The Supreme Court will review its own judgement related to the applicability of the service tax on the salary reimbursements for seconded employees.
The bench of Chief Justice Sanjiv Khanna and Justice Sanjay Kumar has issued the notice and directed to tag Civil Appeal No. 7295/2022, titled “Commissioner of GST and Central Excise Chennai vs. M/S Komatsu India Pvt. Ltd.”
The SLP challenging the judgement of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Delhi has been filed. The CESTAT upheld the service tax levy on salary reimbursements for seconded employees, following the Supreme Court’s decision in the case of Northern Operating Systems Private Limited.
C.C., C.E. & S.T.-Bangalore (Adjudication) etc. v. M/s. Northern Operating Systems Pvt. Ltd. : Supreme Court
The facts were that Northern Operating Systems Private Limited (for brevity respondent/NOS) was registered with service tax authorities under the categories of ‘manpower recruitment agency service’ and other services. An audit was conducted by revenue which resulted in the proceedings against NOS alleging non-payment of service tax concerning agreements entered into by it with its group companies located in USA, UK, Dublin, Singapore etc to provide general back office and operational support to such group companies.
The CESTAT after hearing to both the parties, held that on reading of contracts and agreements, the group entities cannot be said to be engaged in supply of manpower. The seconded employees were receiving salaries from the group companies only for disbursement purposes and the employer – employee relationship existed and the activity, therefore, could not be termed as ‘manpower recruitment and supply agency’. The CESTAT further held that in the above circumstances, the overseas group companies which had contracted with NOS were not in the business of supply of manpower and NOS was not a service recipient and accordingly rejected the stand taken by the tax authorities. The Revenue appealed the CESTAT’s order before the Supreme Court.
The Supreme Court after hearing to both the parties has framed the issue as to whether the overseas group companies with whom NOS has entered into agreement, provide manpower services, for discharge of its functions through seconded employees? In simple words, the Supreme Court has to decide, as to, who is the employer of the seconded employee? If the Indian entity is treated as employer, then what is paid to the group entity is only a reimbursement and accordingly there is nothing to be taxed. On the contrary, if the foreign entity is treated as employer of the seconded employee, then the services provided by the foreign entity would be treated as service and becomes taxable. Hence, the crux is, who is the employer of the seconded employee?
The apex court took note of the various facts of the case, like the agreement between NOS and overseas group companies, and held that the secondment of employees by the overseas group company to NOS was a taxable service of ‘manpower supply’ and Service Tax was applicable on the same. It is noted that secondment as a practice is not restricted to service tax, and the issue of taxability on secondment shall also arise in GST.
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Case Details
Case Title: M/S Mitsui Prime Advanced Composites India Pvt. Ltd. Versus Commissioner Central Exicise And Service Tax
Case No.: Civil Appeal No. 105/2025
Date: 10-01-2025
Counsel For Petitioner: Shashank Shekhar, Adv. Mr. Tushar Joshi, Adv., Ms. B. Vijayalakshmi Menon
