2014 (11) TMI 125 - HC - Service Tax

Court affirms Tribunal decision on service tax appeal, finding transaction not taxable.

The Commissioner of Central Excise Versus M/s. Computer Sciences Corporation India Pvt. Ltd.

The High Court upheld the Tribunal's decision to quash the adjudication order against the appellant for service tax. The Tribunal correctly applied the ... Manpower Recruitment of Supply Agency - providing employees to group companies - reimbursement of salary - employees were either directly employed by the assessee or were transferred from other Group Companies to the assessee in India - Held that:- Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise. No substantial question of law would arise - Decided against Revenue. Issues:1. Whether the Tribunal erred in quashing the adjudication order based on the judgment in Volkswagen India (Pvt.) Ltd. Vs. Commissioner of Central Excise.2. Whether the Tribunal overlooked the taxability issue concerning the supply of manpower service.3. Whether the Tribunal ignored Circular No. 96/7/2007-ST in determining the taxability of the transaction.Analysis:1. The judgment arises from a demand of service tax confirmed by the Commissioner, Customs and Central Excise, Noida, against the appellant. The appellant, part of a group of companies, incurred expenses on expatriate employees in India. The Commissioner held the appellant liable for service tax under Section 73(i) of the Finance Act, 1994, along with interest and penalties. The Tribunal allowed the appeal, relying on the Volkswagen India case.2. The Revenue contended that the Tribunal erred in following the Volkswagen India judgment, arguing that the transaction fell under 'Manpower Recruitment or Supply Agency' service. The Revenue highlighted that the Tribunal failed to consider the presence of service provider, recipient, and consideration, essential for taxability. Additionally, the method of salary distribution should not dictate the nature of the transaction.3. The Tribunal's decision was challenged for disregarding Circular No. 96/7/2007-ST, which clarifies the contractual employment relationship between a manpower supply agency and the individual supplied for services. The Tribunal was criticized for not acknowledging the existence of an employer-employee relationship between the agency and the individual, rather than with the recipient of services.4. To be a taxable service under Section 65(105)(k), the service must be provided by a manpower recruitment or supply agency in relation to the supply of manpower. In this case, the appellant obtained services of expatriate employees from its group companies, paid their salaries, deducted taxes, and contributed to social security benefits. The Tribunal correctly noted that the critical requirements of the law were not fulfilled, as there was no involvement of a manpower recruitment or supply agency in providing the service.5. The High Court upheld the Tribunal's decision, stating that no substantial question of law arose. The appeal was dismissed with no order as to costs, affirming that the Tribunal's judgment was in accordance with the law, as the transaction did not meet the necessary criteria for taxability under Section 65(105)(k).