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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 ..... erms and conditions are more or less similar to the one referred to in para 3 of the judgment of the Hon'ble Supreme Court in Northern Operating Systems Pvt. Ltd - In the present case also, the appellant was in need of personnel for facilitating the business operations in India and the overseas company, which has such personnel, who possesses the requisite qualification and skill desired to employ such persons on exclusive basis and the overseas company has duly consented to depute such personnel to India. The deputed personnel while under employment with the appellant was not in any manner subjected to any kind of instruction or control or direction or supervision of the overseas company and required to report to the appellant's management in India. They function solely under the control, direction and supervision of appellant and in accordance with the policy, rules, guidelines applicable to the employees of the appellant. The appellant shall have the sole right to take punitive steps against misconduct, negligence, fraud or unsatisfactory performance of work by the seconded personnel during employment with the appellant company and also have the right to terminate the employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Commissioner, (AR) for the Respondent ORDER These appeals have been filed against Order-in-Original No.BLR-EXCUS-05-COM-29/2016-17 dated 05.10.2016 passed by Commissioner of Central Excise and Service Tax, Bangalore. 2. Briefly stated that the facts of the case are that the appellants are registered with Service Tax Department for rendering taxable services under the category of 'Information Technology Software Service', 'Business Auxiliary Service', and 'Manpower Recruitment and Supply Agency Service'. On the basis of intelligence, investigation was initiated against the Appellant, since they had received taxable services 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. He has submitted that, the assignees deputed are employees of Tesco, Bengaluru which is evident from the documents like Form 16, employment agreement, the Appellant is responsible for payment of salaries to assignees; they had control over major aspects of employment; he has further submitted that continuation of employment with overseas entities does not affect the employment of assignees with Appellant; also requirement to return to overseas does not negate employer-employee relationship with the appellant. 6. Further, he has submitted that, the significant factors distinguishing the applicability of judgment 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod from April 2008 to March 2013; and penalty is imposable when the service tax demand along with interest is paid before issuance of show-cause notice on ITSS and Commercial Training or Coaching Services. 12. The applicability of Service Tax on supply of manpower by the Overseas Associate entities to the Indian counterparts has been considered by the Hon'ble Supreme court in the case of Northern Operating Systems Pvt. Ltd. (supra). The basic contention of the Appellant is that the principle laid down in the aforesaid case is not applicable to the facts of the present case. Therefore, in analyzing the argument advanced by 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&n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signment dated 01.04.2010 entered between Tesco International Services Ltd., UK and the Appellant needs to be examined to ascertain the claim of the Appellant about the applicability of the said judgment. The relevant clauses of the said agreement are reproduced below: COST REMUNERATION AGREEMENT FOR ASSIGNMENT THIS AGREEMENT is made on April 1, 2010 BETWEEN: Provider TESCO INTERNATIONAL SERVICES LIMITED a company incorporated in England (registered number 03176368) whose registered office is situated at Tesco House, Delamare Road, Cheshunt, Hertfordshire, EN8 9SL, United Kingdom (hereafter referred to as "TSL"); 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 whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pothetical tax relation to such payments of Payroll and Other Remuneration Costs and Expenses then the Provider will not include this in the actual costs to be reimbursed. 3.7 Within the scope of the User's policies, all expenses actually, reasonably and properly incurred by an Assignee in the course of his assignment or when acting on behalf of the User solely in connection with the Business (Including costs of property rental, hotel accommodation, relocation costs, overseas travel allowances, business expenses, provision of motor vehicles for business or private use, where such expenses have not been borne by the Provider 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , their Lordships observed as follows:- 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 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 terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... native 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.). 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 ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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, 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' wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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). 17. Applying the principle laid down by the Hon'ble Supreme Court to the present case, we are 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-c ..... 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