooted in the Supreme Court's reasoning in Northern Operating Systems, which provided a comprehensive framework for assessing similar secondment arrangements under the service tax regime. The appeal was dismissed, affirming the service tax liability of Mitsui India under the reverse charge mechanism.