2022 (5) TMI 967 - SC - Service Tax

Levy of service tax - Reverse Charge (RCM) - taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee - Manpower Recruitment Agency Service - employees who were seconded to the assessee by the foreign group companies - CESTAT set aside the demand - Extended period of limitation - HELD THAT - During the arrangement, the secondees work under the control and supervision of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed. Section 65 (44) excludes from its sweep by clause (b) , a provision of service by an employee to the employer in the course of or in relation to his employment. The assessee contends that the secondment agreement has the effect of placing the overseas employees under its control, so to say, and enables it to require them to perform the tasks for its purposes. It emphasizes that the real nature of the relationship between it and the seconded employees is of employer and employee, and outside the purview of the service tax regime - It is evident, that prior to July 2012, what had to be seen was whether a (a) person provided service (b) directly or indirectly, (c) in any manner for recruitment or supply of manpower (d) temporarily or otherwise. After the amendment, all activities carried out by one person for another, for a consideration, are deemed services, except certain specified excluded categories. One of the excluded category is the provision of service by an employee to the employer in relation to his employment. A vital fact which is to be considered in this case, is that the nature of the overseas group companies business appears to be to secure contracts, which can be performed by its highly trained and skilled personnel. This business is providing certain specialized services (back office, IT, bank related services, inventories, etc.). Taking advantage of the globalized economy, and having regard to locational advantages, the overseas group company enters into agreements with its affiliates or local companies, such as the assessee. The role of the assessee is to optimize the economic edge (be it manpower or other resources availability) to perform the specific tasks given it, by the overseas company - This court is not concerned with unravelling the nature of relationship between the overseas company and the assessee. However, what it has to decide, is whether the secondment, for the purpose of completion of the assessee s job, amounts to manpower supply. 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). Invocation of the extended period of limitation - HELD THAT - The fact that the CESTAT in the present case, relied upon two of its previous orders, which were pressed into service, and also that in the present case itself, the revenue discharged the later two show cause notices, evidences that the view held by the assessee about its liability was neither untenable, nor mala fide. This is sufficient to turn down the revenue s contention about the existence of wilful suppression of facts, or deliberate misstatement. For these reasons, the revenue was not justified in invoking the extended period of limitation to fasten liability on the assessee. The assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, the invocation of the extended period of limitation in both cases, by the revenue is not tenable. The appeals are partly allowed.

Summary

Issues Involved:
1. Whether the overseas group company provided manpower services to the assessee through seconded employees.
2. Whether the assessee was liable to pay service tax on the amounts reimbursed to the overseas group company.
3. Validity of invoking the extended period of limitation for recovery of service tax.

Issue-wise Detailed Analysis:

1. Provision of Manpower Services by Overseas Group Company:
The core question was whether the overseas group company provided manpower services to the assessee through seconded employees. The court examined various agreements and documents, including the Service Agreement, Secondment Agreement, and the Master Services Agreement. It was observed that the overseas group company assigned certain tasks to the assessee, including back-office operations, and seconded employees to the assessee for specific periods. The seconded employees were under the control of the assessee during their secondment but remained on the payroll of the overseas group company to maintain social security benefits. The court concluded that the overall arrangement indicated that the overseas company provided services through its employees to the assessee, thus constituting manpower supply service.

2. Liability to Pay Service Tax:
The court considered whether the assessee was liable to pay service tax on the amounts reimbursed to the overseas group company. It was noted that the reimbursement of salaries and allowances to the seconded employees was part of the economic arrangement between the assessee and the overseas group company. The court held that the nature of the transaction, as evidenced by the agreements, pointed to the provision of manpower services, making the assessee liable to pay service tax for the relevant periods.

3. Extended Period of Limitation:
The revenue argued that the assessee had indulged in willful suppression of facts, justifying the invocation of the extended period of limitation for recovery of service tax. The court, however, found this argument insubstantial. It referred to previous judgments, including Cosmic Dye Chemical v. Collector of Central Excise and Uniworth Textiles v. Commissioner of Central Excise, which established that mere non-payment of duties does not equate to willful misstatement or suppression of facts. The court observed that the assessee's view about its liability was neither untenable nor mala fide, as evidenced by the CESTAT's reliance on similar previous rulings and the revenue's discharge of later show cause notices. Consequently, the court held that the invocation of the extended period of limitation was unjustified.

Conclusion:
The court concluded that the assessee was the service recipient of manpower recruitment and supply services provided by the overseas entity through seconded employees. The assessee was liable to pay service tax for the normal periods covered by the show cause notices. However, the invocation of the extended period of limitation was deemed unjustified. The impugned order of the CESTAT was set aside, and the commissioner's orders were restored, excluding the liability for the extended period of limitation. The appeals were partly allowed, with no order on costs.