Appellant liable for Service Tax on Secondment Agreement; penalties dropped, CENVAT Credit issue dismissed

The Tribunal upheld the liability of the appellant to pay Service Tax on the Secondment Agreement, considering it as a manpower recruitment service. The appellant was required to pay Service Tax for the normal period with interest but penalties were set aside. The issue of wrong availment of CENVAT Credit was dropped. The extended period of limitation was deemed unjustified as there was no wilful suppression of facts, resulting in the demand for the extended period being dismissed. The Tribunal found the case to be revenue neutral, allowing the appeal for the normal period while rejecting penalties and the extended period of limitation.

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Issues Involved:
1. Liability to pay Service Tax on Secondment Agreement.
2. Wrong availment of CENVAT Credit.
3. Invocation of the extended period of limitation.
4. Revenue neutrality.

Summary:

Issue 1: Liability to pay Service Tax on Secondment Agreement
The Department argued that the Secondment Agreement (SA) between the appellant and M/s. Nissan Motor Company Ltd. (NMC) constituted a "manpower recruitment or supply agency" service under Section 65(68) of the Finance Act, 1994. The appellant contended that the secondees were treated as its employees, with TDS deducted on their salaries and other employment benefits provided, thus negating a service provider-service recipient relationship. The Commissioner held that the appellant was liable to pay Service Tax on the supply of manpower services for the period from 2008-09 to 2013-14, along with applicable interest and penalty. The Tribunal, referencing the Hon'ble Supreme Court's decisions in M/s. Northern Operating Systems Pvt. Ltd. and M/s. International Merchandising Company, LLC, concluded that the definition of manpower recruitment or supply agency is broad enough to include the appellant's arrangement with NMC. Thus, the appellant is required to pay applicable Service Tax for the normal period along with interest, but penalties were set aside.

Issue 2: Wrong availment of CENVAT Credit
The Commissioner found that the appellant was entitled to the CENVAT Credit availed on the basis of ISD invoices. Consequently, the proposed demand in the Show Cause Notice regarding this issue was dropped.

Issue 3: Invocation of the extended period of limitation
The appellant argued that the extended period of limitation was unjustified as the Department was aware of all facts through regular audits. The Tribunal agreed, citing the Hon'ble Supreme Court's decision in M/s. Northern Operating Systems Pvt. Ltd., which held that the extended period could not be invoked due to the absence of wilful suppression of facts. Therefore, the demand for the extended period was not justified, and the appellant is liable only for the normal period.

Issue 4: Revenue neutrality
The appellant argued that any Service Tax paid on the salary of secondees would entitle them to avail CENVAT Credit, making the issue revenue neutral. The Tribunal acknowledged this argument, referencing the Hon'ble Supreme Court's decisions in cases like M/s. Nirlon Ltd. and M/s. Narmada Chematur Pharmaceuticals Ltd., which supported the concept of revenue neutrality. Consequently, the Tribunal held that the issue was revenue neutral, further supporting the decision not to invoke the extended period of limitation.

Conclusion:
The appeal was partly allowed, sustaining the demand for the normal period but dismissing the extended period of limitation and penalties. The Tribunal emphasized that the appellant's case was revenue neutral and there was no suppression of facts.

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