The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that salary paid in indian currency by nissan motors to secondees will be liable to service tax.
The two member bench of CESTAT had delivered a split ruling on the issue of whether salary and other allowances paid directly in Indian currency by the appellant to secondees will be liable to service tax.
The judicial member has held that the allowances paid directly by the appellant to secondees cannot be included in the taxable value.
The technical member has held that such payments can be included in the taxable value.
The CESTAT has referred the case to the third member on resolution of the issue raised.
The third member concurred with Technical Member’s views and held that the part of salary / emoluments paid by appellant to secondees in India in Indian Rupees will form part of consideration as under Section 67 of Finance Act, 1994 for the services of MRSA provided by Nissan Japan to appellant.
The payments of part of salary to secondees in Indian currency will form part of ‘gross amount charged’ for arriving at the taxable value.
Background
The appellant/assessee, Nissan Motors is engaged in the is engaged in providing services in the nature of Business Auxiliary Services, Consultant Engineer, Business Support Services, Erection, Commissioning and Installation, Goods transport Operator, Intellectual Property Services other than copy right, Cargo Handling Services, Scientific and Technical Consultancy Services, Interior Decoration Services, Information Technology and Software Services, Maintenance and Repair Services, Renting of Immovable Property Services and Supply of Tangible Goods Service.
An audit was conducted on the appellant in which, the department observed that the appellant has entered a secondment agreement with its group company located outside India, M/s. Nissan Motor Company Ltd, Japan to employ expatriates in India.
The appellant has also entered a separate agreement with the seconded foreign employees.
The department relied on the Circular F.No.137/35/2011-ST dated 13 July 2011 in which it was clarified that where one organisation sends its employees to another organisation for a consideration, service tax under the category of manpower supply services will be applicable.
The department contended that the activity of supplying employees to the appellant unit will fall under manpower services.
The department noted that the part of the salary was paid to the deputed employees directly by the appellant company in Indian rupees and part by the associated company outside India. The appellant company had reimbursed the part amount to the foreign company and noted that the appellant did not include the salary portion paid in Indian rupee to discharge its service tax liability.
The department alleged that the appellant has suppressed facts of payment of part of the salary in INR to the deputed employees. Thus, it reduced the taxable value with an intent to evade payment of service tax. Later, the demand was confirmed.
The appellant filed the present appeal before the Tribunal.
Issue Raised
The issue raised was whether the salary, bonus, allowances, and expenses paid by the appellant directly to the secondees in India, is also to be included in the taxable value for payment of service tax under manpower recruitment services under reverse charge mechanism (RCM).
Views of Ms. Sulekha Beevi C.S., Judicial Member
The Ms. Sulekha Beevi C.S., Judicial Member analysed the term ‘gross amount charged’ and ‘consideration’ and noted that the appellant has rightly paid tax only on the amount, which has been reimbursed to or charged by the foreign entity because costs that are incurred but not charged does not form part of the consideration; and relied on the decision in the case of M/s. Boeing India Defence Private Limited in which it was held that only the gross amount charged must be considered.
The Judicial Member relied on the decision of the apex court in the case of M/s Bhayana Builders in which it was held that only the mounts, which are charged on the service provider, need to be included in the taxable value for the purpose of discharging service tax liability.
Views of M. Ajit Kumar, Technical Member
The M. Ajit Kumar, Technical Member analysed the term ‘consideration’ under the Indian Contract Act, 1872 and applied the same to the context of the Finance Act and noted that the amount that is payable to the overseas supplier of manpower service, either if paid directly or indirectly to the secondee at the behest of the supplier, i.e., by both the overseas supplier (reimbursable) plus the appellant, it will represent the gross consideration for the service provided or to be provided. This view is substantiated by the SC decision in the case of M/s. Bhayana Builders Private Limited.
The member analysed the concept of employer and employee relationship in the present factual background and opined that the appellant has operational or functional control over the secondee, similar to a service recipient of manpower, and also as it is clearly mentioned in the agreement that the secondee will continue to be the employee of Nissan, Japan. Therefore, it was concluded that no employer-employee relationship exists. Moreover, the company and it’s subsidiary will not be considered as joint employer.
The member has held that payments made directly in Indian rupee can be included in the taxable value.
Opinion Of P. Dinesha, 3rd Member As A Tie Breaker
The 3rd member noted, the Judicial Member has observed that only such expenses and costs charged by the service provider can be included in the taxable value as per Section 67 of the Finance Act and therefore the costs not charged by the appellant to Nissan Japan cannot be subject to service tax.
Whereas, the Technical Member has observed that salary payments to secondees will form part of consideration as payments made to secondees is only an arrangement for paying the consideration as per desire and on behalf of Nissan.
Though both the Members have examined the various clauses of Section 67 of the Finance Act, 1994, which envisages a levy on the ‘gross amount charged’ and the judgments, the Member (Technical) has dealt with the issue in an elaborate manner.
The Third Member has agreed that the view expressed by the Member (Technical) is legally correct. He has affirmed the findings recorded by the Member (Technical).
In the light of the same, the impugned order is upheld except for the three modifications.
Firstly, the demand is to be limited to the normal period.
Secondly, the penalties are set aside.
Lastly, if amounts deducted towards TDS have entered into the calculation for demanding duty, the same should be deleted and duty reworked for the normal period and intimated to the Appellant.
Case Details
Case Title: Nissan Motor India Pvt Ltd vs Chennai-ii
Case No.: ST/41911/2017
Date: 07/11/2024
Counsel For Appellant: R. Rajaram
Counsel For Respondent: Anandalakshmi Ganesham
