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2020 (8) TMI 695 - AT - Service TaxReverse Charge Mechanism - appellant engaged in providing software services to their customers abroad - amount paid to their subsidiaries located abroad namely M/s IEII, M/s IEEL, M/s IEG and M/s IEJ - manpower recruitment and supply agency services - business auxiliary services - management or business consultancy services - demand aongwith interest and penalties - HELD THAT:- There is nothing in the agreements to show that the subsidiary is required provide manpower to the appellant in those countries. If that was the case, the services had to be performed by the appellant themselves at the customers’ end. Instead, the entire delivery of software service has been out sourced by the appellant to the subsidiary and the subsidiary got paid for these services. The argument of the Department is that the billing is done by the subsidiary in terms of number of manpower or man days of different persons required / utilised for performing the services. It is a common practice in business for consultancy firms to bill the clients in terms of number of man hours of the personnel required at different levels required. Even, advocates may charge their clients for the number of hours spent on their case. Merely because the total amount has been billed using the number of man hours / man days as a measure, it does not become a manpower supply service. If this logic is accepted, every case where the billing is done based on the number of man hours / man days should be treated as a manpower supply service. The real test of determining the nature of service is to go through the agreement to understand what is the deliverable which the service provider has to deliver to the service recipient. In this case, this deliverable service is the delivery of software services to the clients of the service recipients i.e., the appellant. The demand made by the Revenue upon the appellant in the two show cause notices under the head “manpower recruitment and supply service” under reverse charge mechanism needs to be set aside along with interest - penalties imposed upon the appellants under Section 76, 77 and 78 also need to be set aside - Appeal allowed - decided in favor of appellant.
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