TaxTMI 
TaxTMI 
2025 (7) TMI 148
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....he allegations raised in the SCN issued to the Appellant, are that the Appellant is registered with the Service Tax Department under the categories of "Management Consultants, Consulting Engineer, Technical Inspection & Certification, Business Auxiliary Service. Transport of Goods by Road, Business Support Services, Renting of immovable Property Service and Information Technology Software Service." 3. The appellant is also engaged in the business of manufacturing and selling commercial vehicles trading of vehicles and their spare parts, providing shared services and also providing Annual Maintenance Contracts, Warranty and Extended warranty for the vehicles sold. The appellant has started commercial production in June 2012. The appellant has been paying Service Tax as Service Provider and Service Receiver for various services provided and received in terms of Section 68(1) and (2) of the Finance Act, 1994. During the course of compliance verification, while verifying the expenditure made in foreign currency for the corresponding value for discharge of service tax, it was found that the appellant has not discharged the service tax liability on the amount paid for the import of ma....
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.... of Chapter V of Finance Act, 1994 and Service Tax Rules, 1994, the following SCN and Statements of Demand were issued to the appellant : S. No . SCN/SOD No & Date Period Amount involved Provisions invoked under Finance Act 1994 Service tax Interest Penalty 1 323/2014 14.10.2014 2008-09 to 2012-13 14,44,04,740 proviso to Section 73(1) Section 75 Section 76, 77 & 78 2 15/2015 20.03.2015 2013-14 5,39,68,688 Section 73(1) Section 75 Section 76 & 77 3 10/2016 07.04.2016 2014-15 4,35,86,947 Section 73(1) Section 75 Section 76 (1) 4 17/2017 21.03.2017 2015-16 4,65,76,069 Section 73(1) Section 75 Section 76 (1) 5 04/2019 04.04.2019 April to 2016 June 7,74,54,201 Section 73(1) Section 75 Section 76(1) & 77 7. The appellant filed replies refuting the allegations, pursuant to which, after due process of law, the adjudicating authority issued the impugned common order in original confirming the demands alongwith applicable interest and imposing penalties. Aggrieved, by the same the appellant having preferred this appeal, is before this Tribunal. 8. Shri.....
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....Pg. 53] 9. Apart from the above, the following key clauses of the FAIT highlight the nature of the transaction and existence of employer- employee relationship between the Appellant and the expat employees: 9.1 The offer made by the Home Company, i.e., Daimler AG for transfer of an employee has to be accepted by the Host Company i.e., the Appellant. [Clause 2.1. Pg. 74] 9.2 During the period of secondment, the expat employees will not act on behalf of Daimler AG and will be under the direction, control and supervision of the Appellant. Daimler AG is not responsible for any damage caused due to the actions of the expat employees [Clause 2.4, 2.5, 2.6, Pg. 75] 9.3 The cost of transfer shall be the liability of and paid by the Appellant based on its policies and guidelines. [Clause 4.3, Pg.76] 9.4 A separate employment agreement is entered between the Appellant and the expats and the expats are integrated into the Appellant's company. The employment of expats with Daimler AG is made inactive during the period of secondment. [Clause 7, 1.6, Pg. 77] At this juncture, it is submitted that the salary of expat employees is expressed in INR in the employment Agreement. [Pg. 9....
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....; that there is no supply of manpower services between Daimler AG and the Appellant. 13. The facts in the present case are different from the facts involved in the Judgment of the Hon'ble Supreme Court in Northern Operating Systems and therefore the contention of the Department that the decision of the Hon'ble Supreme Court in Northern Operating Systems Private Limited [(2022) 17 SCC 90] is squarely applicable to the facts of the present case, is incorrect. The said decision is not applicable to the present case for the following reasons: 13.1 In the case of Northern Operating Systems (supra), the assessee was engaged in providing back-office services to the overseas Company. For performing such services, the overseas company sends the employees to the assessee, who in turn are actually performing the services for the overseas Company's business. This was a vital fact in deciding that there was manpower supply service in the case of Northern Operating Systems (supra). However, in the present case, the employees are deployed to India do not undertake any specific task, resulting in supply of services back to the foreign company. Instead, the employees seconded by Daimler AG ho....
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.... Finance Act as a service only when such activity is carried out for a 'consideration'. 14.2 in the present case, the Impugned Order has proceeded on the sole basis that the amounts paid by Appellant, even though it is nothing but reimbursement by the Appellant to Daimler AG, is the consideration for services rendered by Daimler AG. 14.3 admittedly, a portion of the salary containing amounts towards social security is paid by Daimler AG for administrative convenience on behalf of the Appellant and the same is reimbursed by the Appellant without any markup. This payment is also reported in the books of accounts under the head 'salary'. 14.4 it is a settled position of law that reimbursable expenses cannot be subjected to the Service Tax. In the case of Principal Commissioner of Central Goods and Service Tax Delhi South Commissionerate v. Boeing India Defense Pvt Ltd., 2023 (5) TMI 523 -CESTAT New Delhi, dated 10.05.2023, the very same issue of taxability as manpower supply service under RCM, in respect of seconded employees was considered. At para 11 therein, Hon'ble Tribunal duly notes that the issue of payment of service tax on secondment has been settled by the Supreme C....
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....sent case. 14.8 that Daimler AG acted as pure agent while paying a portion of the salary in foreign currency on behalf of the Appellant. Therefore, the reimbursable expenses are not includible in the value of taxable services even post 14.05.2015. Reliance in this regard is placed on the decision of Hon'ble Tribunal in Commissioner of Central Excise & Service Tax v. M/s Inductus Ltd. - 2025 (1) TMI 1036 - CESTAT Kolkata. 14.9 In any case, it is submitted that amount paid is in the nature of salary and is not a consideration for any service rendered to the Appellant. There is no element of quid pro quo in the transaction and mere reimbursement of salary cannot be subject to Service tax. 14.10 that Section 67 makes it clear that for the purposes of levying service tax, there should be some consideration flowing from the service receiver to the service provider and such consideration received by the service provider should be wholly or partly in money. 14.11 that no consideration is paid either in cash or in kind by the Appellant to Daimler AG in connection with transfer of expats. Further, since a part of salary is required by the expat employees to be paid in Home Countr....
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....alary paid in foreign currency and tax liability in respect of the salary paid in India to the expat employee is not disputed. Therefore, to that extent, Department has not disputed that employer-employee relationship exists between the Appellant and expat employees. On same parity that of Nissan Motors decision, the contract cannot be vivisected to tax only that portion of salary paid in foreign currency. d) The salary was paid to expats as per the split formula decided by the overseas group company. In the present case, salary is based on policies of the Appellant (Clause 4.3 of FAIT) and the entire salary is expressed in INR in the employment contract. A portion of the salary is paid in foreign currency at the behest of the expat employee and the same is paid by Daimler AG on behalf of the Appellant. e) The decision, in Hon'ble Technical member's portion of the order, dated 11.12.2023, states that the Northern Operating Systems case is not discussed in Principal Commissioner of Central Goods and Service Tax Delhi South Commissionerate v. Boeing India Defense Pvt Ltd., 2023 (5) TMI 523 -CESTAT New Delhi, dated 10.05.2023. However, as stated supra, the s....
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....(5) TMI 523 -CESTAT New Delhi, dated 10.05.2023, which has subsequently been upheld by Hon'ble Supreme Court, as stated above. E) Sri Bhagavathy Traders [2011 (24) STR 290 - Cestat Bangalore Larger Bench dated 08.08.2011. a) In this case, at para 6.1 therein, the Hon'ble Tribunal LB has laid down proposition on the scope of the term "reimbursements". It is extracted below. 6.1 Having analyzed the various decisions cited on behalf of the assessee and on behalf of the department, it would be appropriate to consider the scope of the term "reimbursements" in the context of money realized by a service provider. A person selling the goods to another cannot treat cost of raw materials or the cost of labour or other cost components for inputs services, which went into the manufacture of the said goods as reimbursements. If the buyer enters into a contract for supply of raw materials after negotiating prices from the supplier for the raw materials and the raw materials are received by the manufacturer and the manufacturer pays the amounts to the supplier of raw materials and recovers the same from the buyer, it can certainly be considered as reimbursements. It is ....
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....envat Credit of Service tax payable, if any. Therefore, the entire demand of Service tax is revenue neutral. 16.1 The issue is no longer res integra. It has been settled by the jurisdictional High Court of Madras in the case of Flemingo Duty free Shop Private Ltd. v. Union of India, WP 4055 of 2018 - Madras High Court dated 30.03.2021. In the said case, tax liability under GST on account of supply of goods was held to be a revenue neutral situation as tax collected was entitled to be refunded to the assessee. The Hon'ble Court held that there is no useful purpose in first directing the assessee to pay tax and then filing refund claim for the tax paid. 16.2 The Appellant places reliance on the following decisions wherein the entire demand (including demand for normal period of limitation) was set aside on account of revenue neutrality: (i) Commissioner of Customs & Central Excise, Ahmedabad v. Narayan Polyplast, 2005 (179) E.L.T. 20 (S.C.) (ii) International Auto Ltd. v. CCE, Bihar, 2005 (183) E.L.T. 239 (S.C.) (iii) Commissioner of Customs & Central Excise, Vadodara v. Narmada Chematur Pharmaceuticals Ltd., 2005 (179) E.L.T. 276 (S.C.) (iv)....
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....9.3 that the part of remuneration paid to the expats in their home country by the parent company, which is ultimately borne by the appellant amounts to compensation paid to the parent company towards employing the expats. Therefore, this cash flow is to be construed as consideration for the services received and the home company exercises complete control over the expats. 19.4 Considering the definition of "supply of manpower" under Section 2(g) of Service Tax Rules, definition of "manpower supply agency service" under Section 63(108)(k) and Section 66A of the Finance Act, 1994, the ST liability on reverse charge basis is justified by the fact that: i. The service rendered falls within the definition under Sec.65(105)(k); ii. The providers of the service (Daimler AG, Germany) have their permanent address in a country other than India; iii. The recipients of the service have their permanent address in India. 19.5 Reliance is placed on the judgement of the Hon'ble Supreme Court in the case of Northern Operating Systems P Ltd, 2022 - TIOL - 48 - SC - ST - LB, wherein it was held that the service provided by the foreign company to the appellant based on....
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....service and the issue is entirely different. The appellants were the service providers and did not concern a foreign manpower supplier. But in the present case, the appellants are service receivers and the foreign manpower suppliers are involved and the appellants liable to pay ST under reverse charge mechanism. 22. Ld. A.R. submits that on the point of revenue neutrality raised by the appellant, reliance is placed on the decisions in: (i) CCE, Chandigarh Vs. Baba Asia Ltd - 2011 (267) ELT 115 (Tri.Del), paragraphs 19 to 24. (ii) Sun Pharmaceuticals Industries Vs CCE, Jammu - 2013 (289) ELT 449 (Tri. Del), paragraphs 33 & 34 (iii) Prithvi Information Solutions Ltd Vs. CCT, Ranga Reddy, GST - 2025 (2) TMI 901 - CESTAT HYDERABAD, para 22 (iv) Star Industries Vs. CC (Imports), Raigad - 2015(10)TMI 1288 - SC, para 35 & 36. 23. Ld. A.R. emphasizes that the issue regarding the activity of supply of manpower from a foreign company to an Indian Company through secondment agreement under RCM has been decided in favour of the Revenue in the case of Northen Operating Systems. The earlier referred judgements of both Renault Nissan and Nissan Motors of ....
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....urther held: "48. The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided - in that context - by the overseas group company to the assessee." 27. It is submitted that every agreement that is enforceable in law is a contract in the realm of private law. All conditions including 'consideration', 'breach', 'non-performance' etc. are to be understood between the parties accordingly. Its understanding is governed by the provisions of the Contract Act. Since the definition of consideration in a special act like FA 1994 is an 'inclusive' one, it would be beneficial to look at the definition of the said term under the Indian Contract Act, 1872 also before reverting to FA 1994. In this case the Contract Act complements the provisions of FA 1994 in understanding the term 'consideration'. 'Consideration' as given under section 2(d) of the Indian Contract Act, 1872 states. (d) When, at the desire of the promisor, the promisee or any other person....
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....e. by both the overseas supplier (reimbursable) plus the Appellant, represents the gross consideration for the service provided or to be provided. Since if this gross amount is not agreed to be paid the deputation would not have taken place and the Agreement would not be operable or if operative one of the parties to the contract could sue the other for damages for a breach or non- performance of the agreement as mentioned in the Agreement itself. 29. It is submitted that the Hon'ble Supreme Court's judgment in Northern Operating Systems states as under: "57. 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....
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.... Hon'ble Court held that the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service. It is clear that the entire Agreement entered into by Home Company with Host Company is only the gross amount charged by the service provider 'for such service'. As stated by the Apex Court in the Northern Operating System the amounts paid by the Appellant are "equivalent to the salaries of the seconded employees ". 32. It is submitted that as per the Framework Agreement for International Transfers of Employees, it is clear that (i) The parties will engage in reciprocal business transactions involving transfer of certain staff employed by the respective party. (ii) The parties acknowledge that the costs to be incurred related to the transfer of staff be borne by the Host Company. (iii) The Host Company has to follow the Going Global policy as its own company policy. (iv) All specific rules regarding conditions and costs of the transfer relate to the Going Glo....
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....e expenses incurred towards employing expats. As per Article 7 with regard to General Obligations of the secondment agreement, a separate employment contract is entered upon between the appellant and the expat. The appellant may recommend the changes of the expats depending on position and function and the conditions of any contract applying to international transfer, but the recommended changes have to be mutually agreed between the appellant and Daimler. Daimler shall call back the expat to the home company but only after the termination of employment contract by the appellant. From the above mentioned General Obligation Clause, it is clear that the individual contract entered into between the appellant and the expats is purely based on the Secondment Agreement. 34. It is submitted that the dispute in the present case involves the interpretation of the terms of a contract between private parties, for arriving at the value on which service tax is applicable. The contract is in the realm of private law, in which the stipulations of the parties constitute the law of the contract. The nomenclature of any contract, of document, is not decisive of its nature. While determining the a....
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....he Director General [W.P.No.26465 of 2010, Dated: 09/04/2021]} 37. It is submitted that hence the question to be asked is not whether amenities such as school fees, house rent allowance, etc are reimbursable expenses on a stand-alone basis, but as to what represents the gross amount on which service tax is applicable and if there are reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, whether they are includable in the value for purpose of calculating the service tax payable. As pointed out by the Hon'ble tribunal in 'Nissan Motors', that the service contract for secondment cannot be vivisected or split into two. The paramount test of understanding an agreement is the intention of the parties. Hence the question to be asked is did the parties have in mind or intend separate rights arising out of payments to the secondee made in foreign currency and separate rights for payment in Indian Rupees. If there was no such intention, then in this case the Agreement was an indivisible contract. 38. Ld. AR submits that the factual position in the present case is similar. All payme....
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....o be placed on a statutory provision. They cannot be nailed to a position on the legal interpretation which they adopted at a particular point of time because saner thoughts can throw more light on the same subject at a later stage." Reliance is placed on the judgement in the case of M.P. Gopalakrishnan Nair & Anr. vs State Of Kerala & Ors on 20 April, 2005 [AIR 2005 SUPREME COURT 3053, 2005 AIR SCW 2292, of05 (4) SCALE 229] wherein it has been held a wrong concession of law cannot bind the parties, particularly when the constitutionality of a statue is in question. 41. It is submitted that the 'Boeing India Defense' judgment has also been examined by the three Member Bench in the case of 'Nissan Motors'. The doctrine of precedents requires that a Bench of lesser Members should follow the decision of a Bench of larger number of Members. It is seen that the judgment in the case of 'Nissan Motors' has been rendered by 3 Members and is hence a judgment of a Larger Bench, whereas the judgment on 'Boeing India Defence' has been rendered by a Divisional Bench. Hence the Judgment of the Bench at Chennai with a larger number of Members would prevail ov....
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.... is no difference, really speaking, between a full bench of three judges sitting together and this method of referring to the third judge in the case of a difference of opinion between the two judges. Whether the first method is adopted or the second, "opinion of the majority" will be decisive. In this case there is a formal reference to a third judge to ascertain his opinion. His is the deciding voice. He turns the scales. The third judge is the full bench. Not alone. But along with two others who first heard the case. Whether the three judges sit at the same time or at different times-two at one time, and the third hearing the matter later on a difference of opinion-does not make much difference. As has happened in this case, the two judges have differed. So the case has come to me, the third judge. The two judges have expressed their opinion. I am now called upon to give my opinion. The opinion of the majority will prevail. All that happens is that the third is segregated from the two and does not sit with them. He comes in later on when there is a difference of opinion between them. In all cases it is the theory of numbers which is the foundation of the doctrine of stare decisi....
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....hird member of this Tribunal for resolution, the resultant judgement must be considered the judgement of a full Bench, as if it were a judgement of a larger Bench (three ld. Member) sitting en banc." In the light of the legal position as stated by the Hon'ble Delhi High Court in Puri (P.C.) Vs Commissioner of Income Tax (supra) and the judgment of the Hon'ble President, CESTAT, speaking for the Divisional Bench, in Larsen & Toubro Ltd., (supra) judicial discipline requires that the 3 Member judgment of this Tribunal in "Nissan Motors" be followed and the appeal be set aside. 42. It is submitted that regarding the point raised by the appellant regarding revenue neutrality, reliance is placed on the following decisions: (i) Baba Asia Ltd 2011 (267) ELT 115 (Tri.Del) (ii) Sun Pharmaceuticals Industries 2013 (289) ELT 449 (Tri. Del) (iii) Prithvi Information Solutions Ltd 2025 (2) TMI 901 - CESTAT HYDERABAD (iv) Star Industries2015(10)TMI 1288 - SC. 43. It is also submitted by the Ld. A.R. that the appellants are liable to pay the service tax along with interest for the period from April 2008 to June 2017 as per Section 75 of FA, '94....
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.... B) Whether extended period of limitation can be invoked in the facts and circumstances of the case? 46. We find that the issue whether the overseas group company or companies, with whom the assessee has entered into agreements, provide it manpower services, for the discharge of its functions through seconded employees has come up for analysis by the Honourable Supreme Court in its decision in C.C, CE & S.T., Bangalore (Adjudication) v. Northern Operating Systems Pvt Ltd, 2022 (61) G.S.T.L 129 (SC), wherein the Apex Court has after noticing the relevant provisions of the Finance Act, 1994 with amendments as they were prior to 01-07-2012 and post the amendments in 2012, with effect from 01-07-2012, upon extensive deliberations, concluded, for the reasons given therein that the respondent therein, i.e., the assessee, was the service recipient of manpower recruitment and supply services provided by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, the Apex Court also held that the invocation of the extended period of limitation in both cases, by the revenue is not tenable. 47. In the....
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....rns and contribute to the provident fund. Furthermore, NOS remits the above amounts in foreign exchange, which are reflected in its financial statements. The assessee is reimbursed (by the foreign entity, Northern Trust Company - 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.'" 49. In NOS Judgement, the contentions of the Revenue, inter-alia were as under: "14. The revenue contended that looking at an overall reading of the agreement, i.e. services agreement dated 1-9-2006 and its attachment, the master service agreement dated 12-2-2009 (with its annexures), the secondment agreement dated 1-4-2007, and the secondment assignment letter or agreement with the concerned employee clearly showed that the overseas employer provided the services of its employees to the assessee ....
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....was contended, used their skill sets and expertise, to ensure the quality required by the overseas employer. 18. The Learned ASG relied upon the decision of the Supreme Court in Commissioner of Income Tax v. M/s. Eli Lilly & Company India Pvt. Ltd. [(2009) 15 SCC 1]. Reliance was also placed on Klaus Vogel's Treatise on Double Taxation [Klaus Vogel on Double Tax Conventions, Den Haag : Wolters Kluwer, Law and Business (2015)]. He also placed reliance on the judgment of this Court in Smt. Savita Garg v. Director, National Heart Institute [(2004) 8 SCC 56]; Workmen of Nilgiri Cooperative Marketing Limited v. State of Tamil Nadu & Ors. [(2004) 3 SCC 514]; Silver Jubilee Tailoring House v. Chief Inspector of Shops [(1974) 3 SCC 498]; Hussain Bhai Calicut v. Alath Factory Thozhilali [(1978) 4 SCC 257] and Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. [(2021) 7 SCC 151]. 19. It was submitted that whether a particular contract is one for providing services or not is to be decided on the facts of an individual case. Further, the fact of control over the manner of performance of duties or any one such singular factor cannot be decisive. It was submitted that....
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.... the course of employment are kept beyond the ambit of the definition of 'service'. Thus, the position of law both prior to as well as post July, 2012 is same. Employee-employer relationship is outside the scope of the said service. The category of supply of manpower by an agency covers those cases where the manpower so supplied, comes under the direction and control of the recipient without contractual employment. 22. Learned Counsel argued that, ever since the introduction of service tax in India, service by an employee to an employer was never subject to service tax. There is no country in the world which levies VAT/GST on employment service, or any services rendered by an employee to the employer. 23. Counsel urged that the agreements entered by the assessee with its group companies were to provide certain specialized services. The seconded personnel are contractually hired as the assessee's employees. Control over them is exercised by the assessee. Such employees devote all their time and efforts under the direction of the assessee; their remuneration is also fixed by it. The employees seconded to India are required to report to the assessee's designated offi....
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.... thus such demand (of service tax in lieu of salaries), is untenable. Therefore, any cost or expense reimbursed does not represent the gross value of taxable service and cannot be a consideration for charging service tax. 27. Counsel argued that debit notes raised by the overseas entity upon the assessee show that amounts paid were towards reimbursement of salaries and other allowances to employees. There was no mark-up charged by the foreign company. 28. It was next submitted that the demand to the extent of Rs. 8,12,62,382/- for the period October, 2006 to September, 2010, should be set aside. The assessee was under the bona fide belief that the seconded employees were its employees and therefore, not covered under the ambit of manpower supply services. Further, in any case, the assessee is entitled to avail refund of the service tax paid on input services under Rule 5 of the Cenvat Rules read with Rule 6A of the Service Tax Rules, 1994. Therefore, there can be no intention to evade tax. Counsel also urged that the bona fide belief was further strengthened by the fact that for the subsequent period (April, 2012 to September, 2014), the Adjudicating Authority its....
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....es of the transferee. Clause 1.6 - Transferee Person whose employment with the home company has been made inactive and is offered an employment with the host company under the terms of the agreement. Clause 2 - Transfer of Staff The Home Company will make an offer concerning an individual transferee and inform the Host Company about the current salary and family status. If the Host Company accepts the transferee, the transfer shall be carried out. (2.1) The parties agree to transfer or otherwise make available employees/transferees on the basis of the framework agreement in conjunction with the separate employment contract for each transferee. The host company examined the Daimler Going Global Policy and found that this policy is appropriate for the host company for transfers under this agreement and the host company introduces the Going Global Policy in its version of 01-01- 2008 as its own company policy. Host company shall not amend that policy unless otherwise agreed. (2.2) The transferee is not permitted to act for and on behalf of the Home Company (2.4) The transferee shall be subject to the directions of the Host Company. While under employment wit....
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....ny powers of authority given from the Home company. [7.1] Changes The host company may recommend changes of the transferee's employment status including his/her position or function as well as the conditions of any contract applying to the international transfer. However the recommended changes have to be mutually agreed between home and host company [7.2] Transfer With mutual consent of the transferee, home company and the host company the host company is authorised to transfer the transferee to suitable other duties and to transfer the transferee-also on temporary basis- to another acceptable duty station. The moving expenses necessitated by this shall be borne by the host company. The home company reserves the right to call the transferee back to the home company on short notice.[7.3] Clause 10 The agreement and all transactions between the parties will be governed by and construed in accordance with the laws where the home company has its principal place of business as if entirely performed therein without giving effect to tis conflicts of law principles Clause 13 - Independence of Parties This Agreement shall not be construed as Home company renderin....
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....sal and evaluation of the transferee will be undertaken by the Host Company. (3.3) Clause 4 - Cost of Transfer Costs of Transfer represent the sum of employment costs as agreed between the parties on arms lengths condition. Benefits and conditions of every transfer are governed by the current version of the Going Global Policy or the Global Mobility Policies. (4.1) The transfer is for the exclusive use of Host Company. The Host Company will bear all costs of transfer. (4.2) The Costs of Transfer of the transferee shall be the liability of and paid by the host company based on its policies and guidelines. Further, in order to facilitate financial commitments of the transferee in the home country (including but not limited to insurance, mortgage, social security, retirement contributions, etc.), the transferee would be paid part of his salary - if required from the transferee directly to his home country bank account subject to obtaining necessary regulatory approval. (4.2) The Host Company is responsible for complying with tax withholding requirements under the laws of the Host Country. (4.3) Clause 5 - Payment Terms If any costs have to cross ....
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....0,424,207 plus Indian taxes, that as part of the annual income, the transferee will receive a monthly salary after deduction of applicable taxes; that if required by the transferee to receive a part of the salary outside India in order to meet the transferee's financial commitments in Germany, he will receive a portion of his salary directly into his German Bank account after necessary statutory deductions. the relocation costs, Company car & driver, holiday entitlement and leave entitlement is "as per our company policy". It is also stated that a detailed appointment letter will be issued by the company at the time of joining. 54. The Appellant had on the basis of the above contended as under: a. From the undisputed facts and clauses of the agreement, it is evident that there exists employer-employee relationship between the Appellant and the expats. Further, the employment of expats with Daimler AG is made inactive during the period of secondment. b. that Daimler AG makes payment of a portion of salary only on behalf of the Appellant. Therefore, an agency between the Appellant and Daimler AG is also expressly established under the FAIT. Further, the expats ar....
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....mstances surrounding its formation." 56. We wholly concur with the submissions of the Ld. A.R. above as to the manner in which contracts are to be interpreted. The FAITEs and the separate contract of employment appear to convey that there exists a dual employer-employee relationship, one between the Home Company and the transferee and the other between the Host Company and the transferee. But more on the import of the FAITEs and the relationship it reveals, later. The agreements are structured in a manner that the Costs of Transfer of the transferee shall be the liability of and paid by the host company based on its policies and guidelines. Further, in order to facilitate financial commitments of the transferee in the home country (including but not limited to insurance, mortgage, social security, retirement contributions, etc.), the transferee would be paid part of his salary - if required from the transferee directly to his home country bank account subject to obtaining necessary regulatory approval." (clause 4.3 of the FAITE). The salary of the transferee is subjected to Indian Income Tax Act and Social Security Contributions. The thrust of the agreement appears to be an atte....
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.... to pay is of the person who reimburses the money to the actual payer, here the actual liability is not of the Home Company but that of the Host Company. Therefore, when the liability itself being that of the Home Company as the actual payer is being so discharged by the Home Company, the said amount being paid by the Host Company is only in fulfilment of its liability to pay the COSTS of the transfer of the transferee and is not a reimbursement but a recoupment of the said payment, as the liability to pay these amounts as per the local laws governing such social security contributions or pension contributions being made by the Home Company in its relationship with the transferee as the employee was, is, and has always been with the Home Company, and it was never on the Host Company in the first place. For the aforesaid reasons, we are also unable to subscribe to the appellant's contention that such payments of social security amounts by the Home Company was on behalf of the appellant and that too in the capacity of an agent of the appellant. 58. We also note that under the FAITE the transferee, i.e. the seconded employee, for the duration of her or his secondment, is under the ....
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....ompany, even while it is inactive/suspended and further the fact that on the cessation of the secondment period, they have to be repatriated in accordance with the said global policy governing the parties, clinches the truth that the ultimate legal liability and responsibilities of an employer, towards the transferee as an employee, is always with the Home Company in so far as the transferee is concerned. 59. At this juncture, it would be relevant to reproduce the relevant paragraphs of the analysis and conclusions of the Honourable Apex Court in the Northern Operating Systems Pvt Ltd, which are as under: "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 discharge of its functions through seconded employees. 34. The contemporary global economy has witnessed rapid cross- border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, empl....
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.... (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. After the amendment, all activities carried out by one person for another, for a consideration, are deemed services, except certain specified excluded categories. One of the excluded categories is the provision of service by an employee to the employer in relation to his employment. ....
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....ployee, 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 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 perfo....
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.... 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 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 as....
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....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 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 peri....
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....oncerned with the business operations in India. This is a crucial distinguishing factor between the facts of the instant case and the judgment of this Hon'ble Court in the case of Northern Operating Systems (supra). b. In Northern Operating Systems (supra), the entire salary and emoluments were paid by the Foreign Company to the employee and later paid by assessee to Foreign Company. However, in the present case the obligation to pay the salary rests solely with the Appellant. For administrative convenience, only part of the salary is paid by Daimler AG on behalf of the Appellant, which is later reimbursed on cost-to- cost basis by the Appellant. c. In Northern Operating Systems (supra), the foreign Company had created a pool of employees who are deployed to various affiliate companies to perform tasks in relation to business of the foreign group entity. However, there is no such pool of employees created in the present case and employees are engaged in relation to business of the Appellant and not the foreign Company. d. The judgment in Northern Operating Systems Pvt. Ltd. (supra) does not provide that all the secondments will amount to provision of Manp....
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....he business operations in India. When the FAITEs itself in its clauses reproduced supra state unambiguously that ""The parties agree to transfer or otherwise make available employees/transferees on the basis of the framework agreement in conjunction with the separate employment contract for each transferee. The host company examined the Daimler Going Global Policy and the Global Mobility Policies and found that these policies are appropriate for the host company for transfers under this agreement and the host company introduces the Going Global Policy and the Global Mobility Policies in its latest version as its own company policy. Host company shall not amend that policy unless otherwise agreed". We are unable to fathom why the appellant has chosen to refrain from producing these documents despite these frame work agreements being found appropriate by the host company and being adopted by the host company as its own company policy and when the transfers are all governed by these policies as well as the detailed appointment letter being issued to the transferees. These documents may also have contributed in understanding the underlying reasons behind the FAITE, not to mention their....
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....Home Company should terminate the employment of the transferee. Pertinently, the parties agree to transfer or otherwise make available the transferee on the basis of FAITE, in conjunction with the separate employment contract for each transferee (clause 2.2 of FAITE). However, the host company may only recommend changes of the transferee's employment status including his/her position or function as well as the conditions of any contract applying to international transfer, and the recommended changes have to be mutually agreed between home and host company (Clause 7.2 of FAITE). Also, the appellant as host company is not only stated to have examined the "Daimler Going Global Policy" and found that this policy is appropriate for the appellant for transfers under this agreement, but also that the Appellant introduces the Going Global Policy in its version of 01.01.2008 as its own company policy ("Going Global Policy"). The appellant shall not amend that policy unless otherwise agreed (clause 2.2 of FAITE). Further it is also seen that under clause 7.3 of the FAITE that the Home Company reserves the right to call the transferee back to the home company on short notice, all of which cle....
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....xpenses by the Host Company, which expenses were otherwise being borne by the Home Company, becomes the consideration for such supply of transferees to perform the duties in relation to the Host company's business. The conclusions of the Apex Court that "it would be unnatural to expect the overseas employer to not seek reimbursement of the employees' salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business" as well as the observation that "It is doubtful whether without the comfort of this assurance, they would agree to the secondment" bears heavily on our minds in this context. 65. The Supreme Court, has observed that there is no single determinative factor for deciding whether a contract is for service or a contract of service. Distinctiveness of each case demands an evidence based examination and it no doubt appears attractive to strike out a different path based on factual aspects disregarding precedents. Yet, three factors that evidently has weighed with the Apex Court in the NOS Judgement to hold that the assessee therein was, for the relevant period, service recipient of the overseas group company concerned,....
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....e Company transfers the transferee to the Host Company, placing reliance inter-alia on the decisions in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, 2013 (29) STR 9 (Del) upheld by the Hon'ble Supreme Court in Intercontinental Consultants and Technocrats Pvt Ltd, 2018 4 SCC 669, as well as the decision of this Tribunal in Principal Commissioner of Central Goods and Service Tax, Delhi south Commissionerate v Boeing India Defense Pvt Ltd, 2023 (5) TMI 523-CESTAT, New Delhi and couple of other decisions as have been reproduced above. 68. The Appellant had placed reliance on Principal Commissioner of Central Goods and Service Tax Delhi South Commissionerate v. Boeing India Defense Pvt Ltd., 2023 (5) TMI 523 -CESTAT New Delhi (also referred herein as the Boeing India Defense case or Boeing India Defense decision) of the Tribunal cited supra for the contention that the said Judgement had extended the benefit of the decision in Intercontinental Consultant's case to the assessee therein on the aspect of reimbursable expenses. While stating thus, it was also emphasized that the fact circumstances in the Boeing India Defense case are identical to Northern Operating Systems. I....
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....ting Systems. While the fact that Boeing India Defense case was affirmed by the Apex Court, albeit on the ASG's submission that the issues which arose in those appeals are covered by the judgment of this Court in Union of India v. Intercontinental Consultants & Technocrats (P.) Ltd, no doubt went unnoticed in the Nissan Motor case supra, that in itself would not allow us, sitting in a division bench, to hold that it would render the said decision in Nissan Motors suspect, given that it has the status of a decision emanating from a larger bench sitting en banc (Larsen & Toubro Ltd. Vs CST, Delhi, 2013-TIOL-1458-CESTAT-DEL, refers). Yet another pertinent aspect that we take cognizance of is that the decision of this Tribunal in Boeing India Defense case was affirmed by the Apex Court based on the consent of the ASG. It is a settled principle of law that observations made in Judgements premised on consent do not create any binding precedent. If any authority is required for the said proposition, Kulwant Kaur and Ors. v. Gurdial Singh Mann (Dead) by Lrs. and Ors., 2001 INSC 158: (2001) 4 SCC 262, in no uncertain terms has held that a decision based on a concession is not a binding prec....
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....arged 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 expats. To determine value of taxable services for charging Service Tax, gross amount charged for providing the services is to be determined. Reliance is placed on the judgment of the Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India [2013 (29) S.T.R. 9 (Del.)], which held that Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 goes beyond the mandate of Section 67 of the Finance Act, 1994 as quantification of the value of the service can never exceed the gross amount charged by the service provider for the service provided by him. This position was upheld by this Court in Intercontinental Consultants and Technocrats Pvt. Ltd. [(2018) 4 SCC 669 = 2018 (10) G.S.T.L. 401 (S.C.)]. In the present case, the demand of the service tax is being computed on the salaries and allowances paid to the employees. The salaries cannot be said to be consideration paid to group companies for provisio....
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....nanced for the fact that the Honourable Apex Court, has gone on to not only state in the said para that "a particular rate of tax - or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail", but thereafter to hold in the next paragraph 60 that "for similar reasons, that the orders of the CESTAT, affirmed by this Court, in Volkswagen and Computer Sciences Corporation, are unreasoned and of no precedential value" and then again in para 61 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." 75. Pertinently, it is to be noted that the Apex Court in the Northern Operating Systems Judgement has not stated that the matter is being remitted back to adjudge the liabilities. Instead, the Lordships of the Honourable Supreme Court in the NOS Judgement had taken cognizance of the said pleas premised on the intercontinental case as well as the plea of revenue neutrali....
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.... for the same, the Honourable Apex Court, has decided not to entertain the plea of revenue neutrality when holding that the liability has to be necessarily discharged. The appellant has also placed reliance on a number of decisions to contend that the entitlement to cenvat credit results in a revenue neutral situation and thus the demand need not be sustained. The crucial distinction that we note is that in all these decisions, the fact situation was not pertaining to the liability that arises consequent to the levy attracted under Section 66A of the Finance Act, 1994 for import of service. To countenance the plea of the appellant would be to render the discharge of liability consequent to levy under Section 66A, completely otiose, as no person who is liable thus need to pay service tax on service received from abroad for the reason that the tax so paid will be available as credit to them. As we have observed supra, when the entitlement to availment of credit or entitlement to refund etc., would arise only subsequent to the discharge of such revenue liability in the first instance; such availment of cenvat credit or entitlement to refund also being subjected to further checks and b....
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.... the Intercontinental Consultant Judgement as well as the plea on revenue neutrality considering the entitlement to avail cenvat credit, though considered by the Honourable Supreme Court, has clearly not found favour with the Honourable Supreme Court; nevertheless, on the issue of invocation of the extended period of limitation, we find that the Honourable Supreme Court had decided the issue in favour of the assessee in the NOS Judgement. 80. In the light of our analysis and discussions above, in asmuch as we have also found that the inferential and logical links that flow from the various clauses of the FAITE and the separate employment contract that has been issued in conjunction with the FAITE, when read conjointly, clearly indicate that the instant case is substantially similar to the fact circumstances of Northern Operating Systems, we hold that the said Judgement is squarely applicable to the facts and circumstances of these appeals. Accordingly, we find that the Appellant was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the transferees/employees it seconded to the appellant, for the duration of their ....