Tribunal upholds Cenvat Credit demand, rules in favor on service tax liability for Wharton Business School payment

The Tribunal upheld the Cenvat Credit demand of Rs.1,58,353/- with interest and penalty. It set aside the service tax liability on payments to the holding company for expatriate employees, ruling that the employees could not be considered as employees of the holding company. Additionally, the Tribunal ruled in favor of the appellant on the service tax liability for payments made to Wharton Business School for the survey, stating it did not fall under Business Auxiliary Service. The appeal against this issue was allowed.

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Issues:
Service tax liability on payments made to holding company for expatriate employees
Service tax liability on payments made to Wharton Business School for survey
Cenvat Credit demand of Rs.1,58,353/-

Analysis:

Issue 1: Service tax liability on payments made to holding company for expatriate employees
The appellant, a subsidiary of a US-based company, faced service tax demands for payments made to their holding company for expatriate employees deputed to India. The Department alleged that service tax was payable on these payments. The appellant argued that the expatriate employees were essentially their employees, as their salaries were paid in India and income tax was deducted in India. The Tribunal found in favor of the appellant, stating that just because the holding company paid social security contributions for the expatriate employees did not make them employees of the holding company supplied to the appellant on a manpower supply basis. The Tribunal cited previous judgments to support this conclusion and held that the service tax demand on this basis was not sustainable.

Issue 2: Service tax liability on payments made to Wharton Business School for survey
The appellant also faced service tax demands on payments made to Wharton Business School for a survey conducted regarding the Indian Pharmaceutical Sector. The appellant argued that this activity did not fall under Business Auxiliary Service, and therefore, no service tax was payable on these payments. The Tribunal agreed with the appellant, ruling that the survey conducted with Wharton Business School did not qualify as Business Auxiliary Service. Hence, no service tax liability existed for these payments.

Issue 3: Cenvat Credit demand of Rs.1,58,353/-
The Cenvat Credit demand of Rs.1,58,353/- was not contested by the appellant. The Tribunal upheld this demand, along with interest and penalty of an equal amount.

Judgment Summary:
The Tribunal upheld the Cenvat Credit demand of Rs.1,58,353/- with interest and penalty. Regarding the service tax liability on payments made to the holding company for expatriate employees, the Tribunal set aside the demand, stating that the expatriate employees could not be considered as employees of the holding company. Similarly, the Tribunal ruled in favor of the appellant on the service tax liability for payments made to Wharton Business School for the survey, stating that it did not fall under Business Auxiliary Service. The appeal against the order related to this issue was allowed.

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