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TMI Blog2025 (2) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... ices from their foreign associates and other foreign entities, but failed to discharge the Service Tax on the same under 'Reverse Charge Mechanism' as laid down under Section 66A of the Finance Act, 1994. On completion of investigation, they were issued with a show-cause notice on 09.10.2013 for recovery of Service Tax amounting to Rs.1,77,47,868/- for the period from 01.04.2010 to 31.03.2013 against the import of foreign employee services Rs.7,64,643/- under the taxable category of 'Information Technology Software Services' for the period from 2008-09 to 2011-12; and Rs.7,65,644/- for the period from 2008-09 to 2010-11 for rendering taxable services under the category of 'Commercial Training or Coaching Services' along with interest and penalty. On adjudication, the learned Commissioner confirmed the demands with interest and penalty appropriated the amount paid during the course of investigation. Hence, the present appeal. 3. At the outset, the learned Advocate for the Appellant submitted that the Appellants are engaged in providing Information Technology Software Services (ITSS) and Information Technology Enabled Services (ITES) to its affiliate entities, these services are sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the present case is the purpose of secondment of employees, control and supervision, duration of secondment, terms of employment etc., He has submitted that in the present case there is no one-to-one nexus between the tasks assigned by overseas entity and the work to be performed by the secondees, instructions and policies of Indian entity are to be followed as specified in cost reimbursement agreement; secondees are deployed for a fixed duration of time and the functions, scope of work, roles and responsibilities which are to be carried out by the secondee employees are decided solely by the Appellant at Bengaluru. 7. The Learned Advocate, thereafter, analyzing the clauses of the present greement with that of the agreement considered by the Hon'ble Supreme Court in Northern Operating Systems Pvt. Ltd. (supra) submitted that both are operating in a different sphere, therefore, no analogy can be drawn in applying the ratio of the said judgment to the facts of the present case. 8. Further, he has submitted that the Hon'ble Supreme Court in the aforesaid case had set aside the demand for extended period of limitation. Hence, in the present case also, extended period of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellant distinguishing the ratio of the said Judgment, it is necessary to read the judgment of the Hon'ble Supreme Court and the facts involved therein. 13. The Hon'ble Supreme Court at para 3 of the judgment briefly laid down the essence of the agreement entered between the overseas entities and the Indian counterpart relating to supply of manpower for undertaking the operation in India, the same is reproduced as below:- "3. The nature and contents of the agreements, are discernible in their description, extracted from the impugned order - where the assessee has been referred to as "the appellant" by the CESTAT - which is as follows : "The relevant terms of the agreement to understand the activity are as follows : (a) When required Appellants requests the group companies for managerial and technical personnel to assist in its business and accordingly the employees are selected by the group company and they would be transferred to Appellants. (b) The employees shall act in accordance with the instructions and directions of Appellants. The employees would devote their entire time and work to the employer seconded to. (c) The seconded employees would continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and User TESCO HINDUSTAN SERVICE CENTRE PRIVATE LIMITED, a company Incorporated In India (registered number 72200KA2003PTC032530) whose registered office is situated at 81-82 EPIP Area, Whitefield, Bangalore, 56066 India WHEREAS: (A) The User desires the Provider to assign personnel to the User to fill certain positions from time to time and the Provider is willing to send the Assignees to work at the User, subject to conditions of this Agreement. (B) The Assignees will be assigned to the User during the period of the assignment, and they will work wholly and exclusively for the User during the assignment. (C) For administrative convenience, the Provider shall continue to initially incur the costs of payments to each Assignee during the assignment. However, the User is ultimately responsible for remunerating and bearing the costs of the Assignees during the assignment and, therefore, will be responsible for reimbursing the Payroll and Other Remuneration Costs and Expenses incurred Provider during the period of the assignment by the It is agreed as follows: 1 Definitions and Interpretation 1.1 ....... .......... Assignee/Assignees ....... ......... Payro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider pursuant to clause 3.1) shall be borne by the User and shall be reimbursed by the User to the Assignee in local currency on the production of relevant and proper receipts. RESPONSIBILITIES OF THE PARTIES Responsibility of the User 4.2. The User shall; 4.2.1 provide and maintain facilities suitable for the work of the Assignees, 4.2.2 have the day-to-day control of the Assignee's activities during the assignment, including providing guidance and supervision to the Assignees during the assignment, 4.2.3 be responsible for all actions of the Assignees during the assignment; 4.2.4 facilitate the Assignees to devote such time and attention to the affairs of the User as is required to fulfil their duties; 4.2.5 ensure that the Assignees report directly to the specified person/position in the User: 4.2.6 arrange for any and all required entry/exit/re-entry visas, work permits, residence visas and internal travel permits for the Assignees and their families, and 4.2.7 carry out the performance evaluation based on the performance objectives, set by the Assignees, supervisor and the actual results achieved by the Assignee during the period of assignment. 15. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, 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 attachment 1 of the Service Agreement); (iii) By the Secondment Agreement, the parties agree that the overseas employee is temporarily loaned to the assessee (Article I read with the Schedule); (iv) During the period of secondment, the assessee has control over the employee, i.e. it can require the seconded employee to return, and likewise, the employee has the discretion to terminate the relationship (Article II); (v) The overseas employer (group company) pays the seconded employee, which is reimbursed to the overseas company, by the assessee (Article III); (vi) The assessee is responsible for the work of the seconded employee, i.e., the overseas employer, during the secondment period, is absolved of any liability for the job or work of its seconded employees (Article VII); (vii) The secondment is for a specified duration, and the employment with the assessee ceases upon the expiration of that period (Article II of the secondment agreement and the "Duration" clause in the letter of understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. As part of this agreement, a secondment contract is entered into, whereby the overseas company's employee or employees, possessing the specific required skill, are deployed for the duration the task is estimated to be completed in. 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. 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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, whether the contract to be construed is a contract of service or a contract for service. Depending on the fact situation of each case, all the aforesaid factors would not necessarily be relevant, or, if relevant, be given the same weight." 57. Taking a cue from the above observations, while the control (over performance of the seconded employees' work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment. Secondly, the overseas employer - for whatever reason, pays them their salaries. Their terms of employment - even during the secondment - are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their original places, to await deployment or extension of secondment. 58. One of the arguments of the assessee was that arguendo, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the opinion that 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 aforesaid 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, we do not see any reason for invoking extended period of limitation against the appellant. Consequently, penalties imposed on all the appellants are unsustainable and accordingly, set aside. 18. In view of the above, the impugned order is modified and the demand and interest relating to Manpower Supply Service is upheld for normal period of limitation and the matter is remanded to the adjudicating authority to redetermine the liability accordingly. Penalty imposed on the Appellant company on all counts are set aside. Also, penalty imposed on individuals are set aside. 19. In the result, app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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