Employer-employee deputation was not manpower supply service where staff worked under the recipient's control and no separate consideration was paid.

Deputation of employees from a parent company to an appellant was held not taxable as manpower recruitment or supply agency service where the deputed staff worked under the appellant's control and supervision, tax was deducted at source from their salary and perks, and no separate consideration was paid to the parent company. On those facts, there was no agency-client relationship; the arrangement was treated as an employer-employee relationship, and the salary disbursement method did not change the true character of the transaction. The demand for service tax on a reverse charge basis, along with interest and penalties, was therefore not sustainable.

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Issues: Whether deputation of employees by the parent company to the appellant, where the deputed personnel worked under the appellant's control and supervision and no separate consideration was paid to the parent company, was taxable as manpower recruitment or supply agency service and whether service tax could be demanded on a reverse charge basis.

Analysis: The arrangement showed that the deputed employees were working under the appellant's control, direction and supervision. Tax was deducted at source from the salary and perks paid to them, and no direct or indirect consideration was paid to the parent company for deployment of the employees. On these facts, there was no agency-client relationship between the parent company and the appellant. The relationship was instead one of employer and employee, and the method of salary disbursement could not alter the true nature of the transaction.

Conclusion: The activity did not fall within the taxable category of manpower recruitment or supply agency service, and the demand of service tax, interest and penalties could not be sustained. The finding was in favour of the assessee.

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