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TMI Blog2024 (10) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... dia 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, reinstatement or reward/punishment shall be made by consultation between the parties hereto on a case by case basis. Article 3: Service Rules of ACI shall in principle apply to matters relating to the service of the Seconded Employees, such as their duties, working hours, holidays, vacation, etc. Article 4 : Annual Paid Leave The Seconded Employees shall be entitled to use their remaining days of annual paid leave granted to them by MCI as of the date of their secondment to ACI. Provided, from the first day of April immediately following the date of their secondment, ACI shall grant annual paid leave to the Seconded Employees based on the total number of years of service with MCI and ACI in accordance with the Rules of MCI. Article 5 : Salary and Bonuses 5.1 The salary and bonuses made payable to the Seconded Employees during the period of their secondment to ACI shall be paid by MCI to the Seconded Employees in accordance with the Rules of MCI. 5.2 ACI shall bear the full amount of the salary and bonuses paid by MCI to the Seconded Employees. 5.3 The bearing of the salary and bonuses pursuant to the previous Paragraph for the month in which any Seconded Employee is seconded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the invoiced amount by the end of the next month of the month in which the invoice is received. 4. A sample employment contract entered into between Mitsui India and one of its employee is reproduced below: Employment Contract This employment contract is made on the day of 1, April 2008 between Mitsui Prime Advanced Composites India Private Limited hereinafter known as the COMPANY and Mr. Shinichi SUSUKI hereinafter known as the EMPLOYEE . The COMPANY desires to appoint the EMPLOYEE as a position of General Manager of Finance Accounts Dept. and the EMPLOYEE accepts the said written position of the COMPANY , and effective on the date first above written. 1 . STARTED DATE: 1, April 2008 2. CONTRACT PERIOD: The term of this contract shall be for three years. The said term may be extended thereafter by mutual agreement for any period of time that may be agreed. 3. ANNUAL SALARY: Effective as of the date hereof, the EMPLOYEE's annual salary will be Rs. 3,300,000-(in Indian Rupee). The COMPANY will be responsible to pay the income tax based on the specified salary rate, as well as Social Security according to the law for the EMPLOYEE . 4. WORKING HOURS: Normal working days are 6 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. I. Dishonesty II. Violation on any terms of employment or work regulation III. Violation of law of India IV. Actions that may be determined to the COMPANY . 5. The department believed that under the Agreement between Mitsui India and Mitsui Japan, 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. Mitsui India would, therefore, be liable to pay service tax under the reverse charge mechanism for the manpower services imported from Mitsui Japan. 6. Accordingly, a show cause notice dated 25.01.2016 was issued to the Mitsui India alleging that: 3. And whereas, from the terms and conditions enumerated in the Agreement, it becomes clear that the Salary to the Seconded Employees is being paid by MCI not by ACI and also employees seconded by MCI to ACI are in all capacities employees of MCI. Further, MCI Japan has sent/supplied their Manpower to ACI, Neemrana for which they have received payment in Japan on the basis of Invoice raised by them, although a part of the amount has been paid to the employees in India for their well being. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strengthens that there is an employer-employee relationship between the expats and Mitsui India and that Mitsui India has not received manpower supply services from Mitsui Japan. 8. The reply submitted by Mitsui India did not find favour of the Deputy Commissioner, who by the order dated 10.11.2016, confirmed the demand of service tax with interest and penalty. The relevant portions of the order are reproduced below: 55(ii). It is obvious that the assessee company in India had received the services of Japanese experts/ seconded employees in respect of assisting in establishment and smooth running of their factory situated at Neemrana in India. Thus, it would be illogical to argue that they did not receive the said services. Based on these services, the noticee manufactured and sold their goods, thus the benefit of services accrued to them. Thus, it s a simple case of providing of manpower by a person located outside India (i.e. MIC) and received by ACI in India. xxxxxxxxxx 57 . In this case an already discussed above that under the circumstances principal employer of these experts/seconded employees was MIC as they have provided manpower to ACI on temporary basis as per the terms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar dated 27.07.2005 and the Circular dated 23.08.2007 clearly shows that for a transaction to be taxable as manpower supply service, the manpower should not be contractually employed by the service recipients; (iii) On a plain reading of the various clauses of the Agreement, it is clear that the transferred employees work under the control and supervision of Mitsui India; (iv) Mitsui India contributes Provident Fund for the transferred employees as an employer; (v) Mitsui India reflects the amount reimbursed to Mitsui Japan as reimbursement of salary ; (vi) There is no employer-employee relationship between the expats and Mitsui Japan; (vii) The decision of the Tribunal in M/s. Mitsui Prime Advanced Composites India Pvt. Ltd. vs. CCE, Jaipur-I [Service Tax Appeal No. 52581/2014 decided on 23.03.2018] and the decision of the Tribunal in M/s. Mitsui Prime Advanced Composites India Pvt. Ltd. vs. CCE ST, Jaipur-I [Service Tax Appeal No. 52745/2015 decided on 14.06.2018] in the matter of the appellant holding that service tax would not be leviable on the secondment arrangement between Mitsui India and Mitsui Japan would govern the present matter; (viii) The decisions of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees. 34. The contemporary global economy has witnessed rapid cross-border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the latter s request to meet its specific needs and requirements of the Indian associate. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 47. One of the cardinal principles of interpretation of documents, is that the nomenclature of any contract, or document, is not decisive of its nature. An overall reading of the document, and its effect, is to be seen by the courts. xxxxxxxxxxx 48. The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided in that context - by the overseas group company to the assessee. 49. A co-joint reading of the documents on record show that: (i) Attachment 1 to the service agreement ensures that the overseas group company assigns, inter alia, certain tasks to the assessee, including back office operations of a certain kind, in relation to its activities, or that of other group companies or entities; (ii) The assessee is paid a mark up of 15% of the overall expenditure it incurs, by the overseas company (clause 2, read with attachmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities and not in relation to the overseas employer. To put it differently, it would be unnatural to expect the overseas employer to not seek reimbursement of the employees salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business. 51. As discussed previously, there is not one single determinative factor, which the courts give primacy to, while deciding whether an arrangement is a contract of service (as the assessee asserts the arrangement to be) or a contract for service. The general drift of cases which have been decided, are in the context of facts, where the employer usually argues that the person claiming to be the employee is an intermediary. This court has consistently applied one test: substance over form, requiring a close look at the terms of the contract, or the agreements. 52. 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.). Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of ₹3,97,500/- is also assured. These are substantial amounts, and could have been only by resorting to a standardized policy, of the overseas employer. 55. The overall effect of the four agreements entered into by the assessee, at various periods, with NTS or other group companies, clearly points to the fact that the overseas company has a pool of highly skilled employees, who are entitled to a certain salary structure- as well as social security benefits. These employees, having regard to their expertise and specialization, are seconded (a term synonymous with the commonly used term in India, deputation) to the concerned local municipal entity (in this case, the assessee) for the use of their skills. Upon the cessation of the term of secondment, they return to their overseas employer, or are deployed on some other secondment. 56. This court, upon a review of the previous judgment in Sushilaben Indravadan (supra) held that there no one single determinative test, but that what is applicable is a conglomerate of all applicable tests taken on the totality of the fact situation in a given case that would ultimately yield, particularly in a complex hybrid situation, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount. 60. This court is also of the view, for similar reasons, that the orders of the CESTAT, affirmed by this court, in Volkswagen and Computer Sciences Corporation, are unreasoned and of no precedential value. 61 . In view of the above discussion, 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). (emphasis supplied) 14. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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