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TMI Blog2020 (9) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ng all cesses under Section 75 of the existing Finance Act, 1994. iii. I impose a penalty of Rs. 21,79,976/- (Rupees Twenty One Lakhs Seventy Nine Thousand Nine Hundred and Seventy Six only) under Section 76 of the existing Finance Act, 1994 upon the noticee for their failure to pay the appropriate Service Tax liability in accordance with the provisions of Section 68 of the existing Act; iv. I also impose a Penalty of Rs. 10,000/- (Rupees Ten Thousand Only) under Section 77 of the existing Finance Act, 1994 upon the noticee for their failure to furnish statutory ST-3 returns in the manner prescribed under Section 70 of the existing Act." 1.2 The appeal No ST/60852/2019-CU(DB) is directed against Order in Original No GST/GGM/COM/Adj/Canon/128/18-19 dated 30th April 2019 of the Commissioner Good and Service Tax, Gurgaon. By the impugned order, Commissioner held as follows: i. I confirm the demand of Rs. 3,04,07,553 (Rupees Three crore Four Lakh Seven Thousand Five Hundred and Fifty Three Only) and order the same to be recovered from the notice under Section 73 of the Finance Act, 1994. ii. I order for recovery of interest at the appropriate rate on the said recoverable amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory of 'Manpower Recruitment and Supply agency Service' (upto 30/06/2012) and thereafter with effect from 01.07.2012 under 'Service' as defined under Section 65B(4) of the Finance Act, 1994. 2.3 Since appellants had received services from Canon Inc. Japan (referred as Foreign Company) and had not paid Service Tax on same under reverse charge mechanism during the period 01.04.2015 to 30.06.2017 under provisions of Rule 2 (1)(d)(i)(G) of the Service Tax Rules, 1994 read with Notf 30/2012 dated 20.06.2012, show cause notices were issued to them for demanding the service tax along with interest as provided for by the Finance Act, 1994. Penalties were also proposed in the Show Cause Notices. 2.4 These Show Cause Notices have been adjudicated by the Commissioner as per the impugned orders mentioned in para 1, supra. 2.5 Aggrieved by the impugned order, Appellant has filed these appeals 3.1 We have heard Shri Sujit Ghosh Advocate for the Appellant and Shri Rajeev Gupta, Commissioner and Shri Vijay Gupta, Superintendent, Authorized Representative for the revenue. 3.2 Arguing for the Appellant learned counsel submitted as follows: * Appellants enter into employment contracts with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parent company was not engaged in providing manpower supply services, the impugned orders are bad in law and need to be set aside. * Departmental Authorities have themselves decided the issue in their favour for the period 2006-07 to 2008-09 and for period 2014-15, holding that the demand of service tax made under the category of manpower supply services cannot be sustained. * In view of above appeals need to be allowed 3.3. Arguing for the revenue, learned authorized representative submitted while reiterating the findings recorded in the impugned order as follows: * W.e.f. 01.07.2012, the service has been defined under section 65 B (44) of the Finance Act, 1994 and by going through various documents viz. Agreement between foreign company, appellants and the expats, it emerges that the services provided by foreign company to the appellants are well covered by this definition of service; * The scope of services contemplated by the employment contract, indicate that the arrangement is not a simple agreement which normally happens in enterprises operating in multiple locations to familiarize the employee with the operations being carried out in other locations. * This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies and expats, it is evident that the expats were foreign citizens, resident in India, employees of foreign company, receiving remuneration as payable to them by the foreign company. As per the provisions of said regulations, they cannot be termed as the employees of the appellants. * Appellants have vigorously submitted that the expats were their own employees as they had deducted TDS on the amounts paid by them as salary to these expats. The deduction of TDS of Income Tax on such amounts is in accordance with the said FEMA notification which provides that "Income Tax is chargeable on the entire salary as accrued in India" and hence, cannot be considered as an evidence to prove that the said expats were the employees of the appellants. Moreover, the appellants have not provided any evidence to show that the expats were not employees of the foreign companies. They had not left/ resigned that company but were transferred/ assigned to the appellants. After completion of the assignment, they were to report back to the foreign company. * Income Tax is levied on the source rule. i.e. Tax is leviable in the country where services have been provided even if payment is made out of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0084/2020 seeking opportunity of hearing in the matter to explain certain points being made by them in written submissions. These applications were heard and allowed on 27.02.2020. Accordingly matter was posted for hearing on 28.02.2020. 3.5 On 28.02.2020, learned counsel for the appellant made following submissions: * During the course of argument in the matter earlier he has not raised the point in relation to issue estoppel which is in appeal memo filed by them, this point should be taken on record as the issue for earlier periods has been adjudicated in their favour. * He has filed the affidavits from the parent company, duly certified by the concerned embassies, endorsing his submissions that they had received the exact amount as paid by them to expats in foreign currency. 4.1 We have considered the impugned order with the submissions made in appeal, during the course of arguments and in the writtens submissions filed. 4.2 Appellants have assailed the impugned orders on the grounds of :- a. Issue Estoppel b. The issue regarding levy of service tax in respect of payments of salary to expats, is squarely covered in their favour by various decisions of tribunal, and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise, AIR 1991 SC 999 it was held by court, of which one of us (R. M. Sahai, J.) was a member, that if an item was found dutiable then the department could not be prevented from levying duty on it because it had earlier approved classification as there is no estoppel against statute." 4.4 In view of the above decisions we are not in position to agree with the submissions made by the Appellants invoking the principle of estoppel. 4.5 We also not that in case of U R Malpani [1999 (110) ELT 317 (SC)+, Hon'ble Supreme Court has refused to apply the principle of "issue estoppel" to the criminal prosecution of accused, even after noting that he has been acquitted by the Commissioner in adjudication proceedings. The relevant paragraphs of said decision are reproduced below: "These appeals by certificate arise from the decision of the High Court of Bombay in Criminal Revision Application No. 238 of 1966 wherein the following questions of law arise for decision: (i) Whether the prosecution from which these Criminal Revision Petitions arose is barred under Art. 20 (2) of the Constitution as against accused Nos. 1 and 2 in that case by reason of the decision of the Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a lawful trial is not completely stated by saying that the person acquitted cannot be tried again for the same offence. To that it must be added that the verdict is binding and conclusive in all subsequent proceedings between the parties of the adjudication. The maxim "Res judicata pro veritate accipitur" is no less applicable to criminal than to civil proceedings. Here, the appellant having been acquitted at the first trial on the charge of having ammunition in his possession, the prosecution was bound to accept the correctness of that verdict and was precluded from taking any step to challenge it at the second trial. And the appellant was no less entitled to rely on his acquittal in so far as it might be relevant in his defence. That it was not conclusive of his innocence on the firearm charge is plain, but it undoubtedly reduced in some degree the weight of the case against him, for at the first trial the facts proved in support of one change were clearly relevant to the other having regard to the circumstances in which the ammunition and revolver were found and the fact that they fitted each other." 9. The rule laid down in that decision was adopted by this Court in Pritam S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion separately we refer to the decision of Hon'ble High Court in case of Computer Science Corporation *2014 (52) taxmann.com 256 (Allahabad)+, Hon'ble Allahabad High Court has held as follows: "8. In the present case, the Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical requirements of clause (k) of Section 65(105) are fulfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t parent company were not covered by the definition of Manpower Supply Services, under Section 65 (105)(k) as it existed then will have no application to the facts of this case. Hence the submission made by the appellants counsel, by referring to various decisions deciding the issue for period prior to 01.07.2012, that the issue is no longer res-integra, cannot be agreed to. Nature of transaction between Appellant and its Parent Company 4.10 As per Section 65 B (44) inserted in Finance Act, 1994 and made effective from 01.07.2012 (para 4.9 supra) the "service" has been defined to mean any activity done by one person for another for a consideration. This definition has widened the scope of service much beyond the term "service" as was interpreted by the the Apex Court in case of Lucknow Development Authority vs M K Gupta [1994 SCC (1) 243] holding as follows: "4. What is the meaning of the word 'service'? Does it extend to deficiency in the building of a house or flat? Can a complaint be filed under the Act against the statutory authority or a builder or contractor for any deficiency in respect of such property. The answer to all this shall depend on understanding of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all actual or potential users. But the legislature did not stop there. It expanded the meaning of the word further in modem sense by extending it to even such facilities as are available to a consumer in connection with banking, financing etc. Each of these are wide-ranging activities in day to day life. .........." 4.11 In U K, VAT Legislation, also defines supply of service in very manner stating as follow: "(b) anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services." The same definition has been adopted across the entire European Union. The crux of the definition, is that anything done for a consideration which does not qualify as supply of goods is a supply of service. Similar explanation has been given in the Education Guide, issued by the "Central Board of Excise and Customs" at time of introduction of these amendments in 2012. The relevant portion of the guide explaining the meaning of phrase activity for consideration is reproduced below: "2.3 Activity for a consideration The concept 'activity for a consideration' involves an element of contractual rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by an employer to the employee outside the ambit of services? No. Only services that are provided by the employee to the employer in the course of employment are outside the ambit of services. Services provided outside the ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service. 2.9.2 Would services provided on contract basis by a person to another be treated as services in the course of employment? No. Services provided on contract basis i.e. principal-to-principal basis are not services provided in the course of employment." 4.13 Service tax is a transaction and contract based levy. Which means that for determination of liability to service tax, the transaction sought to be taxed needs to be examined and all other factors which are extraneous to such transaction need to be ignored or discarded. In this respect following documents need to be considered: A. International Assignment Letter issued by the foreign company, which provides as follows:- a. The expats get a specific amount payable to him/her as fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities, carried out for a consideration except those covered under exclusion clause, negative list or specifically exempted are subjected to service tax. It is not the case of the Appellant, that the services provided by the Expats fall under the negative list or are exempted by way of an exemption notification under Section 93 of Finance Act, 1994. Since we do not find that the services provided by the Expats qualify as services provided by employees to employers in course of employment, we are not in position to extend the benefit of exclusion clause to appellants, and hold that the services are liable to tax. 4.15 It has been time and again stated by the Hon'ble Apex Court that any exclusion clause, which is an exception to general tax policy needs to be construed in a strict manner and interpreted giving the benefit of ambiguity, doubt in favour of revenue. Some of the decisions on the point and relevant paragraphs of the same are reproduced below: * In case of Rajasthan Spg and Wvg Mills Ltd [1995 (77) ELT 474 (SC)] held that "it is for the assessee to establish that the goods manufactured by him come within the ambit of the exemption notification. Since it is a case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig Refining Company [94 L Ed 381 : 338 US 604 (1950)] be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961. However, just deduction of TDS cannot be conclusive proof for establishing employer employee relationship. Also the deduction of TDS was as per Sub-regulation 8 of Regulation 7 Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2000 and FEMA notification which provides that "Income Tax is chargeable on the entire salary as accrued in India" and hence, cannot be considered as an evidence to prove that the said expats were the employees of the appellants. The above provisions read with the agreements for payment facility between the companies and expats, it is evident that the expats were foreign citizens, resident in India, employees of foreign company, receiving remuneration as payable to them by the foreign company. Hence in our view just for the reason that Appellants were deducting TDS from the remuneration made to the Expats it cannot be concluded that there existed an employer employee relationship between the Appellant and Expats. Decision of Delhi Bench in case of India Yamaha Motor Private Ltd. 4.17 In our view the decision of Delhi Bench in case of India Yamaha Motor Private Ltd [Final Order No 50890/2019 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with provision of law. Penalty under Section 77 is civil in nature and are imposed for infractions noticed. Hon'ble Supreme Court has in case of Gujarat Travancore Agency vs. Commissioner of Income Tax [1989 (42) ELT 350 (SC)], Hon'ble Supreme Court held as under: "4. ..........In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent. The creation of an offence by Statute proceeds on the assumption that society suffers injury by and the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st appellant to modify the demand withdrawing penalty under S. 76. Therefore, the judgment of the learned Single Judge, to the extent it directs the first appellant to modify Ext. P1 by withdrawing penalty levied under S. 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs." Since appellants had not paid the service tax due from them in the manner prescribed by the due date, in our view the penalty imposed under Section 76 is justified. 5.1 In view of discussions as above we do not find any merits in the appeals filed by the appellant and dismiss the same. (Pronounced on /06/2020) (ASHOK JINDAL) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) 6. As I am not in agreement with the decision taken by the learned brother, therefore, I am writing a separate order. 7. Without commenting on the merits of the case during the course of hearing, Ld. Counsel for the appellant relied upon on the two decisions of Principal bench of Delhi:- (a) M/s. Mikuni India Pvt.Ltd.-2019 (546-CESTAT-DEL-ST (b) India Y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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