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2025 (2) TMI 1054 - AT - Service TaxClassification of service - Manpower Recruitment and Supply Agency Service or not - assignment of employees by Overseas Entities to the Appellant during the period April 2008 to March 2013 - invocation of Extended period of limitation. Whether the appellant is required to discharge Service Tax under Reverse Charge Mechanism for services received under the category of Management Consultancy Services Manpower Recruitment and Supply Agency Service during the relevant period involved in this appeal in the light of the judgment of Hon ble Supreme Court in Northern Operating Systems Pvt. Ltd. 2022 (5) TMI 967 - SUPREME COURT ? - HELD THAT - In the Cost Reimbursement Agreement for Assignment referred above between the Appellant and their Overseas Company reveals that the terms and conditions are more or less similar to the one referred to in para 3 of the judgment of the Hon ble Supreme Court in Northern Operating Systems Pvt. Ltd - In the present case also the appellant was in need of personnel for facilitating the business operations in India and the overseas company which has such personnel who possesses the requisite qualification and skill desired to employ such persons on exclusive basis and the overseas company has duly consented to depute such personnel to India. The deputed personnel while under employment with the appellant was not in any manner subjected to any kind of instruction or control or direction or supervision of the overseas company and required to report to the appellant s management in India. They function solely under the control direction and supervision of appellant and in accordance with the policy rules guidelines applicable to the employees of the appellant. The appellant shall have the sole right to take punitive steps against misconduct negligence fraud or unsatisfactory performance of work by the seconded personnel during employment with the appellant company and also have the right to terminate the employment. The details of the salary to be paid by the appellant to the assignees are enumerated in the said agreement. A careful reading of the sample Reimbursement Agreement and also the contract of the employment letter of employment etc. there are no major difference from the facts stated in the judgment of Hon ble Supreme Court in Northern Operating Systems Pvt. Ltd. s case where it was held that it is held that the assessee was for the relevant period service recipient of the overseas group company concerned which can be said to have provided manpower supply service or a taxable service for the two different periods in question (in relation to which show cause notices were issued). Whether Extended period of limitation is invokable in confirming demand for the period from April 2008 to March 2013 and penalty is imposable when the service tax demand along with interest is paid before issuance of show-cause notice on ITSS and Commercial Training or Coaching Services? - HELD THAT - The service tax is applicable on the amount paid by the Appellant to M/s. Tesco Bangalore for providing manpower during the relevant period April 2008 to March 2013; however it was also held by the Hon ble Supreme Court in the said case that extended period of limitation cannot be invoked and hence demand has to be computed for the normal period of limitation. Further since the Appellant had paid the amount of service tax on being pointed out relating to ITSS service and commercial training and coaching service before issuance of show-cause notice with interest there are no reason for invoking extended period of limitation against the appellant. Consequently penalties imposed on all the appellants are unsustainable and accordingly set aside. Conclusion - i) The Service tax is applicable on the amount paid by the appellant for manpower supply during the relevant period but only for the normal period of limitation. ii) The extended period of limitation could not be invoked aligning with the Supreme Court s decision in Northern Operating Systems Pvt. Ltd. Matter remanded to the adjudicating authority to redetermine the liability for the normal period of limitation - appeal allowed by way of remand.
1. ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment are: (i) Whether the appellant is liable to discharge Service Tax under the Reverse Charge Mechanism for services received under the category of 'Management Consultancy Services' and 'Manpower Recruitment and Supply Agency Service' during the relevant period, in light of the Supreme Court judgment in Northern Operating Systems Pvt. Ltd. (ii) Whether the extended period of limitation is applicable for confirming the demand for the period from April 2008 to March 2013, and whether penalties are justifiable when the service tax demand along with interest has been paid before the issuance of the show-cause notice on ITSS and Commercial Training or Coaching Services. 2. ISSUE-WISE DETAILED ANALYSIS (i) Liability under Reverse Charge Mechanism: - Relevant legal framework and precedents: The case primarily hinges on the interpretation of the Reverse Charge Mechanism under Section 66A of the Finance Act, 1994, and the applicability of the Supreme Court's decision in Northern Operating Systems Pvt. Ltd. - Court's interpretation and reasoning: The Tribunal analyzed the agreements and the nature of the relationship between the appellant and the overseas entity. It found that the terms of the agreements were similar to those in the Northern Operating Systems case, where the Supreme Court held that such arrangements constituted a supply of manpower services. - Key evidence and findings: The Tribunal examined the Cost Reimbursement Agreement for Assignment and found that the appellant had operational control over the seconded employees, similar to the scenario in the Supreme Court case. - Application of law to facts: Based on the agreements and the control exercised by the appellant, the Tribunal concluded that the appellant was liable to pay service tax under the Reverse Charge Mechanism for the services received. - Treatment of competing arguments: The appellant argued that the judgment in Northern Operating Systems was not applicable due to differences in the agreements and the nature of employment. However, the Tribunal found these differences insufficient to distinguish the cases materially. - Conclusions: The Tribunal upheld the applicability of service tax for the normal period of limitation but not for the extended period. (ii) Extended Period of Limitation and Penalties: - Relevant legal framework and precedents: The Tribunal referred to the Supreme Court's decision, which ruled out the invocation of the extended period of limitation in similar contexts. - Court's interpretation and reasoning: The Tribunal agreed with the appellant that the extended period of limitation could not be invoked, as the issue involved interpretation of provisions that were not clear at the relevant time. - Key evidence and findings: The appellant had paid the service tax and interest for ITSS and Commercial Training or Coaching Services before the issuance of the show-cause notice, which supported their argument against penalties. - Application of law to facts: The Tribunal found that since the appellant had already paid the amounts due, imposing penalties was unwarranted. - Treatment of competing arguments: The Revenue argued for the applicability of penalties, but the Tribunal found the appellant's compliance before the show-cause notice as a mitigating factor. - Conclusions: The Tribunal set aside the penalties imposed on the appellant and individuals involved. 3. SIGNIFICANT HOLDINGS - The Tribunal held that service tax is applicable on the amount paid by the appellant for manpower supply during the relevant period, but only for the normal period of limitation. - It was concluded that the extended period of limitation could not be invoked, aligning with the Supreme Court's decision in Northern Operating Systems Pvt. Ltd. - Penalties imposed on the appellant and individuals were set aside, as the appellant had paid the service tax and interest before the issuance of the show-cause notice. - The Tribunal remanded the matter to the adjudicating authority to redetermine the liability for the normal period of limitation.
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