TaxTMI 
TaxTMI 
2022 (5) TMI 967
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....er "CESTAT") Dated 23.12.2020 in Service Tax Appeal (STA) Nos. 22573-74/2014; STA No. 21502/2017, Service Tax/CROSS/21077/2017 and Service Tax/CROSS/20255/2018 which set aside two orders dated 03.03.2014 and 04.03.2014 by the Commissioner of Service Tax (hereafter "the Commissioner"). The Commissioner had confirmed demands, made through show cause notices, for service tax along with interest and penalty. The commissioner had discharged, by an order (dated 27.02.2017/16.06.2017) the proceedings arising from another show cause notice (hereafter "SCN") in respect of a similar demand. That led to the revenue's appeal to CESTAT, challenging that order, discharging proceedings initiated by the revenue for the subsequent period. The CESTAT, by its common order, rejected the revenue's appeals, and allowed that of the respondent, Northern Operating Systems (Pvt.) Ltd. (hereafter "the assessee" or "NOS"). Facts of the case 2. The assessee was registered with the revenue, as a service provider under the categories of "Manpower Recruitment Agency Service", "Business Auxiliary Service", "Commercial Training and Coaching Service", "TTSS", "Telecommunication and Legal Consultancy Service" e....
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....mpany - hereafter described as such) for the amounts it pays as salaries, to these seconded employees. The assessee pays for certain services received from the group companies. The assessee used to discharge service tax on payments for such services in terms of Section 66A of the Act. The appropriate major expense heads were 'Salaries & Allowances', 'Relocation expenses', 'Consultancy Charges', 'Communication Expenses' and 'Computer Maintenance and repairs.' 4. The revenue issued four show cause notices Dated 23.04.2012; (for the period October 2006 - March 2011), 19.10.2012 (for the period April 2011 to March 2012), 07.05.2014 & 26.11.2015 (for the period April 2012 to September 2014) alleging that the assessee failed to discharge service tax under the category of "manpower recruitment or supply agency service" with regard to certain employees who were seconded to the assessee by the foreign group companies. The first two of these notices also invoked the proviso to Section 73 (1) read with Section 66A of the Act, proposing to demand service tax for the extended period. The assessee resisted these notices, refuting the allegations in the four SCNs. It was also given a hearing. ....
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....ing factual eligibility of CENVAT credit within the scope of Rule 3(1) of the CENVAT Credit Rules, 2004 (hereafter "CENVAT Rules") had not been discharged by the assessee. The Commissioner was of the view that the assessee was aware of the provisions of law and had placed nothing on record to indicate the circumstances that prevented it from approaching the department or accessing the CBEC website available on public domain. It led no evidence to show reasonable cause. The extended period assessment and penalty was therefore, warranted. 6. Aggrieved by the impugned order, the assessee filed two appeals before the CESTAT. As far as the third appeal Service Tax Appeal No. 21502/2017 by the department was concerned, the period involved was from April 2012 to September 2014. As a sequel to the earlier SCNs, the assessee was issued two SCNs Bearing C No. IV/16/153/2014- ST. Adjn. (SCH No. CAU/153/Div. III/Gr 29 dated 07.05.2014 and C. No. IV/16/293/2015 ST II Adjn./2043/15 dated 26.11.2015 demanding service tax of Rs. 4,36,75,590/- and Rs. 7,55,48,448/- for the period April 2012 to April 2013, and April 2013 to September 2014 respectively, along with interest and penalty. 7. The a....
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....grieved by the Commissioner's order dropping the demand, the Revenue has filed an appeal challenging it, in which the assessee too filed its cross objection. The impugned order 10. The CESTAT, by its order noted the position in law - that earlier, the definition of taxable services under Section 65(105) (k) included service by a manpower recruitment or supply agency in relation to recruitment or supply of manpower temporarily or otherwise. It was noted that the scope of the term "manpower recruitment of supply agency" was spelt out in Para 22.3 in the Circular of 27.07.2005 Circular F.No.B1/6/2005-TRU. Next, the CESTAT noted that the position in law changed in that manpower and recruitment services was per se included since it did not form part of the negative list. In this regard, it noticed Section 65B (44) in which by clause (b), provision of service by an employee or employer by or in relation to employment is an excluded service. CESTAT, therefore, reasoned that the essential ingredients for any activity to be called as manpower recruitment or supply agency was that it should be "any person", engaged in providing a specified service; the specific service ought to be ....
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....rn Trust Company) various services which were enumerated in Attachment 1 or such other services as would be agreed to by the parties in future. In terms of Attachment 1, the assessee was to provide "IT enabled services" supporting back-up and office related operations. It was submitted that the remuneration to be provided for the service was fixed at the actual cost plus a mark-up of 15%. The ASG then referred to the master services agreement between the assessee and Northern Trust Company dated 12.02.2009. In terms of this master agreement the assessee was to provide "general back office and operational support" to the foreign group company which included foreign investment, investment management liaison group cash, evaluations and reporting, IRAS fund accounting, securities, lending operations; tax related operations, including tax reclaimed, etc. It was pointed out that in terms of Clause 2.1, though the assessee was to perform and provide services to the foreign group company, such services could be delivered to other parties nominated by the Northern Trust Company. 13. The third document referred was the secondment agreement entered into with effect from 01.04.2007 between ....
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....essee by the overseas group company. It was not as if the assessee was free in regard to the manner of performance of the jobs assigned to it. The consideration provided to it was fixed (15% markup over the actual costs incurred); the costs included the remuneration nominally paid by the assessee to the seconded employee. Further, those were reimbursed. For a temporary period, the seconded employee was only operationally under the control of the assessee. It was submitted that this arrangement was essential because without such control, it would not have been practicable for the assessee to have ensured performance of the tasks, it was expected to, through the seconded employees concerned. Yet, the fact remained that upon the cessation of the assignment, the employees reverted back to their original position in the overseas companies to work there or to be deployed elsewhere in terms of the global policy. 15. Learned counsel submitted that a combined reading of the materials on record clearly establish that the arrangement between the assessee and its overseas group companies - apparent through the various conditions spelt out in different documents- was one of a contract for se....
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.... by which its employees were deputed to work in the assessee's establishment. The tasks performed by them were in aid of the assessee's work which was undertaken by it in the service agreement with the overseas company. The salary, allowances the duration of the secondment, were all determined by the overseas employer and not by the assessee. Upon completion of the assignment, the seconded employees were to return to their original positions and in the overseas company. The control if any, which was with the assessee was for a limited duration - it was not enabled to impose sanctions, such as cut in salary, etc. In case it was dissatisfied, it could only ask for return of the employee to her or his original position with the foreign employer. Upon an overview of all these circumstances, it was clear that the contract between the parties was essential for the supply of services by the concerned overseas company to the assessee. Therefore, it was a taxable service and not excluded by virtue of amended Section 65 of the Finance Act, 1994. Contentions of the assessee 20. Mr. V. Sridharan, learned senior counsel appearing for the assessee urged that a conjoint reading of Section 6....
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....urity benefits in the expats home county. 24. It was urged that in Collector of Central Excise & Service Tax v. Nissin Brake India (P) Ltd Civil Appeal Diary No(s). 45344/2018 (C.A. No. 2408 / 2019), this court while considering similar set of facts dismissed the revenue's appeal, which had challenged the CESTAT's ruling that expenses reimbursed by the Indian companies to the foreign group companies in relation to seconded employees cannot be subject to service tax under Manpower Recruitment or Supply Agency Service. 25. It was also urged that the group companies are not in the business of supplying manpower. The foreign group companies are engaged in providing personal financial services (PFS) and Corporate and Institutional services along with investment products. The foreign group companies cannot be considered as "Manpower Supply Agency'. 26. It was next urged that service tax is leviable only on the gross amount charged for the provision of service. It was argued that assuming but not admitting that service is provided by the group companies to the assessee, it cannot be said that the value of consideration for that service is the amount of salaries paid to the ex....
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....said demand of service tax is paid, the entire amount is available as input credit and is refunded to the Respondent in cash by virtue of Rule 5 of the CENVAT Rules read with Rule 6A of the Service Tax Rules, 1994 ("1994 Rules"). The assessee relied on detailed facts in this regard through affidavit on record by its affidavit dated 17.08.2021 before this court. It is also on record that all the refund claims filed by the assessee had largely been granted barring small amounts which were paid against input services such as Clearing and Forwarding Agent Services, Courier Services, Information Technology Software Services. In this regard, reliance is placed on SRF Ltd. v. Commissioner 2016 (331) ELT A 138 (S.C.) and Commissioner of Central Excise v. Coca Cola India Pvt. Ltd 2007 (213) ELT 490 (S.C). Relevant provisions of the Finance Act, 1994 with amendments 30. Before amendment of the Finance Act, its provisions, to the extent they are relevant, are extracted hereunder. The definition of "manpower recruitment or supply agency" and "Taxable service" under the definition clause, in Section 65 are extracted below: "Definitions. 65. In this Chapter, unless the context oth....
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....claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1.- For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,- Amended provisions of the Act (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion ....
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....sed and existing under the laws of India and having its principal office at RMZ Ecospace Campus 1C, Sarjapur Outer Ring Road, Bangalore-5600037, India (hereinafter referred to as "NOS"). WITNESSETH: xxxxxx xxxxxx xxxxxx ARTICLE I SECONDMENT NOS shall request NTMS to provide employees ("the Employees) who have the expertise required by NOS. In order to help NTMS make the selection, NOS shall provide NTMS with a description of the skills and competencies required by NOS. Based on the list provided by ŅOS, NTMS shall identify the people and select the employees. NTMS hereby agrees to second the employees to NOS for time period(s) ("the Secondment Period") with commencement dates and completion dates, as reflected in Appendix I and Appendix II of this agreement. Appendix I and Appendix II will be updated from time to time to reflect any changes made as a result of Article II (E) or Article II (G) or Article II (H). The employees seconded to NOS shall continue to be remunerated through the payroll of NTMS only for the purpose of continuation of social security, retirement and health benefits but for all practical purposes, NOS s....
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.... under this Agreement. Nothing in this Agreement, shall be construed as a warranty of the quality of the seconded Employees. Further NOS shall hold NTMS harmless and shall indemnify NTMS from all claims, demands, suits, actions, loss, damage, costs and expenses (excluding consequential loss or damage) to which NTMS may become liable in respect to any and all loss, damage or injury as a result of any act or omission by the seconded Employee. The master services adverted to earlier, between NTC (group company) and the assessee, reads as follows: "THIS MASTER SERVICES AGREEMENT ("this Agreement") is dated February 12th, 2009 and made BETWEEN: (1) THE NORTHERN TRUST COMPANY, a company established under the laws of the State of Illinois in the United States of America, whose principal place of business in the U.S.A. is at 50 South LaSalle Street, Chicago 60603, Illinois, U.S.A. ("TNTC Chicago"); and (2) NORTHERN OPERATING SERVICES PRIVATE LIMITED, a company established under the laws of India, whose principal place of business in India is at 2nd Floor, RMZ Ecospace Campus 10, Sarjapur Outer Ring Road, Bangalore 560037, India ("NOS"). TNTC Chicago a....
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....mutual agreement, your assignment to and employment with NOS may be extended. Should this be the case, an extension letter will be entered into between NOS and yourself. However, you have the right to terminate your employment at any time for any reason and the Company has the same right. xxxxxx xxxxxx xxxxxx Vacation/Local Public Holidays Your annual vacation entitlement is currently 20 days. You will be entitled to all local public holidays observed by NOS. However, you must use vacation days to observe any United States public observed holiday that is not observed in NOS. A list of NOS' public holidays may be found on My Place. Home Leave During your assignment, you will be provided the following Home Leave Options: You may elect to receive an annual home leave allowance for each member of your immediate family to Chicago for two home leave trips. This allowance is non-accountable and is intended to cover airfare and ground transportation to and from the airports in your home and at Bangalore, India. If you prefer, you may book your travel directly through BCD Travel for direct reimbursement according to Northern's Tr....
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....angalore, India up to a maximum of US$5,000 for each car. Details of the car losson-sale policy are described in the Global Mobility Policy. R&R Trips You will be provided two (2) R & R trips in a 12 month period for you and your spouse to leave Bangalore, India. These trips are in addition to your two annual home leave trips. The R & R allowance is non- accountable and is intended to assist with hotel and airfare costs. Providing an allowance allows you the flexibility to choose the length and destination of your R & R trips. The allowance per trip for your family size of 2 is USD$2,100. xxxxxx xxxxxx xxxxxx Base Salary and Bonus Effective with your assignment in Bangalore, India your base salary will be USD $330,000. Mobility Allowance You will be paid a one-time sum of USD $7,500 prior to your departure by deposit to your checking account. The Mobility Allowance is specifically compensating you for any incidental additional expenses incurred as a result of your assignment. Hardship Allowance You will be paid a hardship allowance of 20% of your base salary during your assignment to Bangalore, India. This amou....
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....of the view that an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with MSCo the said company retains control over the deputationist's terms and employment. The concept of a service PE finds place in the UN Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. 18. Applying the above tests to the facts of this case we find that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally,....
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....relationship between master and servant is the existence of the right in the master to supervise and control the work done by the servant not only in the matter of directing what work the servant is to do but also the manner in which he shall do his work, or to borrow the words of Lord Uthwatt at p. 23 in Mersey Docks and Harbour Board v. Coggins & Griffith (Liverpool) Ltd. [(1952) SCR 696, 702] "The proper test is whether or not the hirer had authority to control the manner of execution of the act in question." 39. In D.C. Dewan Mohideen Sahib and Sons v. Secretary, United Beedi Workers' Union 1964 (7) SCR 646, the court analysed the sample agreement which disclosed the facts of the case before it, and, for the first time, held that the "control" test is not necessarily determinative to discern the real employer: "...There is in our opinion little doubt that this system has been evolved to avoid Regulations under the Factories Act. Further there is also no doubt from whatever terms of agreement are available on the record that the so-called independent contractors have really no independence at all. As the appeal court has pointed out they are impecunious persons w....
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....well suited to govern relationships like those between a farmer and an agricultural labourer (prior to agricultural mechanization) a craftsman and a journeyman, a householder and a domestic servant, and even a factory owner and an unskilled 'hand'. It reflects a state of society in which the ownership of the means of production coincided with the profession of technical knowledge and skill in which that knowledge and skill was largely acquired by being handed down from one generation to the next by oral tradition and not by being systematically imparted in institutions of learning from universities down to technical schools. The control test postulates a combination of managerial and technical functions in the person of the employer i.e. what to modern eyes appears as an imperfect division of labour. [See Prof. Kahn-Freund in (1951), 14 Modern Law Review, at p. 505] 27. It is, therefore, not surprising that in recent years the control test as traditionally formulated has not been treated as an exclusive test. 28. It is exceedingly doubtful today whether the search for a formula in the nature of a single test to tell a contract of service from a contract fo....
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....yee or an independent professional. The control test, after moving away from actual control of when and how work is to be performed to the right to exercise control, is one in a series of factors which may lead to an answer on the facts of a case slotting such case either as a contract of service or a contract for service. The test as to whether the person employed is integrated into the employer's business or is a mere accessory thereof is another important test in order to determine on which side of the line the contract falls. The three-tier test laid down by some of the English judgments, namely, whether wage or other remuneration is paid by the employer; whether there is a sufficient degree of control by the employer and other factors would be a test elastic enough to apply to a large variety of cases. The test of who owns the assets with which the work is to be done and/or who ultimately makes a profit or a loss so that one may determine whether a business is being run for the employer or on one's own account, is another important test when it comes to work to be performed by independent contractors as against piece-rated labourers. Also, the economic reality test lai....
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....ange. Except listed categories of activities excluded from, or kept out of the fold of the definition, every activity virtually is "service". Now, by Section 65 (44), "service" means (a) any activity (b) carried out by a person for another (c) for consideration, and (d) includes a declared service (the term "declared service" is defined in Section 66E). 45. Section 65 (44), however, excludes from its sweep [by clause (b)], "a provision of service by an employee to the employer in the course of or in relation to his employment." The assessee contends that the secondment agreement has the effect of placing the overseas employees under its control, so to say, and enables it to require them to perform the tasks for its purposes. It emphasizes that the real nature of the relationship between it and the seconded employees is of employer and employee, and outside the purview of the service tax regime. 46. From the above discussion, it is evident, that prior to July 2012, what had to be seen was whether a (a) person provided service (b) directly or indirectly, (c) in any manner for recruitment or supply of manpower (d) temporarily or otherwise. Aft....
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....lationship (Article II); (v) The overseas employer (group company) pays the seconded employee, which is reimbursed to the overseas company, by the assessee (Article III); (vi) The assessee is responsible for the work of the seconded employee, i.e., the overseas employer, during the secondment period, is absolved of any liability for the job or work of its seconded employees (Article VII); (vii) The secondment is for a specified duration, and the employment with the assessee ceases upon the expiration of that period (Article II of the secondment agreement and the "Duration" clause in the letter of understanding with the seconded employee); (viii) The letter of understanding issued to the seconded employee specifies that the tenure with the assessee is an assignment (in one place, the term used is "At its conclusion, repatriation will be in accordance with the Global Mobility Repatriation Policy"); (ix) The terms include the salary payable as well as other allowances, such as hardship allowance, vehicle allowance, servant allowance, paid leave, housing allowance, etc. The nature of salary and other perks underscore the fact that the second....
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....fic tasks given it, by the overseas company. As part of this agreement, a secondment contract is entered into, whereby the overseas company's employee or employees, possessing the specific required skill, are deployed for the duration the task is estimated to be completed in. This court is not concerned with unravelling the nature of relationship between the overseas company and the assessee. However, what it has to decide, is whether the secondment, for the purpose of completion of the assessee's job, amounts to manpower supply. 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid- and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their origin. It is doubtful whether without the comfort of this assurance, they would agree to the secondment. Furthermore, the reality is that the secondment is a part of the global policy - of the overseas employer loaning their ser....
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....of the seconded employees' work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment. Secondly, the overseas employer- for whatever reason, pays them their salaries. Their terms of employment - even during the secondment - are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their original places, to await deployment or extension of secondment. 58. One of the arguments of the assessee was that arguendo, the arrangement was "manpower supply" (under the unamended Act) and a service [(not falling within exclusion (b) to Section 65 (44)] yet it was not required to pay any consideration to the overseas group company. The mere payment in the form of remittances or amounts, by whatever manner, either for the duration of the secondment, or per employee seconded, is just one method of reckoning if there is consideration. The other way of looking at the arrangement is the economic benefit derived by the assessee, which also secures specific j....
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....sion of facts are concerned, they are clearly qualified by the word "wilful" preceding the words "misstatement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or rules" are again qualified by the immediately following words "with intent to evade payment of duty". It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful." 63. This decision was followed in Uniworth Textiles v. Commissioner of Central Excise (2013) 9 SCC 753 where it was observed that "(t)he conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts" is "untenable". This view was also followed in Escorts v. Commissioner of Central Excise (2015) 9 SCC 109, Commissioner of Customs v. Magus Metals (2017) 16 SCC 491 and other judgments. 64. The fact that the CESTAT in the present case, relied upon two of its previous orders, which were pressed into service, and also that in the....