2014 (4) TMI 132 - HC - Service Tax

Deputation of Employees to Group Subsidiaries Not Taxable as Manpower Supply Recruitment Agency Service Under Service Tax Rules

Commissioner of Service Tax Versus Arvind Mills Ltd.

The HC held that deputation of employees by a company to its group subsidiaries does not constitute Manpower Supply Recruitment Agency Service liable to ... Liability to service tax - Deputation of employees to group company - Manpower Supply Recruitment Agency Service - Whether activity of Respondent would cover under Manpower Supply Recruitment Agency Service - Held that:- Definition of Manpower Supply Recruitment Agency is wide and would cover within its sweep range of activities provided therein - such definition would not cover the activity of the respondent - To recall, the respondent in order to reduce his cost of manufacturing, deputed some of its staff to its subsidiaries or group companies for stipulated work or limited period. All throughout the control and supervision remained with the respondent. As pointed out by the respondent, company is not in the business of providing recruitment or supply of manpower. Actual cost incurred by the company in terms of salary, remuneration and perquisites is only reimbursed by the group companies. There is no element of profit or finance benefit. The subsidiary companies cannot be said to be their clients. Deputation of the employees was only for and in the interest of the company. There was no relation of agency and client. It was pointed out that the employee deputed did not exclusively work under the direction of supervision or control of subsidiary company. All throughout he would be under the continuous control and direction of the company. The definition though provides that Manpower Recruitment Supply Agency means any commercial concern engaged in providing any services directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise to a client, in the present case, the respondent cannot be said to be a commercial concern engaged in providing such specified services to a client. It is true that the definition is wide and would include any such activity where it is carried out either directly or indirectly supplying recruitment or manpower temporarily or otherwise. However, fundamentally recruitment of the agency being a commercial concern engaged in providing any such service to client would have to be satisfied - No question of law arises - Decided against Revenue. Issues:1. Interpretation of the definition of 'Manpower Supply Recruitment Agency' under the Finance Act 1994.2. Determination of whether the respondent's activity falls within the definition of a Manpower Supply Recruitment Agency.3. Assessment of whether the service rendered by the respondent is a taxable activity attracting Service Tax.Analysis:1. The primary issue in this case is to ascertain whether the respondent qualifies as a Manpower Supply Recruitment Agency based on the definition provided under the Finance Act 1994. The definition states that such an agency is engaged in providing services for the recruitment or supply of manpower to a client. The Tribunal found that the respondent, a textile mill, deputed some employees to its group companies for specific work or limited periods. However, these employees did not work exclusively under the group companies' direction and were repatriated to the respondent after completing the tasks. The Tribunal concluded that the respondent did not act as a Manpower Supply Recruitment Agency and thus was not liable for service tax.2. The Revenue argued that the definition of a Manpower Supply Recruitment Agency is broad and encompasses various activities related to the supply of manpower. They highlighted the significant manpower required for deputation by the respondent to its group companies and emphasized the widened scope of the definition post-amendment. However, the Court noted that while the definition is extensive, it does not encompass the respondent's activities in this case. The respondent's deputation of staff to subsidiaries was primarily for cost reduction, with control and supervision retained by the respondent throughout the process. The Court agreed with the Tribunal's finding that the respondent did not operate as a commercial concern providing recruitment or supply services to clients, as there was no profit motive or financial benefit involved.3. The Court analyzed the facts in light of the definition of a Manpower Supply Recruitment Agency and concluded that the respondent did not meet the criteria to be classified as such an agency. Despite the broad scope of the definition, the Court emphasized the necessity for the agency to be a commercial concern engaged in providing recruitment or supply services to clients. In this case, the respondent's actions were deemed to be in the interest of cost reduction and internal operations, rather than providing recruitment services to external clients. As a result, the Court dismissed the Tax Appeal, stating that no question of law arose, and upheld the Tribunal's decision.In conclusion, the judgment clarifies the interpretation of the term 'Manpower Supply Recruitment Agency' and establishes that the respondent's activities did not fall within this definition, leading to the dismissal of the Tax Appeal.