2019 (8) TMI 260 - AT - Service Tax

Precedent Set Aside: No Tax on Deputation

The Tribunal, following the precedent in M/s India Yamaha Motor Private Limited, ruled in favor of the appellant, setting aside the service tax demand and ... Manpower Supply services - deputation/ secondment of employees from a group company in Japan to the appellant in India - reverse charge mechanism - HELD THAT:- The Division Bench in M/s India Yamaha Motor Private Limited [2019 (7) TMI 772 - CESTAT NEW DELHI] examined the issue both for the period prior to 1 July, 2012 and for the post negative list for the period subsequent to 1 July, 2012 and held that neither during the pre-negative list nor post negative list, Service Tax could not be levied on deputation of employees from a group company in Japan to the Appellant in India. Demand do not sustain - appeal allowed - decided in favor of appellant. Issues:- Applicability of service tax on deputation/secondment of employees from a group company in Japan to the appellant in India.Analysis:1. Facts: The appellant, engaged in manufacturing automobile parts, entered into a Cost Reimbursement Agreement (CRA) with a Japanese company for deputation of personnel to India. The Department issued show cause notices proposing service tax under 'Manpower Supply Services' for the deputed employees.2. Legal Framework: The demand was made under Section 65(68) and Section 65(105)(k) of the Finance Act, 1994, which defined 'manpower recruitment or supply agency' and 'taxable services' respectively. The appellant contested the applicability of service tax based on the definitions provided in the Act.3. Pre-July 2012 Period: The appellant argued that deputation of employees does not fall under the definition of 'Manpower Recruitment and Supply Agency' before July 2012. The appellant also contended that no service tax was payable on salaries paid to Japanese employees in India post-July 2012 as per Section 65B(44) of the Act.4. Legal Arguments: The appellant's counsel relied on a Tribunal judgment in a similar case to support the contention that no service tax was applicable on the deputation of employees. The Department's Authorized Representative did not dispute the relevance of the Tribunal's decision in a similar matter.5. Judicial Precedents: The Division Bench in a previous case, M/s India Yamaha Motor Private Limited, held that service tax could not be levied on deputation of employees from a foreign company to an Indian entity, both pre and post the negative list period. The judgment emphasized the employer-employee relationship and excluded such arrangements from the taxability ambit.6. Conclusion: Citing the precedent set by M/s India Yamaha Motor Private Limited, the Tribunal set aside the Commissioner's orders confirming the service tax demand and penalty on the deputation of Japanese employees to the appellant in India. The judgment highlighted the absence of a taxable service involving the recruitment or supply of manpower in such arrangements, leading to the allowance of the appeals.This detailed analysis of the judgment provides a comprehensive understanding of the legal issues, arguments presented, relevant legal provisions, and judicial precedents influencing the final decision on the applicability of service tax on the deputation of employees from a foreign company to an Indian entity.