2023 (2) TMI 183 - AT - Service Tax

Appellant liable for service tax under reverse charge for 'manpower supply'; extended period demands partly dismissed.

M/s Dell International Services India Pvt. Ltd. Versus Commissioner of Central Excise & Customs, Bangalore Commissionerate

The Tribunal ruled that the appellant was liable for service tax under the reverse charge mechanism for 'manpower supply' services, as per the precedent ... 100% EOU - Levy of Service Tax - manpower recruitment or supply agency service - deputation of employees from group companies to the appellant - expenses incurred in foreign currency in relation to the salaries/expenses of deputed employees, paid by the group companies, and same was reimbursed by raising bills/invoices on the respective group companies - reverse charge mechanism - section 66A of the Finance Act, 1994 - levy of interest u/s 75 of FA - extended period of limitation - HELD THAT:- This issue has been considered and decided by the Supreme Court in Commissioner of Customs, Central Excise & Service Tax-Bangalore (Adjudication) ETC. v/s M/s Northern Operating System Pvt. Ltd. [2022 (5) TMI 967 - SUPREME COURT] wherein Supreme Court observed that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. The arrangement in the present seven appeals is similar. Thus, the assessee would be a service recipient of the overseas group company concerned, which provided ‘manpower supply’ service, which is a taxable service. The appellant, therefore, is required to discharge service tax on reverse charge mechanism. Extended period of limitation - HELD THAT:- The Supreme Court in Northern Operating System did not agree with the contention of the Department that it was correctly invoked and it was held that the Department was not justified in invoking the extended period of limitation - In view of the aforesaid decision of the Supreme Court in Northern Operating Systems, it has to be held that the demand confirmed for the extended period cannot be sustained. Levy of interest under Section 75 of the Finance Act - HELD THAT:- It is seen from provisions of Section 75, that every person who fails to credit the tax or any part thereof within the period prescribed shall pay simple interest at such rate not below ten per cent and not exceeding thirty six per cent per annum for the period by which such crediting of the tax or any part thereof is delayed. Thus, imposition of interest is irrespective of the fact whether such nonpayment/ short payment was on account of innocence or malafide. In Pratibha Processors v/s Union of India [1996 (10) TMI 88 - SUPREME COURT] the Supreme Court pointed out the difference between the imposition of interest and penalty. Whereas penalty is ordinarily levied on an assessee for some contumacious conduct or for deliberate violation of the provision of a particular statute, interest is compensatory in character and is imposed on the assessee who has withheld payment of any tax when it is due. Thus, in terms of section 75 of the Finance Act, payment of interest is mandatory on every person who fails to deposit the service tax or any part thereof within the prescribed period. It is, therefore, not possible to accept the contention of the learned counsel for the appellant that imposition of interest under section 75 of the Finance Act should be set aside. The appellant has stated that an amount of Rs. 38,875,209/- was deposited on 12.08.2022 which covers the demand for the normal period. The demand to the extent of Rs. 96,668,469/- and Rs. 16,305,344/-, which are in relation to the extended period of limitation in Service Tax Appeal No. 3195 of 2011 and Service Tax Appeal No. 26058 of 2013 respectively, are set aside. These facts may be verified by the adjudicating authority and in case any further amount is due for the normal period, the same may be recovered from the appellant - Appeal disposed off. Issues Involved:1. Taxability of seconded employees under 'manpower recruitment or supply agency' services.2. Invocation of the extended period of limitation.3. Imposition of interest under Section 75 of the Finance Act.Issue-wise Detailed Analysis:1. Taxability of Seconded Employees under 'Manpower Recruitment or Supply Agency' Services:The core issue in all seven appeals was whether the secondment of employees by group companies to the appellant constituted 'manpower recruitment or supply agency' services, thereby attracting service tax under the reverse charge mechanism as per section 66A of the Finance Act, 1994. The Supreme Court's decision in the case of Northern Operating System Pvt. Ltd. was pivotal. The Court observed that secondment arrangements typically involve employees working under the control of the Indian company, while being paid by the overseas entity, which is reimbursed by the Indian company. This arrangement was deemed to fall under 'manpower supply' services, making the appellant liable for service tax on a reverse charge basis. The Tribunal found the arrangement in the present appeals similar to that in the Northern Operating System case, thereby confirming that the appellant was indeed a service recipient of 'manpower supply' services and required to discharge service tax accordingly.2. Invocation of the Extended Period of Limitation:The Tribunal addressed the issue of whether the extended period of limitation was correctly invoked in the show cause notices. The Supreme Court in Northern Operating System held that the extended period of limitation could not be justified unless there was 'wilful suppression' or 'deliberate misstatement' by the assessee. The Tribunal noted that the appellant had deposited the service tax for the normal period, and thus, the invocation of the extended period was not sustainable. Consequently, the demands pertaining to the extended period in Service Tax Appeal No. 26058 of 2013 and part of the demand in Service Tax Appeal No. 3195 of 2011 were set aside.3. Imposition of Interest under Section 75 of the Finance Act:The appellant contested the imposition of interest under section 75 of the Finance Act. However, the Tribunal referred to the Supreme Court's ruling in Northern Operating System, which upheld the imposition of interest on delayed payments of service tax. The Tribunal clarified that interest is compensatory in nature and is mandatory for any delay in payment of service tax, irrespective of the reasons behind the delay. Therefore, the contention to set aside the interest was rejected, and the imposition of interest under section 75 was confirmed.Conclusion:Service Tax Appeal No. 26039 of 2013, Service Tax Appeal No. 28100 of 2013, Service Tax Appeal No. 28101 of 2013, Service Tax Appeal No. 28231 of 2013, and Service Tax Appeal No. 21504 of 2014 were dismissed. Service Tax Appeal No. 26058 of 2013 was allowed, setting aside the order dated 31.12.2012. Service Tax Appeal No. 3195 of 2011 was partly allowed, setting aside the demand for the extended period but maintaining the demand for the normal period. The appellant's deposit of Rs. 38,875,209/- was noted to cover the normal period demand, and any additional amount due for the normal period was to be verified and recovered by the adjudicating authority. No interest was payable on the amounts set aside for the extended period.