Contractual consideration: payments made domestically to secondees form part of gross charged under Section 67 and are taxable.

A consolidated contractual consideration for imported manpower/secondment services that permits or requires a split mode of payment includes payments made directly in India to secondees within the gross amount charged under Section 67; contractual terms (salary structure, supplier discretion, reimbursement obligation, payroll retention) establish the requisite nexus for valuation, and such amounts are taxable. However, penalties were not sustainable because no suppression with intent to evade was found, and invocation of the extended limitation period was improper given the absence of deliberate concealment and the unsettled legal position; the demand is therefore confined to the normal limitation period and tax attributable to TDS is to be adjusted.

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Issues: (i) Whether the portion of salary/emoluments paid by the appellant directly in Indian rupees to secondees forms part of the consideration/gross amount charged under Section 67 of the Finance Act, 1994 for imported Manpower Recruitment or Supply Agency services supplied by Nissan Japan; (ii) Whether the penalties imposed are legal and proper; (iii) Whether invocation of the extended period of limitation is sustainable.

Issue (i): Whether salary/emoluments paid in India by the appellant to secondees form part of the gross amount charged/consideration under Section 67 for MRSA services provided by Nissan Japan.

Analysis: The majority examined the secondment agreement and the overall contractual scheme, applying the inclusive concept of 'consideration' in Section 67 read with contract-law principles and the Supreme Court's decision in Northern Operating Systems. The majority held that where the parties have agreed a consolidated consideration for supply/secondment of personnel and the mode of payment is split at the behest of the supplier (including payments made directly to secondees in India), those payments represent the gross amount charged by the overseas supplier for the taxable service. The agreement's terms (salary structure, supplier's discretion over pay, obligation to reimburse, lien and payroll retention) demonstrate that the payments made by the appellant are part of the agreed consideration and have a nexus with the taxable service; hence they fall within valuation under Section 67. The majority distinguished authorities that exclude unreimbursed costs where there is no contractual charging by the service provider, relying on Northern Operating Systems and a co-ordinate bench decision involving the same supplier and materially similar agreements.

Conclusion: The portion of salary/emoluments paid directly in India by the appellant is includible in the gross amount charged/consideration for MRSA services and is taxable; conclusion in favour of Revenue on this issue.

Issue (ii): Whether the penalties imposed are legal and proper.

Analysis: Both Members agreed that no suppression with intent to evade was established on the facts; the Tribunal examined the history of litigation and divergent departmental practice and found the issue to be interpretational. The majority therefore concluded that penalties under the Finance Act cannot be sustained.

Conclusion: Penalties are not sustainable; conclusion in favour of the appellant.

Issue (iii): Whether invocation of the extended period of limitation is sustainable.

Analysis: Both Members found absence of deliberate suppression or concealment amounting to intent to evade; given the complex and unsettled nature of law on secondee valuation during the relevant period, invocation of extended limitation was held improper. The majority limited the demand to the normal period.

Conclusion: Extended period invocation is not sustainable; conclusion in favour of the appellant.

Final Conclusion: On majority view the appeals are disposed by upholding the taxable treatment of the consolidated consideration for imported manpower/secondment services (including amounts paid in India under the contractual split) but the demand is confined to the normal period, penalties are set aside, and any tax attributable to TDS amounts is to be deleted and duty reworked.

Ratio Decidendi: Where a contractual scheme for secondment/ supply of manpower establishes a consolidated consideration for the service and the supplier's terms require or permit a split mode of payment, amounts paid by the recipient directly to secondees in accordance with that contractual arrangement constitute part of the gross amount charged or consideration for the taxable manpower supply service under Section 67 and are includible in valuation for service tax; however, assessment beyond the normal limitation period and penalties require established suppression or intent and cannot be imposed merely because valuation was disputed.

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