A larger Bench of Justice Uday Umesh Lalit, Justice Ravindra Bhat and Justice Pamidighantram Sri Narasimha opined that in the instant case the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment .In view of the same, the Bench partly allowed the appeal instituted by the Commissioner of Central Excise and Service Tax against the impugned orders of the Customs, Excise and Service Tax Appellate Tribunal whereby two orders dated March 3, 2014 and March 4, 2014 pronounced by the Commissioner were set aside.
The present appeals were preferred by the Commissioner of Central Excise and Service Tax against the impugned orders of the Customs, Excise and Service Tax Appellate Tribunal whereby two orders dated March 3, 2014 and March 4, 2014 pronounced by the Commissioner were set aside.
Facts of the case in brief were such that the assessee was registered with the revenue, as a service provider under the categories of Manpower Recruitment Agency Service, Business Auxiliary Service, Commercial Training and Coaching Service, TTSS, Telecommunication and Legal Consultancy Service etc., under the Finance Act, 1994. Following an audit of the records by the revenues officials, proceedings were initiated against the assessee alleging non-payment of service tax concerning agreements entered into by it with its group companies located in USA, UK, Dublin (Ireland), Singapore, etc. to provide general back- office and operational support to such group companies.
The revenue issued four show cause notices alleging that the assesse failed to discharge the service tax under the category of manpower recruitment or supply agency service with regard to service employees who were seconded to the assessee by the foreign group companies. The commissioner confirmed the proposals in the notice.
Aggrieved by the same, the assessee filed two appeals before the CESTAT. It was the case of the assessee that the that service tax cannot be demanded as the services provided by foreign affiliates do not fall under manpower recruitment or supply agency services for the period prior to negative list. It was further contended that after the period introduction of negative list, the definition of the term service under the Finance Act, specifically excluded service provided by the employer to employee. Therefore, the amount paid to the foreign entity as reimbursement of salary of the seconded employees cannot be construed as consideration for supply of manpower services.
Thereafter, the Commissioner Banglore, by order dated February 27, 2017 and June 16, 2017 dropped the proposals in the SCN for the period of "for the period April 2012 to March 2013 and April 2013 to September 2014, thereby setting aside demands for service tax of Rs. 4,36,75,590/- and Rs. 7,55,48,448/-. Aggrieved by the same, the revenue filed an appeal wherein the assesse also filed cross objection.
The Tribunal ruled that 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 assessees appeals were allowed and the revenues appeals were rejected. Hence, the present appeals were preferred.
The issue before the Apex Court was whether the overseas group company or companies, with whom the assessee entered into agreements, provide it manpower services, for the discharge of its functions through seconded employees.
The Court took into consideration relevant portions of the Finance Act, 1994 with amendments. It further analyzed Section 65 (68) of the unamended Act. Further the question that the Court dealt with was what were the services provided to the assessee and by whom.
The Court noted that after July 1, 2012, the definition service underwent a change. According to Section 65 (44) service means any activity carried out by a person for another for consideration and includes a declared service (the term declared service is defined in Section 66E).
It was further stated that after July 2012, all activates that were carried out by one person for another, for consideration were deemed services, except certain specified excluded categories.
In furtherance of the same, the Court opined that it is a cardinal principle of interpretation of documents that the nomenclature of any contract, or document, is not decisive of its nature. Thus, the task of this Court was to determine the nature of relationship between the seconded employees and the assessee and the nature of service provided- in the context- by the overseas group company to the assessee and to go through the document carefully produced before this Court.
In pursuance to the document, the Court observed 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.
It was further observed by this Court that as per the agreement, 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. Thereafter as a part of the aforesaid agreement, a secondment contract was 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. At this stage, the Court was concerned with the question as to whether the secondment, for the purpose of completion of the assessees job amounts to manpower supply.
In view of the same, the Court observed that the seconded employee, for the duration of her or his secondment, was under the control of the assessee, and worked under its direction. Yet, the fact remains that they were on the pay rolls of their overseas employer. It was further observed by the Court that the same was a legal requirement, since they were entitled to social security benefits in the country of their origin.
The Court also observed that the overall effect of the four agreements entered into by the assessee, at various periods, with NTS or other group companies, clearly points to the fact that the overseas company has 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, the Court submitted.
Additionally, the Court observed that there was no straight jacket formula to deal with the question of law as to whether he contract to be construed is a contract of service or a contract for service; however the same is to be determined by applying all the tests collectively on the totality of the facts in a given case.
Thus, from the aforesaid observations, the Court culled out that while the control and the right to ask them to return was with the assessee, the fact remains that their overseas employer in relation to its business deploys them to the assessee, on secondment. Also, their terms of employment were in accordance with the policy of the overseas company, who was their employer, the Court noted.
Thus, in light of the aforesaid observations, the Court held that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the revenue is not tenable, the Court observed.
Thus, the appeal was allowed partly the assessee was liable to pay service tax for the periods spelt out in the SCNs. However, the invocation of the extended period of limitation, in the opinion of this Court was unjustified and unreasonable. Hence, the impugned order of the CESTAT was set aside and accordingly the order passed by the Commissioner was restored.
Case name: C.C.,C.E. & S.T. – BANGALORE (ADJUDICATION) ETC v. M/S NORTHERN OPERATING SYSTEMS PVT LTD
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