2021 (7) TMI 1000 - Commissioner - Service Tax

Nature of transaction - Service or not - Manpower recruitment and supply service or not - appellant had utilised services of the seconded employees of other firm under contract of employment - employer employee relationship - case of appellant is that only employees working in foreign group company were deputed to its group company in India, hence is not covered under service provided from outside India - reverse charge mechanism - HELD THAT - There is no doubt that the service said to be provided by M/s. Imasen Electric Industrial Company Ltd., Japan to the appellant were not taxable in eyes of law, especially when the appellant treated the amount paid to the said persons as salary in terms of Income tax rules and deducted the income tax on the same, in this regard the appellant produced Form No. 16 issued under Income Tax Act, which shows that the said persons worked as employee of the appellant, therefore, there is no doubt about the employer employee relationship, thus the appellant is not liable to pay any service tax as confirmed vide the impugned order. In the case of M/S VOLKSWAGEN INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE 2013 (11) TMI 298 - CESTAT MUMBAI where it was held that The global employees working under the appellant are working as their employees and having employee-employer relationship. There is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction. The appeal is allowed.

Issues Involved:
1. Calculation error in the Service Tax demand.
2. Legality of Service Tax on salaries paid to seconded employees.
3. Previous settlement of similar issues for earlier periods.
4. Classification of the service under 'Manpower Recruitment or Supply Agency Service'.
5. Non-issuance of invoices by the foreign company.
6. Employer-employee relationship and its impact on taxability.
7. Transfer on deputation as a non-taxable event.
8. Absence of monetary consideration for the service.
9. TDS deduction and its implications.
10. Ownership structure and its impact on service tax applicability.
11. Demand being time-barred.
12. Imposition of penalties and interest.

Detailed Analysis:

1. Calculation Error in the Service Tax Demand:
The appellant argued that there was a calculation error in the Service Tax demand, stating that the correct amount should be ?26,81,789/- instead of ?27,48,551/-. This was based on a chart shown in the Show Cause Notice (SCN) and the Impugned Order-in-Original.

2. Legality of Service Tax on Salaries Paid to Seconded Employees:
The appellant contended that the salaries paid to the seconded employees were directly paid to them and not to any entity in Japan or India. Therefore, the demand for Service Tax on these salaries was against the Constitution of India and Service Tax laws.

3. Previous Settlement of Similar Issues for Earlier Periods:
The appellant highlighted that similar issues for the period from 01.09.2008 to 31.03.2015 had already been settled in their favor through Orders-in-Appeal Nos. 317(SM) ST/JPR/2017 and 338-339(SM) ST/JPR/2017. They requested that the proceedings initiated by the recent SCN be dropped based on this precedent.

4. Classification of the Service under 'Manpower Recruitment or Supply Agency Service':
The adjudicating authority classified the service under 'Manpower Recruitment or Supply Agency Service'. However, the appellant argued that the employees were deputed from one company to another within the same group, maintaining an employer-employee relationship with the foreign company. They cited various judicial pronouncements supporting that such deputation does not fall under the taxable service category.

5. Non-Issuance of Invoices by the Foreign Company:
The appellant argued that no invoices were issued by the foreign company (IEIC, Japan) to the appellant in India, and no payments were made to IEIC in connection with the staff deployment. Therefore, the liability for Service Tax does not arise.

6. Employer-Employee Relationship and Its Impact on Taxability:
The appellant emphasized that the seconded employees remained on the payroll of the foreign company, maintaining an employer-employee relationship. They cited several judicial decisions, including those from CESTAT and High Courts, which held that such arrangements do not constitute 'Manpower Recruitment or Supply Agency Service'.

7. Transfer on Deputation as a Non-Taxable Event:
The appellant argued that the transfer of employees on deputation from Japan to India was a common practice and did not involve any service provision. They maintained that this was a mere transfer within the same group of companies.

8. Absence of Monetary Consideration for the Service:
The appellant pointed out that no monetary consideration was involved in the transfer of employees, and therefore, no service tax could be levied. They referenced CBEC Circulars and judicial decisions to support their claim.

9. TDS Deduction and Its Implications:
The appellant deducted TDS on the salaries paid to the seconded employees under Section 192 of the Income Tax Act, 1961, establishing an employer-employee relationship. They argued that this deduction further confirmed that no service tax was applicable.

10. Ownership Structure and Its Impact on Service Tax Applicability:
The appellant highlighted that they were a 100% subsidiary of the foreign company, implying that the service provider and recipient were essentially the same entity. They argued that no taxable service was provided under these circumstances.

11. Demand Being Time-Barred:
The appellant contended that the demand for the period 01.07.2012 to 18.12.2013 was time-barred as the SCN was issued on 19.03.2015. They argued that the extended period for demand was not invokable since the SCN was based on an audit objection and there was no suppression of facts.

12. Imposition of Penalties and Interest:
The appellant argued that since the demand was not sustainable, the imposition of penalties and interest was also unwarranted. They cited the Supreme Court decision in M/s. HMM Ltd. Vs. CCE to support their claim.

Conclusion:
The appellate authority concluded that the appellant was not liable to pay any service tax on the amount paid to the seconded employees, as the relationship was that of employer-employee. The demand for service tax, along with interest and penalties, was set aside. The appeal filed by the appellant was allowed, and the impugned order was set aside.

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