Salary Reimbursement Not Considered Manpower Supply; Appeal Allowed, No Service Tax Liability Under Reverse Charge.

The Tribunal concluded that the reimbursement of the secondee's salary by the appellant to the parent company did not constitute consideration for manpower recruitment and supply agency services under section 65(68) of the Finance Act, 1994. Consequently, the demand raised by the revenue was deemed meritless, and the impugned order was set aside. The appeal was allowed in favor of the appellant, exempting them from service tax liability under the reverse charge mechanism for the salary reimbursement. The judgment was pronounced on 10.12.2020, granting the appellant any consequential benefits as per law.

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Issues:
Interpretation of whether the reimbursement of salary paid to a secondee to the parent company amounts to consideration for provision of manpower recruitment and supply agency services within the meaning of section 65(68) of the Finance Act, 1994.

Analysis:
The appellant, a 100% Export Oriented Unit engaged in research and development services, had a secondee from the parent company working as a full-time Managing Director. The secondee's salary was reimbursed by the appellant to the parent company under a salary reimbursement agreement. The key issue was whether this reimbursement constituted consideration for manpower recruitment and supply agency services. The Tribunal examined the statutory provisions under section 65(68) of the Finance Act, 1994, which defines manpower recruitment and supply agency services. The Tribunal noted the amendment effective from 16.05.2008 and the clarification in the master circular No. 96/7/2007-ST regarding the scope of such services.

The Tribunal considered various decisions/orders, including those of different Tribunals and the Hon'ble Supreme Court, to determine the issue. Referring to the case law, the Tribunal found that the secondee was under the control and supervision of the appellant, and the parent company had no obligation to pay the secondee's salary except under the reimbursement agreement. Citing the decision in M/s Nissin Brake India Pvt Ltd, the Tribunal held that deputed employees working under control, direction, and supervision of the assessee cannot be considered a taxable service under manpower recruitment or supply agency services. The Tribunal emphasized that there was no service provider-service recipient relationship between the appellant and the overseas group companies.

Based on the above analysis and precedents, the Tribunal concluded that the demand raised by the revenue had no merit. The impugned order was set aside, and the appeal was allowed in favor of the appellant. The Tribunal emphasized that the appellant should not be liable to pay service tax under the reverse charge mechanism for the reimbursement of the secondee's salary. The judgment was pronounced on 10.12.2020, setting aside the impugned order and allowing the appeal with any consequential benefits as per law.

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