TMI Blog2023 (7) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... othing but manpower recruitment service. The decisions of the Hon ble Apex Court in C.C.,C.E. S.T. BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD. [ 2022 (5) TMI 967 - SUPREME COURT] , clearly hold that the definition of manpower recruitment or supply agency is wide enough to include recruitment as well as supply of manpower. The expression supply is of a wider connotation than recruitment - thus the ratio of the above rulings squarely apply to this case and thus, there is no escape for the appellant before us from Service Tax liability in respect of manpower recruitment or supply agency service under reverse charge mechanism - the appellant is required to pay applicable Service Tax for the normal period along with interest. Time limitation - suppression of facts or not - HELD THAT:- On perusal of the table indicating the dates of SCN/SODs and periods covered vis- -vis the other table wherein the visit by the officers of the Revenue on various dates is depicted. From the above, even if it were to be assumed that the appellant had received manpower supply services, the fact remains that the whole of the activities were within the knowl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same would fall within the definition of manpower recruitment or supply agency service under Section 65(68) of the Finance Act, 1994 since providing supply of manpower service temporarily or otherwise would be covered under the above definition. 2.2 Drawing reference to C.B.E.C. Circular F. No. 137/35/2011-S.T. dated 13.07.2011 vis- -vis Secondment Agreement, it appeared to the Department that deputation of foreign employees/expatriates by M/s. NMC to the appellant would be covered under import of service under the definition of manpower recruitment or supply agency service and hence, the appellant was liable to pay Service Tax under reverse charge mechanism as per erstwhile Section 66/66A and Section 68 ibid. read with the Place of Provision of Services Rules, 2012 issued under Notification No. 28/2012-Service Tax dated 20.06.2012 and Notification No. 30/2012-Service Tax dated 20.06.2012. 3.1 As a sequel, a Show Cause Notice No. 58/2014 dated 21.04.2014 came to issued, wherein the features of the Secondment Agreement have been highlighted at paragraph 4. It is recorded at paragraph 6 the liability of the appellant to pay Service Tax; reference is made to erstwhile Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counted for expenditure in its financial statements as personnel expenses; appellant has been issuing TDS certificate in Form 16 under the Income Tax Act; and that the secondee was to carry out the work under the guidance, direction and the supervision of the appellant and such secondee should comply with the appellant s internal rules regarding working hours and working days. 4.2 The appellant further appears to have submitted with regard to employment contract that the same would provide the job title, contract period, department, effective date of their appointment, annual salary in INR along with perks and that the same was governed by the laws as applicable in India. 4.3 It has also been pleaded in their reply that such secondees are on Employment Visa, being the employees of an Indian company by virtue of the employment contract with the appellant; the fact that the appellant had disclosed the amounts paid to the secondees as salary under the head salaries, wages and bonus and hence, there was no service provider-service recipient relationship between the appellant and M/s. NMC. It was also pleaded that just because M/s. NMC disbursed social security contribution of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Tax payable for the period from April 2016 to June 2017 under Sections 73(1) and 73(2) ibid., along with applicable interest and penalty. 6.1 The learned Adjudicating Authority has given the following findings, to confirm the demands proposed in the Show Cause Notice/Statements of Demand: - During the secondment period, the expats would remain as employees of M/s. NMC, which means that they were under the control of M/s. NMC. Expats are supplied to the appellant on certain terms and conditions, for a specific period and to perform specified tasks. From the Secondment Agreement it is clear that a part of compensation is granted by M/s. NMC on behalf of the appellant, which was reported to the appellant for onward reimbursements. M/s. NMC have the right to replace the secondee or change the secondment period after issuing notice to the appellant. Individual contract with expats were purely based on the Secondment Agreement, to give effect to certain provisions of the agreement. Conditions of employment of expats are determined by the Secondment Agreement between the appellant and M/s. NMC and not that with the expats. Appellant cannot ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee relationship between the appellant and the expats. The Secondment Agreement rather enables the assigning of employees of M/s. NMC to work for a specified period for the appellant. There was cash flow to M/s. NMC for maintenance of the expats on record of the original employer, which was to be construed as service under Section 67 of the Finance Act, 1994, and hence there was consideration for the service. Thus the tax obligation on the amount paid in foreign currency to the expats was on the appellant, which is also the consideration. Salaries paid to the expats are a consideration includible in the gross amount in terms of Section 67; since the transaction is between the related parties, the value adopted did not represent true transactional value, which therefore has to include salary, In view of changes from 01.07.2012 (Negative List), a service is taxable if it conforms with the definition of service under Section 65B(44) or figuring in Section 66E, but not listed under Section 66D ibid. Payment made by the appellant to M/s. NMC is for import of service; the same is the consideration for service, which is not listed in the Negative List an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion came to be amended only with effect from 14.05.2015 to include reimbursable expenditure; it has been held in the Show Cause Notice that salary paid to the expats are nothing but reimbursement of expenses and the proposed demand was based on Rule 5 ibid. (at paragraphs 6.7 and 12(i) of the Show Cause Notice dated 21.04.2014 as well as paragraph 6(2) of the Show Cause Notice dated 23.03.2017). 9.2 It is contended that the above proposal is thus directly contrary to the ruling in the case of Union of India Anr. v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)] and therefore, any demand here for the period from October 2008 to May 2015 does not survive. 9.3.1 Without prejudice to the above, the Learned Advocate would submit that the demand has been proposed and confirmed by invoking the extended period of limitation under Section 73 (1) of the Act and the only contention of the Revenue is that the nature / deployment of personnel was not disclosed. 9.3.2 It is his further case that the appellant was subjected to various audits / scrutiny by the Department officials from time to time and all the information along with document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire activities including the alleged manpower supply service being very much within the knowledge of the Department Officials, there was no question of suppression of any facts, to justify invoking the extended period of limitation. He placed reliance on the following case-law in support: - M/s. International Merchandising Company, LLC v. Commissioner of Service Tax, New Delhi [2022 (67) G.S.T.L. 129 (S.C.)] Commissioner of Central Excise, Bangalore v. M/s. Pragathi Concrete Products (P) Ltd. [2015 (8) TMI 1053 Supreme Court] 9.4 Without prejudice to the above, he would make the following submissions on merits, which are summarized as under: - (i) The appellant had furnished documents like Employment Visa, TDS Certificates, PF Registration, etc., which proved that the expats were on the rolls of the appellant. (ii) What was paid by the appellant was nothing but the salary and not reimbursements as concluded by the Adjudicating Authority. (iii) The appellant and M/s. NMC have agreed to the split payment, that is to say, the salary part to be paid by the appellant and the social security of the expats was to be met by M/s. NMC, which alone was to be reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that even if the Service Tax is required to be paid on the salary paid to the secondees, that entitles the appellant to avail CENVAT Credit. Thus, it is his case that the CENVAT Credit that could be availed, would be claimed as refund. It is thus pleaded that the entire issue is revenue neutral, for which reason the demand of tax on the salary paid to the secondees and the interest charged thereon cannot survive. 9.7.2 In this regard, he placed reliance on the following case-law: - Nirlon Ltd. v. Commissioner of Central Excise, Mumbai [2015 (320) E.L.T. 22 (S.C.)] Commissioner of C.Ex. Cus., Vadodara v. Narmada Chematur Pharmaceuticals Ltd. [2005 (179) E.L.T. 276 (S.C.)] Punjab Tractors Ltd. v. Commissioner of C.Ex., Chandigarh [2005 (181) E.L.T. 380 (S.C.)] Commissioner of Cus. C.Ex. v. Textile Corpn. Marathwada Ltd. [2008 (231) E.L.T. 195 (S.C.)] Goa Industrial Products v. Commissioner of Central Excise, Goa [2005 (181) E.L.T. 222 (Tri. -Mumbai)] Ashirwad Foundaries Pvt. Ltd. v. Commissioner of CGST Central Excise, Kolkata North Commissionerate [2020 (3) TMI 847 CESTAT, Kolkata] 9.8 It is further contended on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant. 12. We have heard the rival contentions and we have perused the documents placed on record including the Secondment Agreement entered into between the appellant and M/s. NMC and the employment agreement entered into between the appellant and the expats. We have also gone through the decisions relied upon by both the sides. Issue on merits: 13.1 From the facts of the case and the documents placed on record, we find that the appellant made payments directly to the expats like salary and other allowances, which are not reimbursement of any expenditure. 13.2 Further, we find that there is no dispute as to the provision of manpower recruitment or supply agency service, for which Service Tax is paid by the appellant, though under reverse charge mechanism. 13.3 The relevant portion of Section 67 of the Finance Act, 1994 reads as under: - SECTION 67. Valuation of taxable services for charging service tax. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, (i) in a case where the provision of service is for a consideration in money, be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but manpower recruitment service. 13.6.1 At this juncture, we deem it appropriate to refer to the decisions of the Hon ble Apex Court in the cases of M/s. International Merchandising Company, LLC (supra) and M/s. Northern Operating Systems Pvt. Ltd. (supra). 13.6.2 In the decision in the case of M/s. International Merchandising Company, LLC (supra), the Hon ble Apex Court has observed as under: - 8. The Commissioner ruled that the consideration paid to FSE for appearance of VA for a sports tournament is taxable under the definition of manpower recruitment or supply agency . The Commissioner observed that the source of supply of skilled manpower is outside India and has been received by the appellant in India. The Commissioner further ruled that any programme made by a programme producer and then offered for sale to different TV channels or broadcasters for relay is a taxable activity. The Commissioner concluded that the transaction made by the appellant with Zee Telefilms includes element of service and is taxable. 9. Aggrieved by the order of the Commissioner, the appellant lodged appeals before the Tribunal. The Tribunal by its judgment dated 29 May, 2020 held aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er recruitment or supply agency must be constrained by a further requirement of the existence of an employer-employee relationship between the manpower supply agency and the person whose services are provided. Plainly, the definition does not incorporate such a requirement or condition. .. . 17. ..But it does not postulate that such a relationship must exist for the statutory definition to be attracted. Hence, the fact that there may be no relationship of employment between VA and FSE would not be dispositive for the purposes of the statutory definition in Section 65(68). For the above reasons, we are of the view that the decision of the Tribunal on this aspect of the matter cannot be faulted with. 13.6.4 In the decision in the case of M/s. Northern Operating Systems Pvt. Ltd. (supra), which is decided by the Three-Judge Bench of the Hon ble Supreme Court, the relevant observations of the Hon ble Court are as under: - 11. The CESTAT then, on an examination of the agreements, interpretation of documents on record (including the agreements entered by the respondent with its group company), held that the subject matter of the contract was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, and the nature of the service provided - in that context - by the overseas group company to the assessee. 50. The above features show that the assessee had operational or functional control over the seconded employees; it was potentially liable for the performance of the tasks assigned to them. That it paid (through reimbursement) the amounts equivalent to the salaries of the seconded employees - because of the obligation of the overseas employer to maintain them on its payroll, has two consequences : one, that the seconded employees continued on the rolls of the overseas employer; two, since they were not performing jobs in relation to that employer s business, but that of the assessee, the latter had to ultimately bear the burden. There is nothing unusual in this arrangement, given that the seconded employees were performing the tasks relating to the assessee s activities and not in relation to the overseas employer. 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the clauses of the SA in the case on hand, which are extracted elsewhere in this order, that the terms and conditions and scope of the SA is more or less identical to that of the assessee before the Hon ble Apex Court in the case of M/s. Northern Operating Systems Pvt. Ltd. (supra). 13.8 The above decisions of the Hon ble Apex Court, according to us, clearly hold that the definition of manpower recruitment or supply agency is wide enough to include recruitment as well as supply of manpower. The expression supply is of a wider connotation than recruitment. We are therefore of the view that the ratio of the above rulings squarely apply to this case and thus, there is no escape for the appellant before us from Service Tax liability in respect of manpower recruitment or supply agency service under reverse charge mechanism. 13.9 As such, we hold that the appellant is required to pay applicable Service Tax for the normal period along with interest. However, we agree with the contention of the appellant there is no suppression of facts involved and that being the case, the penalties imposed are set aside. Decision on the point of limitation: 14. We will now con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, shall be recovered from the assessee. Revenue neutrality: 15.1 It has been canvassed before us that even if the payment of salary to the secondees is to be considered as consideration for quantification of the Service Tax liability, there is no doubt that the same would entitle the appellant to avail CENVAT Credit of the same and thus, the appellant could always seek refund. This, according to the Learned Advocate, establishes the fact that the issue is revenue neutral insofar as the demand of Service Tax on salary paid to the expats is concerned. 15.2 In the case of M/s. Northern Operating Systems Pvt. Ltd. (supra), the Hon ble Court did not go into the issue for the reasons given at paragraph 59 of the said order. To repeat the same, it has been held: 59. . .. it is noticeable that the two orders relied on by it (in SRF and Coca Cola) by this Court, merely affirmed the rulings of the CESTAT, without any independent reasoning. Their precedential value is of a limited nature. This Court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in the case of M/s. Pragathi Concrete Products (P) Ltd. (supra) wherein it has been held that when a unit of the taxpayer therein was audited several times during the period and there were also physical inspections by the Department as well, there could not be any case of suppression. 18. In view of the above guiding principles laid down by the Hon ble Apex Court, we do not have any doubt that it is the case of a revenue neutral situation and that by suppressing the same, the appellant / assessee could not have achieved any benefit. 19. In view of the discussion in the above paragraphs, we are of the view that on merits, the appellant has to fail, but however, the appellant s claim as to this case being revenue neutral, deserves merit, for which reason the extended period of limitation cannot be invoked. Further, even on the issue of limitation, following the decision in the case of M/s. Northern Operating Systems Pvt. Ltd. (supra), specifically paragraphs 64 and 66 which are extracted by us elsewhere in this order, we hold that the demand, if any, would survive only for the normal period. 20. In the result, the appeal is partly allowed, as indicated above, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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