TaxTMI 
TaxTMI 
2024 (10) TMI 821
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....Seconded Employees'. The relevant portions of the Agreement are reproduced below: "Agreement Concerning the Treatment of Seconded Employees This Agreement is made and entered into by and between: Mitsui Prime Advanced Composites India Pvt. Ltd., New Delhi, India (ACI), on the one part xxxxxxx and Mitsui Chemicals, Inc, Tokyo, Japan (MCI) on the other part. xxxxxxxxxx. concerning the treatment of the employees of MCI seconded to ACI (hereinafter collectively referred to as "Seconded Employees" and individually referred to as "Seconded Employee"). Article 1: Form of Secondment MCI shall assign certain of their employees to ACI as officers or employees of ACI, and ACI shall accept such employees who shall continue to be employed by MCI. Article 2: Handling of Personnel Matters ACI shall in principle be responsible for the personnel management of the Seconded Employees, but the decision on important personnel matters of the Seconded Employees, such as the appointment/dismissal, reassignment, reinstatement or reward/punishment shall be made by consultation between the parties hereto on a case by case basis. Article 3: Service Rules of ACI shall in principle apply t....
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.... is reproduced below: Memorandum "Mitsui Prime Advanced Composites India Pvt. Ltd. ("ACI") and Mitsui Chemicals, Inc. ("MCI") hereby agree to revise and amend the Agreement Concerning the Treatment of Seconded Employees effective date on October 1st, 2007 between MCI and ACI ("Agreement") in accordance with the following terms and conditions: xxxxxxxxx 2. Article 3 shall be deleted in its entirety and replaced by the following: "3.1 Unless otherwise stipulated herein, ACI's rules of employment (work rules, working time, rest period, holidays, absence, etc.) shall in principle apply to the service of Seconded Employees. 3.2 MCI's rules of the employment shall be applied to those matters relating to the service of Seconded Employee, which are not provided for in ACI's rules of employment." 3. The first sentence of Article 20 shall be deleted in its entirely and replaced by the following: "MCI shall send to ACI an invoice for the amount of the expenses incurred by MCI in a calendar quarter by the end of such calendar quarter, and ACI shall pay the invoiced amount by the end of the next month of the month in which the invoice is received." 4. A sample employment contrac....
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.... accompanied with doctor's certificate. 10. OBLIGATION: 1. The "EMPLOYEE" agrees to perform his assigned duties completely, conscientiously, efficiently, honestly and in accordance with the laeful orders of the "COMPANY" and to the expectation and high standard. II. The "EMPLOYEE" can not engage in any other activities with or without remuneration without the knowledge and prior consent in writing of the "COMPANY". III. The "EMPLOYEE" will comply with all employment rules and regulations and other lawful regulations and directives designated by the "COMPANY" from time to time, except, in the case of where this employment contract provides otherwise. IV. The "COMPANY" reserves the right to transfer or change the status and/or position of the "EMPLOYEE" but not to a lower category without any effect on remuneration and/or benefits as specified in this employment contract. 11. TERMINATION OF EMPLOYMENT CONTRACT: The "COMPANY" has the right to terminate this employment contract forthwith without any further liability or responsibility for the continuation of salary or other salary payments or benefits for the "EMPLOYEE" in the event of. I. Dishonesty II. Violation on any terms ....
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.... of employment. In terms of the Employment Contract, it is clear that the expats work in the normal capacity of a regular Indian employee. Some of the instances are: of such covenants are the Annual Leaves, Customary Holidays etc. the employees of Mitsui India are eligible for an similarly, the rules and regulations, employees are required to adhere to are: * Expats are eligible for the annual salary computed in Indian Currency. * All mandatory public holidays in India are applicable to expats also. * Expats are governed by normal working hours and sick leaves available to other Indian employees. * Expats are required to serve the mandatory notice period in the event of discontinuing the employment. * Expats are required to adhere to the general policies and rules and regulations formed by Mitsui India for its employees. The conclusion of the two contractual arrangements is diagrammatically represented below: 9. Basis the above factual submissions, it is clearly established that the expats who come to Mitsui India are taken as its employees. Mitsui India assumes all the risks and responsibilities of an employer in relation to the employment of expats which further str....
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....ed by the foreign service provider and reimbursed by them are definitely on account of services i.e. 'manpower recruitment or supply agency service' since Japanese experts/seconded employees worked for boosted the business of the assessee. If the said services were rendered by any unrelated agency then also the payment would have been on account of service as well as the administrative expenses of such agency. As already discussed above that the service receiver (i.e. ACI) and service provider (i.e. MCI) are separate entity. Thus, gross payment (including reimbursement) made to Japanese experts/seconded employees constitute gross taxable value of the said service liable to service tax under 'manpower recruitment or supply agency service'. Therefore, the said argument does not help the assessee." (emphasis supplied) 9. Shri Shashank Shekhar learned counsel for the appellant assisted by and Shri Tushar Joshi, made the following submissions: (i) The expats are employees of Mitsui India and, therefore, there is no service element in the transactions. The Deputy Commissioner, therefore, committed an error in holding that the expats are employees of Mitsui Japan; (ii) A conjoint re....
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....ssign certain of its employees to Mitsui India as officers or employees of Mitsui India and Mitsui India shall accept such employees who shall continue to be employee of Mitsui Japan; (ii) Rules of Mitsui India shall, in principle, apply to matters relating to the services of the seconded employees; (iii) Salary and bonuses payable to the seconded employees shall be paid by Mitsui Japan in accordance with their rules; and (iv) Mitsui Japan shall send to Mitsui India an invoice for the amount of the expenses incurred by Mitsui Japan in a month under the Agreement and Mitsui India shall be pay the invoice amount. 13. The Supreme Court in Northern Operating Systems examined almost a similar Agreement as has been executed in this appeal and ultimately held that the overseas group company provided manpower supply service to the Indian company. It would, therefore, be relevant to reproduce the relevant paragraphs of the judgment of the Supreme Court and they are as follows: "Analysis and Conclusions 33. The issue which this court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, provide it manpower services, for the....
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....on of "service" underwent a change. 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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....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 seconded employees are of a certain skill and possess the expertise, which the assessee requires. 50. The above features show that the assessee had operational or functional control over the seconded employees; it was potentially liable for the performance of the tasks assigned to them. That it paid (through reimbursement) the amounts equivalent to the salaries of the seconded employees - because of the obligation of the overseas employer to maintain them on its payroll, has two consequences: one, that the seconded employees continued on the rolls of the overseas employer; two, since they were not performing jobs in relation to that employer's business, but that of the assessee, the latter had to ultimately bear the burden. There is ....
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.... 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 services, on temporary basis. On the cessation of the secondment period, they have to be repatriated in accordance with a global repatriation policy (of the overseas entity). 54. The letter of understanding between the assessee and the seconded employee nowhere states that the latter would be treated as the former's employees after the seconded period (which is usually 12-18 months). On the contrary, they revert to their overseas employer and may in fact, be sent elsewhere on secondment. The salary package, with allowances, etc., are all expressed in foreign currency (e.g., US $ 330,000/- per annum in the letter produced before court, extracted above). Furthermore, the allowances include a separate hardship allowance of 20% of the bas....
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....ling 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 jobs or assignments, from the overseas group companies, which result in its revenues. The quid pro quo for the secondment agreement, where the assessee has the benefit of experts for limited periods, is implicit in the overall scheme of things. 59. As regards the question of revenue neutrality is concerned, the assessee's principal contention was that assuming it is liable, on reverse charge basis, nevertheless, it would be entitled to refund; it is noticeable that the two orders relied on by it (in SRF and Coca Cola) by this court, merely affirmed the rulings of the CESTAT, without any independent reasoning. Their precedential value is of a limited nature. This court has been, in the present case, called upon to adjudicate about the nat....