2024 (5) TMI 372 - AT - Service Tax

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 ... Levy of service tax - Employees were deputed to the assessee - receiving services from the overseas company FFECJ through Dispatch Agreement and Secondment Agreement in deployment of qualified and skilled employees during the said period - extended period of limitation. The Revenue’s argument is that the facts of the present case are similar to the facts decided by the Hon’ble Supreme Court in Northern Operating Systems Pvt. Ltd.’s case [2022 (5) TMI 967 - SUPREME COURT]; hence applying the ratio laid down in the said case, the service tax demand confirmed by the adjudicating authority be restored. On the other hand, the respondent argued that the Dispatch Agreement and Secondment Agreement are different in the present case to the one decided by the Hon’ble Supreme Court; hence ratio of the Supreme Court judgment is not applicable to the present case. HELD THAT:- In the sample Secondment Agreement and the Dispatch Agreement between the respondent and FFECJ reveals that these agreements’ terms and conditions are more or less similar to the one referred to in para 3 of the judgment of the Hon’ble Supreme Court in Northern Operating Systems Pvt. Ltd. In the present case also, the respondent was in need of personnel for facilitating the business operations in India and the overseas company which has such personnel who possesses the requisite qualification and skilled employees itself desired to employ such persons on exclusive basis and the overseas company has duly consented to depute such personnel. The deputed personnel while under employment with the respondent was not in any way subjected to any kind of instruction or control or direction or supervision of the overseas company and they would report only to respondent’s management - The remuneration to be paid by the respondent to dispatched personnel as laid down at Article 5 comprising of Monthly salary in India; Monthly Salary in Japan; Bonus in Japan and any other allowance paid / cost incurred for the dispatched personnel during the employment period. Further it is agreed that in respect of monthly salary in India and monthly salary in Japan and bonus in Japan on the request of the dispatched personnel as his home country is Japan and for administrative convenience, respondent company to request overseas company to make such payments in Japan which shall be reimbursed by the respondent on actual cost basis. In the Secondment Agreement, the dispatched personnel agrees with all the conditions settled between the respondent and the overseas company under the dispatch agreement. A careful reading of the Dispatch Agreement along with the Secondment Agreement and also the contract of the employment, letter of employment etc., there are no substantial difference from the facts stated in the judgment of Hon’ble Supreme Court in Northern Operating Systems Pvt. Ltd.’s case - it was held in the said case that ' it is held that the assessee was, for the relevant period, service recipient of the overseas group company concerned, which can be said to have provided manpower supply service, or a taxable service, for the two different periods in question (in relation to which show cause notices were issued).' Their Lordships on the issue of invocation of extended period of limitation decided in favour of the assessee. The impugned order is set aside and the matter is remanded to the adjudicating authority to compute the liability of the service tax payable with interest for the normal period of limitation - appeal disposed off by way of remand. 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 TaxThe 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 LimitationThe 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)