The Supreme Court ruled that the Service Tax is payable by Indian companies on the salaries of the seconded employees reimbursed to the overseas company.
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 revenue’s 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.
Balbir Singh, ASG relied upon the materials produced before the CESTAT and submitted that in terms of the Services Agreement, 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.
He contended that a combined reading of the materials on record clearly establish that the arrangement between the assessee and its overseas group companies – apparent through the various conditions spelt out in different documents- was one of a contract for service. In other words, what was provided to the assessee by the overseas counterpart or group companies were services through its employees. These services directly pertained to the discharge of functions of the assessee
Advocate V. Sridharan, appearing for the assessee, urged that a conjoint reading of Section 65(68) with Section 65(105)(k) of the Finance Act, 1994 makes it clear that the ‘manpower recruitment and supply agency service’ seeks to bring under its ambit two types of activities i.e. recruitment of manpower and supply of manpower.
The three judges bench of Justice Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice Pamidighantam Sri Narasimha said that the fact that the CESTAT relied upon two of its previous orders, which were pressed into service, and also that in the present case itself, the revenue discharged the later two show cause notices, evidences that the view held by the assessee about its liability was neither untenable, nor mala fide. This is sufficient to turn down the revenue’s contention about the existence of “wilful suppression” of facts, or deliberate misstatement. For these reasons, the revenue was not justified in invoking the extended period of limitation to fasten liability on the assessee.
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.
The court added that the revenue’s appeals succeed in part; the assessee is liable to pay service tax for the periods spelt out in the SCNs. However, the invocation of the extended period of limitation, in this court’s opinion, was unjustified and unreasonable.
The court stated that the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands therefore, shall be recovered from the assessee.
The court set aside the impugned common order of the CESTAT and restored the commissioner’s orders in original, except to the extent they seek to recover amounts for the extended period of limitation.
Case title: C.C.,C.E. & S.T. – Bangalore (adjudication) etc. v/s M/S Northern Operating Systems pvt ltd.
Citation: CIVIL APPEAL NO. 2289-2293 OF 2021