No Penalty Under Section 74 CGST for Tax Dispute Over Secondment Services, Interest Payable on Delay

The HC held that the petitioner, who availed secondment services disclosed in their accounts, did not evade tax by fraud or wilful suppression despite the Apex Court ruling the services taxable. Since the dispute arose solely from differing interpretations of tax exigibility, the penalty under Section 74 CGST Act was not warranted. However, the petitioner must pay interest on the belated tax from the date of service availment. The case was remitted to the lower authority for fresh consideration, allowing the petition in part.

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ISSUES:

Whether secondment of employees from a foreign group entity to Indian units amounts to a taxable service under the heading "Manpower Supply Service".Whether the liability to pay service tax/GST arises retrospectively from the date services were availed or only from the date of the Apex Court judgment.Whether interest and penalty under Section 74 of the CGST Act, 2017 can be levied when the tax liability was disputed and only crystallized after the Apex Court reversed earlier favorable tribunal decisions.Whether the petitioner's payment of tax after the Apex Court judgment was timely and negates the imposition of interest and penalty.

RULINGS / HOLDINGS:

The secondment of employees from foreign group entities to Indian companies constitutes a taxable service under the heading "Manpower Supply Service".The liability to pay service tax/GST arises from the date the services were availed, notwithstanding the dispute over taxability prior to the Apex Court judgment.Section 74 of the CGST Act, 2017, which applies to cases of tax evasion by wilful misstatement or suppression of facts, does not apply where the tax liability was genuinely disputed and the assessee acted in good faith; hence, penalty cannot be levied under Section 74 in such circumstances.The petitioner is liable to pay interest on the belated tax payment from the date of availment of services, but no penalty is warranted since there was no wilful evasion.The impugned order imposing penalty under Section 74 is set aside and the matter is remitted for fresh consideration consistent with these observations.The petitioner is eligible to avail any amnesty scheme under Section 128A of the CGST Act, 2017.

RATIONALE:

The legal framework is based on the Apex Court judgment holding that secondment services are taxable under "Manpower Supply Service".The CGST Act, 2017, particularly Section 74, governs recovery of tax along with interest and penalty in cases of evasion by wilful misstatement or suppression.The Court recognized a doctrinal distinction between genuine disputes over tax liability and deliberate evasion, holding that penalty under Section 74 is not attracted absent wilful misstatement or suppression.The decision reflects adherence to the principle that interest is payable for delayed tax payment from the date of service availment, but penalty requires proof of wilful evasion.The Court allowed remand for factual determination of interest liability and recognized the petitioner's right to benefit from amnesty provisions under Section 128A.

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