2017 (12) TMI 1143 - AT - Service Tax

Manpower Recruitment and Supply Agency service - employees on deputation - the personnel on the pay roll of Schaeffler Group company located abroad have been put on assignments with the appellants. On these assignments, the personnel were expected to work under overall supervision of the appellant - Held that - The employees deputed to appellant continues to be an employee of the foreign associated company, though suspended for this duration - It is also seen that the duration of such deputation is decided in consultation with the foreign associated company and the employee is not free to decide on his own. It can be seen that there are regulations in the foreign assignment guideline for the Schaeffler Group of companies and they apply to such assignments. It is apparent that the said foreign associated companies are engaged in the regular practice of supplying manpower and have also evolved guidelines to regulate such foreign assignments in the shape of version 4/2008. The foreign associated company has totally involved in all aspects of the deputation of its own suspended employee - service tax is rightly levied. Extended period of limitation - revenue neutrality - Held that - If the situation is revenue neutral, in the sense the tax paid by appellant themselves, in full, on reverse charge basis then the intention to evade cannot be alleged. The fact regarding the revenue neutrality needs verification. Appeal dismissed on the point of merits - the matter is remanded to original adjudicating authority to give findings on the issue of revenue neutrality and it s impact on limitation and penalties.

Issues Involved:
1. Demand of service tax under "Manpower Recruitment and Supply Agency" service.
2. Relationship between the appellant and the foreign associated company regarding deputed personnel.
3. Applicability of service tax on payments made to foreign associates.
4. Revenue neutrality and limitation period for service tax demand.

Issue-Wise Detailed Analysis:

1. Demand of Service Tax under "Manpower Recruitment and Supply Agency" Service:
The central issue is whether the appellant, M/s. INA Bearings India Pvt. Ltd., is liable to pay service tax under the category of "Manpower Recruitment and Supply Agency" service for amounts paid in foreign currency to its associated company, M/s. Schaeffler Group’s Holding INA Bearing in Germany, for deputation/transfer of personnel to India. The show-cause notice alleged that the appellant issued appointment letters to personnel deputed by the foreign associate, thus raising the demand for service tax.

2. Relationship between the Appellant and the Foreign Associated Company:
The appellant argued that there is no service provider-service receiver relationship between them and the foreign associated company. They contended that the personnel deputed were their own employees, not those of the foreign company, and any payments made were for the convenience of the foreign employees. The appellant presented evidence including appointment letters and income tax returns of the deputed personnel to support their claim.

3. Applicability of Service Tax on Payments Made to Foreign Associates:
The appellant argued that the foreign associated companies are not engaged in the business of supplying manpower, and during the deputation period, the foreign company ceases to be the employer of the personnel. They cited various tribunal decisions to support their argument that such arrangements are merely employee-sharing among group companies and do not constitute manpower supply services. The appellant also claimed that the payments made to the foreign associates were not for business income but for administrative convenience, and thus should not attract service tax.

4. Revenue Neutrality and Limitation Period:
The appellant raised the issue of revenue neutrality, arguing that any service tax paid would be available as CENVAT credit to them, making it a revenue-neutral situation. The tribunal noted that for revenue neutrality to apply, certain conditions must be met, including the admissibility of credit as input service, non-applicability of Rule 6 of the CENVAT Credit Rules, 2004, and the appellants paying excise or service tax in cash in excess of the demands during the relevant period. The tribunal remanded the matter to the original adjudicating authority to verify the revenue neutrality claim and its impact on the limitation period and penalties.

Tribunal's Findings:
- The tribunal found that the personnel deputed to the appellant continued to be employees of the foreign associated company, as evidenced by various clauses in the agreement regarding tasks, duration, salary, insurance, and continued employment.
- The tribunal concluded that the foreign associated company was engaged in the regular practice of supplying manpower, as indicated by the foreign assignment guidelines.
- The tribunal dismissed the appeal on merits, upholding the demand for service tax under "Manpower Recruitment and Supply Agency" service.
- On the issue of limitation, the tribunal remanded the matter to the original adjudicating authority for verification of the revenue neutrality claim and its impact on the limitation period and penalties.

Conclusion:
The tribunal upheld the demand for service tax on the grounds that the foreign associated company was indeed supplying manpower to the appellant. However, the issue of limitation and revenue neutrality was remanded for further verification.

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