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of <h1>Appellant not liable for service tax under reverse charge for payments to foreign company. Employees treated as own.</h1> The Tribunal held that the appellant was not liable to discharge service tax under the reverse charge mechanism for payments to a foreign company. The ... Classification of service - whether the appellant herein is liable to discharge the service tax liability under the reverse charge mechanism under the category of 'Manpower Recruitment or Supply Agency Services', on payments made by them to Lear Corporation, USA - Held that:- During the period of the services of the deputed employees, they would be entitled to pension and social services benefits extended to them outside India and the appellant/assessee is required to reimburse the said amounts to Lear Corporation, USA. In effect this would amount to paying social security services of the employees who are working with the appellant in USA, which would mean that the appellant discharge his obligation towards employees who are working with them. - Further reading of clause No. 4 specifically indicates that sole obligation of Lear Corporation, USA is to depute employees and the said obligation would cease on actual deputation of the employees to Lear India and it is specifically mentioned in the said agreement that Lear Corporation, USA is not providing any services to Lear India by deputing the employees. The same clause also talks about the deputed personnel will be taken into employment by the appellant/assessee and shall work under direct Control and Management of the appellant/assessee during the entire period of their employment and; that the deputed employees will be proceeded against in terms of the disciplinary issues on the same terms as the appellant/assessee's own employees. In short, we find that entire agreement, on which reliance has been placed by the Counsel of the appellant indicates that the personnel who are deputed to India are taken on rolls as employees of the appellant/assessee. If that be so, the question of rendering any services to the appellant by Lear Corporation, USA dos not arise by any extent of imagination. - Following decision of Computer Sciences Corporation India Pvt. Ltd. [2014 (11) TMI 125 - ALLAHABAD HIGH COURT], it is held that services rendered cannot be classified as 'Manpower Recruitment and Supply Agency Services'. - Decided in favour of assessee. 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.
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