TMI Blog2022 (5) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed. Section 65 (44) excludes from its sweep [by clause (b)], a provision of service by an employee to the employer in the course of or in relation to his employment. The assessee contends that the secondment agreement has the effect of placing the overseas employees under its control, so to say, and enables it to require them to perform the tasks for its purposes. It emphasizes that the real nature of the relationship between it and the seconded employees is of employer and employee, and outside the purview of the service tax regime - It is evident, that prior to July 2012, what had to be seen was whether a (a) person provided service (b) directly or indirectly, (c) in any manner for recruitment or supply of manpower (d) temporarily or otherwise. After the amendment, all activities carried out by one person for another, for a consideration, are deemed services, except certain specified excluded categories. One of the excluded category is the provision of service by an employee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 19-5-2022 - [JUSTICE UDAY UMESH LALIT], [JUSTICE S. RAVINDRA BHAT] And [JUSTICE PAMIDIGHANTAM SRI NARASIMHA] For the Appellant : Mr. Balbir Singh, ASG Mr. Akshay Amritanshu, Adv. Ms. Swati Ghildiyal, Adv. Mr. Divyansh H. Rathi, Adv. Mr. Shyam Gopal, Adv. Ms. Preeti Rani, Adv. Mr. Mukesh Kumar Maroria, AOR For the Respondent : Mr. V. Sridharan, Sr. Adv. Mr. Ravi Raghavan, Adv. Mr. Aditya Bhattacharya, Adv. Ms. Mounica Kasturi, Adv. Ms. Apeksha Mehta, Adv. Ms. Sudeshna Banerjee, Adv. Ms. Charanya Lakshmikumaran, AOR JUDGMENT S. RAVINDRA BHAT, J. 1. The Commissioner of Central Excise and Service Tax (hereafter variously described as the revenue or the appellant ) has preferred appeals Under Section 35L (b) of the Central Excise Act, 1944 , directed against the impugned orders of the Customs, Excise and Service Tax Appellate Tribunal (hereafter CESTAT ) Dated 23.12.2020 in Service Tax Appeal (STA) Nos. 22573-74/2014; STA No. 21502/2017, Service Tax/CROSS/21077/2017 and Service Tax/CROSS/20255/2018 which set aside two orders dated 03.03.2014 and 04.03.2014 by the Commissioner of Service Tax (hereafter the Commissioner ). The Commissioner had confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personnel stipulating all the terms of the employment. d) The employees so seconded would receive their salary, bonus, social benefits, out of pocket expenses and other expenses from the group company. e) The group company shall raise a debit note on Appellants to recover the expenses of salary, bonus etc. and the Appellants shall reimburse the group company for all these expenses and there shall be no mark-up on such reimbursement. As a matter of fact, the assessee issues the prescribed forms to the seconded employees, in terms of the Income Tax Act, 1961 (hereafter IT Act ). Those individuals too file income tax returns and contribute to the provident fund. Furthermore, NOS remits the above amounts in foreign exchange, which are reflected in its financial statements. The assessee is reimbursed (by the foreign entity, Northern Trust Company - hereafter described as such) for the amounts it pays as salaries, to these seconded employees. The assessee pays for certain services received from the group companies. The assessee used to discharge service tax on payments for such services in terms of Section 66A of the Act. The appropriate major expense heads were Sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (k) would be triggered at that event. Sixthly, it was held that there is no exclusive provision in law that restricts taxability of service of manpower recruitment or supply agency, when salaries are drawn by the assessee for manpower so supplied and TDS under the Income Tax Act had been affected. Regarding differential service tax liability, mere worksheets without documentary proof would be insufficient to grant relief as against the service tax of ₹ 41,11,473/- for the period 2008-2009. 5. It was also ruled that the assessee had not separately disclosed details of the gross receipts (as receiver of service) of the said services in the taxable value in the half-yearly ST-3 Returns filed by them with the department, with intent to evade payment of service tax. On the eligibility of CENVAT Credit, the onus of furnishing the evidence or documents indicating factual eligibility of CENVAT credit within the scope of Rule 3(1) of the CENVAT Credit Rules, 2004 (hereafter CENVAT Rules ) had not been discharged by the assessee. The Commissioner was of the view that the assessee was aware of the provisions of law and had placed nothing on record to indicate the circumstances tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their secondment. Thirdly, each employee had to report to and be responsible to the assessee. Fourthly, a look at one sample agreement showed that it was between the individual and the asseesee, and not between the overseas entity and the asseesee. Fifthly, the obligation to honour the compensation agreement was upon the assessee only. Sixthly, the facts were parallel to Volkswagen India Pvt. Ltd 2014 (34) STR 135 , in which the CESTAT decided the matter in favour of the assessee. Seventhly, there was no supply of manpower rendered to the assessee by the foreign holding company and the method of salary disbursement is not determinative of the nature of the transaction. Eighthly, for the period post 2012, the remittance is a reimbursement based on actuals and there is no amount which is payable in respect of the activity in question and therefore there is no consideration involved. 9. Aggrieved by the Commissioner's order dropping the demand, the Revenue has filed an appeal challenging it, in which the assessee too filed its cross objection. The impugned order 10. The CESTAT, by its order noted the position in law that earlier, the definition of taxable services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid salaries by the assessee in India, for which tax was deducted and paid to statutory benefits such as provident fund. The assessee also remitted contributions to be paid toward social security and other benefits on account of the employees, under the laws applicable to the group companies abroad. In these circumstances, it was held that the overseas group companies which had contracted with the assessee were not in the business of supply of manpower and that the assessee was not a service recipient. On the strength of this reasoning, the assessee s appeals were allowed and the revenue s appeals were rejected. Contentions of Revenue 12. Mr. Balbir Singh, learned ASG relied upon the materials produced before the CESTAT. He submitted that in terms of the Services Agreement (dated 01.09.2006), by Clause 8, the assessee NOS agreed to perform or provide to the foreign group company (Northern Trust Company) various services which were enumerated in Attachment 1 or such other services as would be agreed to by the parties in future. In terms of Attachment 1, the assessee was to provide IT enabled services supporting back-up and office related operations. It was submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, etc. were fixed. It was highlighted that in terms of this agreement, the base salary and bonus of the employee clause read as follows: Effective with your assignment in Bangalore, India, your base salary will be US$ 3,30,000/-. In addition to the salary liability, servant allowance and hardship allowance (fixed at 20% of the base salary during the assignment in Bangalore was payable.. 14. The revenue contended that looking at an overall reading of the agreement, i.e. services agreement dated 01.09.2006 and its attachment, the master service agreement dated 12.02.2009 (with its annexures), the secondment agreement dated 01.04.2007, and the secondment assignment letter or agreement with the concerned employee clearly showed that the overseas employer provided the services of its employees to the assessee for the performance of agreed tasks. These tasks were handed over to the assessee by the overseas group company. It was not as if the assessee was free in regard to the manner of performance of the jobs assigned to it. The consideration provided to it was fixed (15% markup over the actual costs incurred); the costs included the remuneration nominally paid by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ag: Wolters KLuwer, Law and Business (2015) . He also placed reliance on the judgment of this Court in Smt. Savita Garg v. The Director, National Heart Institute (2004) 8 SCC 56 ; Workmen of Nilgiri Cooperative Marketing Limited v. State of Tamil Nadu Ors. (2004) 3 SCC 514 ; Silver Jubilee Tailoring House v. Chief Inspector of Shops (1974) 3 SCC 498 ; Hussain Bhai Calicut v. Alath Factory Thozhilali (1978) 4 SCC 257 and Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021) 7 SCC 151 . 19. It was submitted that whether a particular contract is one for providing services or not is to be decided on the facts of an individual case. Further, the fact of control over the manner of performance of duties or any one such singular factor cannot be decisive. It was submitted that the facts of the present case clearly establish that the overseas company entered into specific secondment agreements by which its employees were deputed to work in the assessee s establishment. The tasks performed by them were in aid of the assessee s work which was undertaken by it in the service agreement with the overseas company. The salary, allowances the duration of the secondment, wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , ever since the introduction of service tax in India, service by an employee to an employer was never subject to service tax. There is no country in the world which levies VAT/GST on employment service, or any services rendered by an employee to the employer. 23. Counsel urged that the agreements entered by the assessee with its group companies were to provide certain specialized services. The seconded personnel are contractually hired as the assessee s employees. Control over them is exercised by the assessee. Such employees devote all their time and efforts under the direction of the assessee; their remuneration is also fixed by it. The employees seconded to India are required to report to the assessee s designated offices. They are accountable for their performance to the assessee; the process of dispersal of the salaries and allowances is solely for the sake of convenience and continual of the social security benefits in the expats home county. 24. It was urged that in Collector of Central Excise Service Tax v. Nissin Brake India (P) Ltd Civil Appeal Diary No(s). 45344/2018 (C.A. No. 2408 / 2019) , this court while considering similar set of facts dismissed the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period October 2006 to September 2010, should be set aside. The assessee was under the bona fide belief that the seconded employees were its employees and therefore, not covered under the ambit of manpower supply services. Further, in any case, the assessee is entitled to avail refund of the service tax paid on input services under Rule 5 of the CENVAT Rules read with Rule 6A of the Service Tax Rules, 1994. Therefore, there can be no intention to evade tax. Counsel also urged that the bona fide belief was further strengthened by the fact that for the subsequent period (April 2012 to September 2014), the Adjudicating Authority itself dropped the demand by recording favourable findings. 29. It was lastly urged that services received by the assessee from foreign group companies would qualify as input services and that it is eligible to avail credit of service tax paid on such input services. Therefore, even if the said demand of service tax is paid, the entire amount is available as input credit and is refunded to the Respondent in cash by virtue of Rule 5 of the CENVAT Rules read with Rule 6A of the Service Tax Rules, 1994 ( 1994 Rules ). The assessee relied on detailed facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r includes services in relation to pre-recruitment screening, verification of the credentials and antecedents of the candidate and authenticity of documents submitted by the candidate;.. The provisions, post amendment in 2012 (w.e.f. 01.07.2012), read as follows: Interpretations. 65B. In this Chapter, unless the context otherwise requires, - xxxxxx xxxxxx xxxxxx (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1.- For the removal of doubts, it is hereby declared that nothing contained in this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack-office banking and related operations The part relating to consideration, i.e., fee (payable to the assessee) reads as follows: Beginning September 1 2006, NOS shall charge Northern Trust for all actual costs incurred in providing the agreed services, plus a mark up of 15.0%. 32. The provisions of the secondment agreement, entered between NTMS and the assessee, to the extent relevant read as follows: SECONDMENT AGREEMENT This SECONDMENT AGREEMENT (this Agreement ) is entered into and effective April 1, 2007 by and between: Northern Trust Management Services Ltd a company incorporated under the laws of the United Kingdom with its principal office located at 50 Bank Street, London, E14 5NT, (hereinafter referred to as NTMS'), and Northern Operating Services Private Limited, a company organised and existing under the laws of India and having its principal office at RMZ Ecospace Campus 1C, Sarjapur Outer Ring Road, Bangalore-5600037, India (hereinafter referred to as NOS ). WITNESSETH: xxxxxx xxxxxx xxxxxx ARTICLE I SECONDMENT NOS shall request NTMS to provide employees ( the Employees) who have the expertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) All out-of-pocket expenses incurred by the seconded Employees and reimbursed by NTMS, including but not limited to, business travel expenses and other miscellaneous expenses, directly related to the secondment of the Employee. It is specifically agreed that the payments by NOS to NTMS shall be limited to actual costs incurred, including administrative costs, as may be reasonably attributable to payroll services provided by NTMS. Administrative cost for this purpose would be 1% of actual cost incurred. The parties agree that during the Secondment Period, the role of NTMS is restricted to that of a payroll services provider only. ARTICLE VII INDEMNIFICATION NTMS will endeavor to provide appropriate qualified Employees for secondment under this Agreement. Nothing in this Agreement, shall be construed as a warranty of the quality of the seconded Employees. Further NOS shall hold NTMS harmless and shall indemnify NTMS from all claims, demands, suits, actions, loss, damage, costs and expenses (excluding consequential loss or damage) to which NTMS may become liable in respect to any and all loss, damage or injury as a result of any act or omission by the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brian Ovaert, This letter of agreement between Northern Operating Services Private Limited (NOS) and Brian Ovaert confirms our mutual understanding of the terms and conditions applying to your employment with the Company while on international assignment to Northern Operating Services Pvt. Ltd. in the position of Regional Executive reporting directly to NOS Board of Directors. xxxxxx xxxxxx xxxxxx Duration The effective date of your international assignment is July 1, 2012, and it is expected that your assignment to and employment with NOS will be 12 months in duration. At its conclusion, repatriation will be in accordance with the Global Mobility Repatriation Policy. Alternatively, by mutual agreement, your assignment to and employment with NOS may be extended. Should this be the case, an extension letter will be entered into between NOS and yourself. However, you have the right to terminate your employment at any time for any reason and the Company has the same right. xxxxxx xxxxxx xxxxxx Vacation/Local Public Holidays Your annual vacation entitlement is currently 20 days. You will be entitled to all local public holidays observed by NOS. However, yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be met. You should note that certain items may be excluded from shipment and storage. You will be advised if this is the case. Your air shipment allotment Is 600 lbs. for you and your spouse. Furniture Allowance in Lieu of Shipment In lieu of shipping some or all of your current household furnishings via ocean freight to Bangalore, India, you can receive a furniture allowance which would be an amount based on country norms. Your furniture allowance is USD $9,000. xxxxxx xxxxxx xxxxxx Personal Vehicle Disposal You will be reimbursed for a loss you incur when selling your personal vehicle(s), upon initial transfer to Bangalore, India up to a maximum of US$5,000 for each car. Details of the car losson-sale policy are described in the Global Mobility Policy. R R Trips You will be provided two (2) R R trips in a 12 month period for you and your spouse to leave Bangalore, India. These trips are in addition to your two annual home leave trips. The R R allowance is non- accountable and is intended to assist with hotel and airfare costs. Providing an allowance allows you the flexibility to choose the length and destination of your R R tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed. 35. In Director Income Tax v. M/S Morgan Stanley Co. Inc (2007) 7 SCC 1 this court had to consider whether an arrangement involving secondment, in the context of liability to income tax. The court had observed: 17. As regards the question of deputation, we are of the view that an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with MSCo the said company retains control over the deputationist s terms and employment. The concept of a service PE finds place in the UN Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y another order, was relied on. 38. Questions that have repeatedly arisen, in different contexts, and at different times, is whether the facts of a given case reveal, who is the employer, and whether the relationship between an employee and another, is one of master servant, or whether there is an underlying contract for service, by which the real employer, lends the services of his employee to another. In Dharangadhara Chemical Works Ltd. v. State of Saurashtra 1957 SCR 158 this court observed as follows: The principle which emerges from these authorities is that the prima facie test for the determination of the relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work, or to borrow the words of Lord Uthwatt at p. 23 in Mersey Docks and Harbour Board v. Coggins Griffith (Liverpool) Ltd. [(1952) SCR 696, 702] The proper test is whether or not the hirer had authority to control the manner of execution of the act in question. 39. In D.C. Dewan Mohideen Sahib and Sons v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer employee relationship subsists: This distinction (viz., between telling a servant what to do and telling him how to do it) was based upon the social conditions of an earlier age; it assumed that the employer of labour was able to direct and instruct the labourer as to the technical methods he should use in performing his work. In a mainly agricultural society and even in the earlier stages of the Industrial Revolution the master could be expected to be superior to the servant in the knowledge, skill and experience which had to be brought to bear upon the choice and handling of the tools. The control test was well suited to govern relationships like those between a farmer and an agricultural labourer (prior to agricultural mechanization) a craftsman and a journeyman, a householder and a domestic servant, and even a factory owner and an unskilled 'hand'. It reflects a state of society in which the ownership of the means of production coincided with the profession of technical knowledge and skill in which that knowledge and skill was largely acquired by being handed down from one generation to the next by oral tradition and not by being systematically imparted in inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes to professionals who may be employed. A variety of cases come in between cases which are crystal clear-for example, a master in a school who is employed like other employees of the school and who gives music lessons as part of his employment, as against an independent professional piano player who gives music lessons to persons who visit her premises. Equally, a variety of cases arise between a ship's master, a chauffeur and a staff reporter, as against a ship's pilot, a taxi driver and a contributor to a newspaper, in order to determine whether the person employed could be said to be an employee or an independent professional. The control test, after moving away from actual control of when and how work is to be performed to the right to exercise control, is one in a series of factors which may lead to an answer on the facts of a case slotting such case either as a contract of service or a contract for service. The test as to whether the person employed is integrated into the employer's business or is a mere accessory thereof is another important test in order to determine on which side of the line the contract falls. The three-tier test laid down by some of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (the expression is not defined; however, by Section 3 (42) of the General Clauses Act, the term includes any company or association or body of individuals whether incorporated or not ); (b) provides service (c) directly or indirectly, (d) in any manner for recruitment or supply of manpower, (e) temporarily or otherwise 44. The question is what are the services provided to the assessee, and by whom? Do they include the provision of services, through employees, by its overseas group companies or affiliates? After 01.07.2012, the definition of service underwent a change. Except listed categories of activities excluded from, or kept out of the fold of the definition, every activity virtually is service . Now, by Section 65 (44), service means (a) any activity (b) carried out by a person for another (c) for consideration, and (d) includes a declared service (the term declared service is defined in Section 66E). 45. Section 65 (44), however, excludes from its sweep [by clause (b)], a provision of service by an employee to the employer in the course of or in relation to his employment. The assessee contends that the secondme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cure 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 secondment, is und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had indulged in wilful suppression, in this court s considered view, is insubstantial. The view of a previous three judge ruling, in Cosmic Dye Chemical v. Collector of Central Excise (1995) 6 SCC 117 - in the context of Section 11A of the Central Excise Act, 1944, which is in identical terms with Section 73 of the Finance Act, 1994 was that: Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word wilful preceding the words misstatement or suppression of facts which means with intent to evade duty. The next set of words contravention of any of the provisions of this Act or rules are again qualified by the immediately following words with intent to evade payment of duty . It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful. 63. This decision was followed in Uniworth Textile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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