Service tax refund denied for employee secondment with 36% markup constituting taxable manpower supply service

CESTAT New Delhi upheld rejection of service tax refund claim by appellant who had deputed employees to subsidiary company on secondment basis. Following SC precedent in Northern Operating Systems case, tribunal held that employee secondment with 36% markup constituted taxable manpower supply service for period 2008-11. Since appellant collected service tax from subsidiary and service was correctly classified as taxable, no refund was due. Appeal dismissed and impugned order upheld.

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Issues Involved:

1. Whether the activity of deputing officials to subsidiary companies constitutes manpower supply service.
2. The applicability of service tax on the reimbursement of salary and allowances with a markup.
3. The appellant's locus standi to claim a refund.
4. The implications of voluntary payment of service tax and interest without protest.

Issue-wise Detailed Analysis:

1. Manpower Supply Service:

The primary issue was whether the appellant's activity of deputing employees to its subsidiary, M/s PFC Consulting Limited (PFCCL), constituted a manpower supply service. The tribunal referred to the Supreme Court's judgment in the case of Northern Operating Systems Pvt Ltd, which clarified that the definition of "manpower recruitment or supply agency" includes any person engaged in providing services for recruitment or supply of manpower. The tribunal noted that the appellant's employees were seconded to PFCCL, with operational control exercised by PFCCL, and a markup of 36% was charged by the appellant. Based on these facts, it was held that the secondment of employees was indeed a manpower supply service, making the service tax applicable on such transactions correct.

2. Applicability of Service Tax on Reimbursement:

The appellant argued that the charges for salary and allowances were merely reimbursements and not taxable under 'Business Support Services'. However, the tribunal found that the appellant charged a markup on these reimbursements, indicating an economic benefit derived from the arrangement. The tribunal concluded that the service tax was applicable, as the arrangement fell within the scope of manpower supply service, as clarified by the Supreme Court's decision in Northern Operating Systems.

3. Locus Standi to Claim Refund:

The appellant contended that it had the locus standi to claim a refund, as it filed the claim and the show cause notice was issued to it. The tribunal noted that the appellant had collected service tax from PFCCL, which negated its claim for a refund. The tribunal agreed with the impugned order's conclusion that the appellant's collection of service tax from PFCCL barred it from claiming a refund, as per the principle of unjust enrichment.

4. Voluntary Payment of Service Tax and Interest:

The appellant argued that the payment of service tax and interest was made under departmental pressure and not as an acceptance of tax liability. However, the tribunal observed that the appellant had voluntarily deposited the tax and interest without protest, as indicated in their communication with the department. The tribunal held that the voluntary payment implied acceptance of the tax liability, and thus, the refund claim was inadmissible.

Conclusion:

The tribunal upheld the impugned order, concluding that the appellant's activity constituted manpower supply service, and the service tax was rightly paid. The appellant's claim for a refund was dismissed on the grounds of unjust enrichment and voluntary acceptance of tax liability. The appeal was dismissed, affirming the decision of the Commissioner (Appeals).

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