2015 (5) TMI 704 - AT - Service Tax

Appellant not liable for service tax under reverse charge for payments to foreign company. Employees treated as own.

Lear Automotive (I) Pvt. Ltd. Versus Commissioner of Central Excise, Pune-I

Lear Automotive (I) Pvt. Ltd. Versus Commissioner of Central Excise, Pune-I - TMI Issues:1. Liability to discharge service tax under reverse charge mechanism for payments made to a foreign company.2. Interpretation of the nature of services provided by the foreign company.3. Comparison with similar cases and judicial precedents.Analysis:Issue 1: Liability to discharge service tax under reverse charge mechanismThe appeal challenged an Order-in-Original passed by the Commissioner of Central Excise, Pune, demanding service tax liability, interest, and penalties from the appellant for payments made to a foreign company. The department contended that the transaction fell under 'manpower recruitment or supply agency services,' making the appellant liable for service tax. The appellant contested this, arguing that the employees were considered their own, with deductions and remittances made to government agencies. The Tribunal analyzed the agreement between the parties and concluded that the appellant was not liable under the reverse charge mechanism as the employees were treated as their own, discharging social security obligations.Issue 2: Interpretation of the nature of services providedThe adjudicating authority viewed the services provided by the foreign company as falling under 'Manpower Recruitment or Supply Agency Services' due to the deputation of employees. However, the Tribunal disagreed, emphasizing clauses in the agreement showing that the employees were treated as the appellant's own, with obligations like pension and social services benefits being reimbursed to the foreign company. The agreement indicated that the employees were under the direct control and management of the appellant, negating the notion of services being provided by the foreign company.Issue 3: Comparison with similar cases and judicial precedentsThe appellant cited precedents where similar issues were decided in favor of the assessee, highlighting cases where courts ruled that services involving the transfer of employees did not constitute 'Manpower Recruitment or Supply Agency Services.' The Tribunal referenced a High Court judgment that emphasized the critical requirements for taxability under the relevant section, concluding that the impugned order was unsustainable. The Tribunal set aside the order, allowing the appeal with consequential relief.In summary, the Tribunal held that the appellant was not liable to discharge service tax under the reverse charge mechanism for payments made to the foreign company, as the nature of the arrangement and treatment of employees did not align with the classification of 'Manpower Recruitment or Supply Agency Services.' The decision was supported by legal interpretations, analysis of the agreement, and comparison with relevant judicial precedents.