Service tax applies to manpower supply from overseas company under Dispatch and Secondment Agreements following Northern Operating Systems precedent

CESTAT Bangalore held that service tax was leviable on manpower supply services received by the assessee from an overseas company through Dispatch and Secondment Agreements for deployment of qualified employees. Following the SC precedent in Northern Operating Systems Pvt. Ltd., the tribunal found the agreements substantially similar to those in the SC case, establishing a taxable service relationship. However, the extended period of limitation was rejected following the SC ruling. The matter was remanded to the adjudicating authority to compute service tax liability with interest for the normal limitation period only.

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Issues Involved:
1. Applicability of service tax on services received from an overseas company through Dispatch Agreement and Secondment Agreement.
2. Invocation of extended period of limitation.

Summary:

Issue 1: Applicability of Service Tax

The respondent, engaged in providing services of Erection, Commission and Installation, and Consulting Engineer Services, entered into agreements with M/s. Fuji Furukawa Engineering and Construction Co. Ltd., Japan (FFECJ) for the deputation of qualified personnel. The Department audited the respondent's records and issued a show-cause notice demanding service tax for the period April 2013 to March 2015. The adjudicating authority confirmed the demand with interest and penalty. The respondent appealed, and the Commissioner (Appeals) set aside the order. The Revenue appealed, arguing that the employees deputed by FFECJ did not cease to be their employees and that the services provided were taxable u/s 65B(44) of the Finance Act, 1994. The respondent contended that the Supreme Court's judgment in Northern Operating Systems Pvt. Ltd. was distinguishable and not applicable. However, the Tribunal found that the terms of the agreements in the present case were similar to those in the Northern Operating Systems case, establishing that the services were taxable.

Issue 2: Invocation of Extended Period of Limitation

The Revenue argued that the extended period of limitation was rightly invoked as the respondent had suppressed facts by not disclosing the services received from FFECJ. The Tribunal, referencing the Supreme Court's judgment, concluded that the extended period of limitation was not applicable. Consequently, the impugned order was set aside, and the matter was remanded to the adjudicating authority to compute the service tax liability with interest for the normal period of limitation.

(Order pronounced in Open Court on 03.05.2024)

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