TaxTMI 
TaxTMI 
2025 (10) TMI 680
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.... Agency Services and for only the FY 2012-13, the renumeration paid to Directors also Manpower Recruitment or Supply Agency Services and Renumeration paid to Directors Manpower Recruitment or Supply Agency Services and Renumeration paid to Directors Service Tax demand and penalties under dispute Rs.8,88,22,838/- along with applicable interest and equivalent penalty under Section 78, as well as applicable penalty under Section 77 Rs.7,02,70,161/- along with applicable interest and applicable penalty under Section 76 Rs.5,69,07,212/- along with applicable interest and penalty under Section 76 proposed in statement of demand No.13/2016 dated 04.04.2016 stood dropped 2. The facts germane to the dispute, as discernible from the appeal records, are that Renault Nissan Technology Business Center India Private Limited, the appellant herein (RNTBCI), is an SEZ Unit engaged in Research and Development activities for M/s. Renault Global Management SA, Geneva and M/s. Nissan Motor Ltd, Japan. RNTBCI is primarily a support center for its group entities outside India, providing engineering, IT, IT-enabled, back office and business process outsourcing services. RNTBCI is regi....
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....hat during the year 2012-13, RNTBCI had paid renumeration to Directors and took a view that in terms of Rule 2(1)(d)(i)(EE) of Service Tax Rules inserted w.e.f 07-08-2012 read with para 1(A)(iva) of Notification No.30/2012-ST dated 20-06-2012 as amended by Notfn. No.45/2012-ST dated 07-08-2012, RNTBCI is required to pay service tax for services of Directors received by RNTBCI. 6. The Department therefore issued a show cause notice No.01/2014 dated 17-01-2014 for the period 2008-09 to 2012-13 invoking extended period of limitation, a Statement of Demand (SOD) No. 04/2015 dated 17-04-2015 for the period 2013-14 and another SOD No.13/2016-ST dated 04.04.2016 for the period 2014-15, calling upon RNTBCI to pay service tax for the import of supply of manpower services from its group companies located abroad as well as the renumeration paid to the Directors as more particularly specified therein. RNTBCI filed replies refuting the allegations and contesting the demands, pursuant to which, after due process of law, the respective adjudicating authorities issued orders in original. In two orders in original, for the period of 2008-09 to 2012-13 and for the period 2013-14, the adjudicating....
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.... on the employees being automatically reinstated into the parent company at the end of the international transfer and RNTBCI agreeing to abide by the terms of the employment contract as agreed by the group company and that the employees are paid daily allowance all of which in fact demonstrates that these employees are not employees of the Group company during the period of employment in India. 7.7 That the observations made by the commissioner that the payments made towards social security and other charges is the obligation of the Foreign Company and not of RNTBCI is completely baseless as these are actually paid on behalf of RNTBCI. RNTBCI relies on article 4 and article 6.1 of ITA and clause 4 of the employment agreement between RNTBCI and the expats in this regard. 7.8 That the payment made by RNTBCI to the group companies represent only reimbursement of expenses on actual basis and hence not includable in the value of taxable services under section 67 of the Finance Act, 1994. 7.9 Reliance is placed on the decisions in UOI v Intercontinental Consultants &Technocrats (P) Ltd, [2018] 91 taxmann.com 67 (SC), Hindustan Construction Company Ltd v CCE & ST, Navi Mumbai, (2....
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.... Ltd v. CCE & ST, 2025 (5) TMI 316 - CESTAT CHENNAI, Sulphur Mills Limited v. CCE & ST, 2024 (9) TMI 1549 - CESTAT AHMEDABAD, Bengal Beverages Pvt. Ltd. v. CGST & CE, 2020 (11) TMI 622 - CESTAT KOLKATA, and Ratnamani Metals and Tubes Ltd. v. CCE & ST, 2024 (3) TMI 10 - CESTAT AHMEDABAD. 9. The Ld. Consultant submitted, without prejudice to the other grounds taken, that RNTBCI carries on business from premises registered as SEZ Unit and are carrying out authorised operations from such premises. That the impugned manpower supply service allegedly received by RNTBCI were utilized only and exclusively for the purpose of authorised operations of the SEZ units. The seconded employees or Expats worked only for the assignments or projects which are part of authorised operations of the SEZ unit especially in R & D and engineering activities and which fact is undisputed in the appeal. Therefore RNTBCI is eligible for the exemption from the payment of service tax by application of SEZ law and the relevant exemption notifications issued under Finance Act, 1994. 9.1 That the adjudicating authority in Para 23 and 24 of OIO 06/2015 dt 28 Aug 2015, relating to Appeal ST/40037/2016 for FY 201....
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....rejudice to the above submissions, Ld. Consultant further submits that RNTBCI is eligible for upfront and complete exemption from service tax for the services received for the authorised operations of the SEZ unit even without any reference to the above mentioned notifications issued under section 93 of the Finance Act, 1994 and irrespective of the conditions of the notifications issued under Section 93 of the Finance Act, 1994. 9.4 It is submitted that being a SEZ unit, the services received by RNTBCI is exempt as per Section 26(1) of the SEZ Act subject to the conditions prescribed under Section 26(2) of the SEZ Act. Conditions as referred to in Section 26(2) of the SEZ Act is limited only to the conditions spelt out in SEZ law and nothing else, as can be seen from Section 2(w) of the SEZ Act which defines the word "prescribed" means to the prescriptions in the rules made by the Central Government under the SEZ Act. The conditions prescribed for such exemptions are handled in Rule 22 and 31 of the SEZ Rules which do not contain any restrictions regarding the turnover of the SEZ Unit to DTA customers. The Ld. Consultant submits that Rule 22 of the SEZ Rules only specifies about....
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....'ble Apex court in (2023) 4 Centax 96 (S.C.), ATC Tyres P Ltd v. CCGST & CE, 2021-VIL-106-CESTAT-CHE-ST, Cognizant Technology Solutions India P Ltd v. CCE & ST, 2021-VIL-533CESTAT-CHE-ST, M/s. TVS Logistics Services Ltd Vs The Principal Commissioner of Service Tax, Chennai South Commissionerate, Chennai - 2021-VIL-186-CESTAT-CHE-ST, and M/s Wabco India Ltd Vs Commissioner of GST & CE, Chennai - 2021-VIL-263-CESTAT-CHE-ST 10. Ld. Consultant further submitted that for the period 2008-09 to 2012-13, in respect of the issue relating to manpower supply services, the extended period of limitation could not have been invoked as the issue was debatable involving multiple and complex interpretation of provisions, contracts etc and with many rulings in favour of the taxpayer holding that the secondment of employees from foreign entities to Indi are not taxable including the decision of the Tribunal in the case of northern operating systems and therefore due to the bonafide belief of the appellant that there was no liability to tax, the extended period of limitation was not invokable. That even in the appellant's own case the adjudicating authority has held in the appellant's favour in the....
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.... for the Respondent and made elaborate arguments contending as below: 12.1 That on a perusal of the contracts it is clear that what is paid is towards the cost incurred for making available the manpower service which RNTBCI has received. Reliance is placed on the decisions of the Apex Court in M/s. International Merchandising Company LLC and M/s. Northern Operating Systems Pvt Ltd, paragraphs 42,44, 48,50, 53, 57, 59, 61, and from the clauses of the contract in the case at hand the terms and conditions and scope of the contract is more or less similar to that of the assessee before the Hon'ble Apex Court in the case of M/s. Northern Operating Systems Ltd and the ratio will apply to RNTBCI. 12.2 That articles 1,2,4 and 5, 8, 9 of the Employment contracts and the appendix thereto indicate that the contract is signed by the expat with M/s. Renault and not with RNTBCI and the issue of salary/other renumeration/power of selection/dismissal is dictated by the overseas company. 12.3 That the fact remains that the overseas employer in relation to its business deploys them to RNTBCI, their terms of employment even during the period of secondment are in accordance with the policy of....
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....a lump sum or gross amount has been charged for the service by the supplier of service, it has to form the assessable value for the purpose of service tax. 12.6 Ld. Authorised Representative also submitted that the Letter of Approval only provides for supply of services in the Domestic Tariff Area in terms of the provisions of the SEZ Act and rules and orders made thereunder and is not dealing with procurement of service from abroad and in the absence of any endorsement by the proper officer, it cannot be construed as permission for import of services from abroad. 13. We have heard both sides, perused the appeal records and the case laws submitted as relied upon. 14. The issues that arise for determination are: A) Whether the overseas entities are providing supply of manpower services to RNTBCI? B) Whether extended period of limitation can be invoked in the facts and circumstances of the case? C) Whether the renumeration paid to Directors of RNTBCI are exigible to service tax? D) In case answer to A is in the affirmative, whether consequent to the supply of manpower services to RNTBCI by the overseas entities, RNTBCI is liable to pay ser....
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....or managerial and technical personnel to assist in its business and accordingly the employees are selected by the group company and they would be transferred to Appellants. (b) The employees shall act in accordance with the instructions and directions of Appellants. The employees would devote their entire time and work to the employer seconded to. (c) The seconded employees would continue to be on the payroll of the group company (foreign entity) for the purpose of continuation of social security/retirement benefits, but for all practical purposes, Appellants shall be the employer. During the term of transfer or secondment the personnel shall be the employee of Appellants. Appellants issue an employment letter to the seconded personnel stipulating all the terms of the employment. (d) The employees so seconded would receive their salary, bonus, social benefits, out of pocket expenses and other expenses from the group company. (e) The group company shall raise a debit note on Appellants to recover the expenses of salary, bonus etc. and the Appellants shall reimburse the group company for all these expenses and there shall be no mark-up on such reim....
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....licy. 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 service. In other words, what was provided to the assessee by the overseas counterpart or group companies were services through its employees. These services directly pertained to the discharge of functions of the assessee. 16. It was argued that CESTAT's reasoning that the contract between the parties was not one in which the overseas group company supplied services, was erroneous. In this context, it was urged that the mere fact that the temporary control over the manner of performance of duties of the employees seconded did not take away or diminish the fact that their real employer was none other than the overseas company. The scale of payments made to such seconded employees was of such magnitude that they were regarded as highly skilled for the performance of specific tasks by the assessee. 17. It was argued that the real reason or purpose for the secondment by the overse....
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....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." 19. The contentions of the assessee in the NOS Judgement were interalia, as under: "20. Mr. V. Sridharan, Learned Senior Counsel appearing for the assessee urged that a conjoint reading of Section 65(68) with Section 65(105)(k) of the Finance Act, 1994 makes it clear that the 'manpower recruitment and supply agency service' seeks to bring under its ambit two types of activities i.e. recruitment of manpower and supply of manpower. Further the service becomes a taxable service only if provided by a manpower recruitment or supply agency. In the present case, the dispute pertains to whether the secondment of employees by the group companies to the Respondent will be regarded as supply of manpower. 21. It was argued that Circular F. No. B1/6/2005-TRU, dated 27-7-2005 clarified the scope of 'Manpower Recruitment or Supply Agency' service to include staff who are not contractually employed by the recipient but come under his direction. This view is further strengthened by Master Circular N....
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....th 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 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 cas....
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....1) E.L.T. A138 (S.C.)] and Commissioner of Central Excise v. Coca-Cola India Pvt. Ltd. [2007 (213) E.L.T. 490 (S.C)]." 20. Bearing the issues framed in this case, the issues that arose in the NOS Judgement, the contentions of the revenue therein as well as the contentions of the assessee in the said Judgement as noted supra, in our minds, we now examine the agreements that have been made available in the appeal records of this case. The preamble and articles of the Contract of Mandate dated 01 October 2008, entered into by M/s. Renault((RGM) with RNTBCI, are as under: Preamble and Articles of Contract of Mandate Particulars Preamble RNTBCI is the employer of various expatriates / personnel who are on International Transfer and to whom continuation of social security and other benefits have been assured under the relevant employment contract. Article 1:Object The aim of this Contract is to formally set out the terms and conditions between RNTBCI and RGM for the reimbursement specified in article 2 (hereinafter designated the "MANDATE) ARTICLE 2: SCOPE AND MANDATE 2.1 Scope RGM undertakes to make Home country contributions (mandatory & non veste....
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....e recruitment medical check-up. The employment contract between Mr. Stephane HOBLINGRE and RGM exclusively applies in this context and for the duration of an International transfer activity. The conditions for this international transfer are defined in an appendix to this contract and will also apply to Host Company when it is an Employer. The Host Company defined in Attachment A of the appendix may change without modifying anything of this contract, in which case, a new attachment will be executed between both parties. ARTICLE 2REMUNERAT ION Mr. Stephane HOBLINGRE will be eligible for remuneration as stated in Article 2 of the Appendix. The salary payable (including social security contributions) will be calculated on the basis of a gross annual notional basic salary, which for Mr. Stephane HOBLINGRE is set at 50753 Euros per annum. In consideration of the execution of this position, this gross annual notional basic salary represents global remuneration for all activities carried out in view of service requirements. This amount will represent the basis for the calculation of remuneration, as defined in the enclosed appendix, relating to this and any s....
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....the termination of this contract to the other party, with notice of three months, from the end of the month. This notice may not be applicable in case of a transfer within the RENAULT Group or within companies controlled as defined in article I.233-16 of the French code of commerce and its Alliance companies. This contract may come to an end by the Employer with immediate effect and without notice if the passport or the residential permit expires or is withdrawn by the immigration service of the country to which the employee is assigned for any reason based on the direct liability of the employee. ARTICLE - 9 COMPETENT JURISDICTION This employment contract is established on the basis of and is governed by Swiss law. Any disputes concerning or relating to this contract and its appendices will be settled by the competent court for the canton of Geneva, Switzerland. The parties expressly accept the exclusive jurisdiction of the competent court in the canton of Geneva. Appeals may be submitted to the Swiss federal court. RECRUITMENT VENUE Two copies, Geneva, Switzerland, on December 17, 2007 Signature proceeded by the handwritten mention Read a....
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....Net Annual Notional Basic Salary: 37719 EUR (Refer "Article 2 Remuneration" of the Employment Contract) * Net Foreign Service Premium of 85% of the above Net Annual Notional Basis Salary: 32061 EUR * Cost-of-living Allowance (70% of the above Net Annual Notional Basic salary) of 0.92 Total Net Salary of Rupees 3826093 per annum Complementary elements, i.e. Foreign Service premium and Cost-of-living Allowance are exclusively related to the international transfer. Consequently, they are excluded from the gross annual notional basic salary taken into consideration by RENAULT SAS in France when returning, among other considerations. For technical reasons, these elements may however be mentioned on the pay slip. The Foreign Service premium and Cost-of-living Allowance may be increased or decreased according to the applicable indexes for RGM procedures. Special Allowance as mutually discussed and agreed, will be paid to you on monthly basis. In addition to the above, you will be eligible for the following: i) Housing which will be provided for by the Employer. ii) Schooling of children if any, which will be paid for by the Employer. ....
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....n rights of Mr. Stephane HOBLINGRE to the CFE (administration processing the contributions of French citizens living abroad) in France and when employed by the RNTBCI, such payments will be made either directly or by RGM on their behalf and recovered separately from the RNTBCL 6.2 Complementary retirement During the international transfer period, RGM will continue to pay complementary retirement contributions, calculated on the basis of the gross annual notional basic salary and when employed by RNTBCI, such payments will be either directly or by RGM on their behalf and recovered separately from the RNTBCL Article 7 - Early termination of the international transfer Should "RNTBCI" or RGM wish to terminate the planned international transfer at an early date, "Assignee's name" will be notified in writing of the date of termination of the international transfer, with notice of 3 (three) months. Article 8 - Reintegration At the end of the international transfer, the employment contract and this appendix will automatically cease to apply. Mr. Stephane HOBLINGRE will be automatically re-instated by RENAULT SAS to an equivalent position. This reintegration will be....
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....n and RNTBCI. 26. It was also contended that 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 is squarely applicable to the facts of the present case, is incorrect. The said decision is not applicable to the present case for the reasons that on transfer the seconded employee becomes the employee of RNTBCI to whom the salary is paid in Indian Rupees and further the social security charges and other expenses paid by the overseas entity were reimbursed by RNTBCI. 27. Learned Authorised Representative, Shri. Anoop Singh has argued that during the secondment term, the expats deployed to RNTBCI remain the employees of M/s. Renault or M/s.Nissan and that the expats are supplied by the home companies to RNTBCI under certain terms and conditions. In other words, expats are on regular rolls of the parent company and are deputed on international assignments to the appellant and are returned to the parent company on completion of the job/project. It is also ....
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.... (2010) 14 SCC 1, in the a forecited decision of the Apex court in Great Eastern Shipping Company Ltd. Vs State of Karnataka, 2020 (32) G.S.T.L. 3 (S.C.) and one can hardly have any difference with the aforesaid proposition. 29. The Adjudicating Authority in the impugned Order in Original No.07/2014 ST dated 13.11.2014, after considering the contract terms, has rendering findings against RNTBCI, holding as under: "29. From the above reading, it is clear that the noticee (RNTBCI) had not engaged the staff deputed on international transfer, on their own terms. I find that the terms and conditions imposed by the parent company of the employee, would also be the terms applicable both for the employee as well as for the noticee company. The noticee does not have its own terms on fixing of salaries to the employees, coming on international transfer. It is also clear that during the employment with the noticee, the employee is paid daily allowance of 373 Ron by (RGM) the parent company, during the assignment in the host country. I find that the terms and conditions are the same in respect of other employees, i.e. Mr. Louis Renou, Mr. Stephene HOBLINGRE etc. who are deputed on ....
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....th the noticee, namely RNTBCI. Thus supply of manpower from parents located in the non-taxable territory (namely, Fance and Japan) to RNTBCI located in the taxable territory (India, here chapter V of the Finance Act, 1994 applies) is confirmed. 18. In respect of their claim that only 12 were engaged under ITA (International Transfer Agreement) and the balance 125 were directly engaged by the noticee under employment contract, I find that the compensation for these employees (on direct employment contract) are paid partly in EUROS/foreign currency by their foreign principals directly into the bank accounts of the expats and the same are collected from the noticee company in foreign currency. For example one employment contract dated 1.3.2013 related to Mr. M. Jean-Marc LE GUILLY indicates that the said expat is offered annual basic salary of Rs.34,69,657.61 in INR apart from Net Net Foreign Service Premium of 75% of the Net Annual Basic Salary. It is also given in the contract that apart from the Indian salary paid herein, the amount of EURO paid into his bank account on behalf of RNTBCI (the noticee) would be reckoned for tax as per Indian Income Tax Act. Here it should be....
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....ndicates that the expat is primarily the employee of M/s Renault at first instance. Further, in order to facilitate the statutory and other mandated commitments of the employer, i.e. M/s. Renault, in the expat's home country (including but not limited to insurance, social security, retirement contributions, etc.), the expat would be paid such amounts in his home country. The salary of the expat, no doubt is subjected to Indian Income Tax Act, nevertheless, to our mind, it appears that the contracts, while structured in a manner that the costs of transfer of the expats shall be the liability of, and paid by, RNTBCI, however, it appears to be so done only as an attempt to establish that there is no permanent service establishment of the overseas company in India. In any event, when pertinently, the scope of the contract as stipulated in Article 2 inter-alia states "RNTBCI will specifically indicate to RGM the employees involved in this service.", it is evident that both parties are ad idem that it is a contract for manpower supply. 32. We find that in the instant case the expat while under employment with RNTBCI would function under the control, and supervision of RNTBCI. The remu....
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....r of the expat. 33. We also note that under the employment contract the expat, i.e. the seconded employee, for the duration of her or his secondment, is under the control of RNTBCI, and works under the appellant's directions. Yet, the fact remains that they are being loaned on a temporary basis by the Home company to the appellant. As per article 3 of the employment contract, the contract will automatically cease to take effect at completion of the duration of the international transfer, and the employment contract with the Home company will automatically restart and take effect at that date. This is also emphasized in the appendix to the contract at article 8 titled reintegration, which again stipulates that at the end of the international transfer, the employment contract and this appendix will automatically cease to apply and the expat will be automatically reinstated by the Home Company to an equivalent position and such reintegration is being done on the basis of the gross annual notional basic salary for the home company at the date of return. Thus, the expat's employment with the home company can, at best, be stated to have been made temporarily inactive. In other words, ....
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....tly seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the latter's request to meet its specific needs and requirements of the Indian associate. During the arrangement, the secondees work under the control and supervision of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed." Xxxxxxx 42. The assessee's contention before the CESTAT, i....
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....e of the excluded categories is the provision of service by an employee to the employer in relation to his employment. 47. One of the cardinal principles of interpretation of documents, is that the nomenclature of any contract, or document, is not decisive of its nature. An overall reading of the document, and its effect, is to be seen by the Courts. Thus, in State of Orissa v. Titaghar Paper Mills Co. Ltd. [1985 Supp SCC 280] it was held as follows : "120. It is true that the nomenclature and description given to a contract is not determinative of the real nature of the document or of the transaction thereunder. These, however, have to be determined from all the terms and clauses of the document and all the rights and results flowing therefrom and not by picking and choosing certain clauses and the ultimate effect or result as the Court did in the Orient Paper Mills case (1977) 2 SCR 149)". This principle was reiterated in Prakash Roadlines (P.) Ltd. v. Oriental Fire & General Insurance Co. Ltd. [(2000) 10 SCC 64]. 48. The task of this Court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nat....
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....t 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 nothing unusual in this arrangement, given that the seconded employees were performing the tasks relating to the assessee's activities and not in relation to the overseas employer. To put it differently, 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. 51. As discussed previously, there is not one single determinative factor, which the courts give primacy to, while deciding whether an arrangement is a....
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....dance 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 basic salary for working in India. The monthly housing allowance in the specific case was Rs. 3,66,700. In addition, an annual utility allowance of Rs. 3,97,500/- is also assured. These are substantial amounts, and could have been only by resorting to a standardized policy, of the overseas employer. 55. The overall effect of the four agreements entered into by the assessee, at various periods, with NTS or other group companies, clearly points to the fact that the overseas company has a pool of highly skilled employees, who are entitled to a cer....
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....s 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 nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. 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. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount. 60. This Court is also of the view, for....
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....egating RNTBCI's contention of an independent or standalone employer- employee relationship. In fact, RNTBCI does not appear to have any leeway to act on its own accord to transfer the transferee to suitable other duties, or even to transfer to any other duty station, which indicates the hold of the Home Company. The employment contract between the Home Company and the expat which states that it exclusively governs during the international transfer activity, makes it clear that the sway of the Home Company as to where the transferee would work and what duties the transferee would undertake, are not insignificant. Thus, while the fragmented control structure obfuscates the limits of disciplinary control and enforceability for violation of contractual obligations that can be exercised by the Host Company while the expat is with the Host Company, nevertheless, the silence on certain aspects in the employment contract of the expat, as well as the limitations on termination of employment, as observed supra along with the exclusivity of the employment contract during the duration of the international transfer activity, adds heft to our view that the true and real control over the expat i....
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....to the Host Company's employment after completion of the secondment tenure, (2) the service rules of the overseas entity governing the transferee's terms of employment, even during the secondment, which are in accord with the policy of the overseas entity and (3) the salary package offered being based on what the expat was earning while he was with the Home Company or as fixed by the Home Company. This has led to the Honourable Apex Court holding that the overseas entity remains the employer and thus, concluding that there is a provision of manpower supply services from the overseas entity to the Indian entity, taxable under erstwhile service tax law. To our mind, when these three factors exist in a case, no lower court or authority can then take a different stand contrary to the NOS Judgement. These three factors are evidently in existence even in the appellant's case herein as analysed in our discussions supra. Further, not every factor elucidated by the Supreme Court holds equal relevance or would weigh equally when considering individual agreements/contracts in different cases. Yet, when there are factors that have weighed with the Apex Court to pigeonhole secondment by the ove....
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.... 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 provision of service and thus such demand (of service tax in lieu of salaries),....
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....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." 44. Importantly, 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 neutrality and has, after discussions, stated their Lordships' conclusions as under: "Conclusions 65. It is held, for the foregoing reasons, that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the revenue is not te....
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.... Finance Act, 1994 for import of service of manpower supply attracting Section 66A of the Act ibid. To countenance the plea of RNTBCI would be to render the discharge of liability consequent to import of service which attracts application of 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, 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 balances in terms of the statutory requirements that has to be fulfilled to qualify for the same. Hence, the liability to pay the service tax consequent to the levy under the Finance Act ibid by virtue of application of Section 66A cannot be extinguished on the plea of revenue neutrality. We are fortified in our view on this aspect by the coordinate bench decision of this Tribunal in M/s. Prithvi information Solutions v Commissioner of Central Tax Rangareddy-GST, 2025 (....
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....wer to the second issue framed by us stated supra, we hold that the Revenue was not justified in invoking the extended period of limitation to fasten liability on RNTBCI. 50. The third issue is whether the renumeration paid to Directors of RNTBCI are exigible to service tax. The contested finding of the adjudicating authority upholding the liability of RNTBCI on this count in the impugned order in original No.07/2014 (ST) dated 13.11.2014, is at paragraphs 34 and 35 and pari materia findings have been made in the subsequent impugned order in original No.06/2015 dated 28-08-2015 at paragraphs 21 and 22. For reference, the findings in the impugned order in original No.07/2014 (ST) dated 13.11.2014, as at paragraphs 34 and 35, are as under: "34. Coming to the next issue of payment of service tax on Directors Remuneration, I find that the noticee has mainly pointed out that the two Directors engaged by the company are Whole Time Directors and that they were only employees of the company during the relevant period. In their support they have furnished the copies of employment contracts in respect of Shri. Hiroshi NAGAOKA and Shri. M. Karim MIKKICHE. 35. To decide wh....
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.... in appeal tantamount to making out a new case against the appellant on this count which it was never required to meet. Such a proposition is opposed to the settled position in law that the Department cannot travel beyond the ground raised in the show cause notice. The decision in CC Mumbai v Toyo Engineering India Ltd, 2006 (201) ELT 513 (SC) and CCE, Bhubaneswar-I v Champdany Industries Ltd, 2009 (241) ELT 481 (SC) refer for this proposition. 52. That apart, we find that the issue of demand of service tax on Director's renumeration when made by the Revenue, has been consistently negatived and held in favour of the assessee in a string of Tribunal decisions. This bench of the Tribunal had an occasion to deal with the issue earlier as reported in M/s. Dixcey Textiles Pvt Ltd v. The Commissioner of Central Excise and ST, Salem Commissionerate, 2025 (5) TMI 316 -CESTAT CHENNAI, and the relevant portion is reproduced below: "6) The singular issue that arises for determination is whether the demand made on the appellant on the remuneration paid to its directors is tenable. 7)We note that the adjudicating authority has chosen to ignore the appellant's contention tha....
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....is pursuant to employer-employee relationship and the mere fact that the wholetime director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time director. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company. 7. Further, in the present case, the appellant has duly deducted tax under Section 192 of the Income-tax Act which is the applicable provisions for TDS on payments to employees. This factual and legal position also fortifies the submission made by the appellant that the whole-time directors who are entitled to variable pay in the form of commission are 'employees' and payments actually made to them are in the nature of salaries. This factual position cannot be faulted in absence of any evidence to the contrary. The submission of Ld. DR as well as the finding made by the Commissioner in the impugned order that since the whole-time direct....
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....extracts of the resolution of the Board of Directors of RNTBCI in this regard. They have also contested the demand enclosing the Form 16 with respect to the Directors, employment contracts and relevant extracts of financial statements. They have also placed reliance on similar decisions of the Tribunal holding to the effect that the demand of service tax on this count unsustainable. Therefore, in line with the decisions of coordinate benches of this Tribunal in this regard, we hold that the renumeration paid to Directors of RNTBCI are not exigible to service tax and is liable to be set aside. The third issue is thus answered in favour of RNTBCI. 54. Ld. Consultant had submitted that being a SEZ unit, the services received by RNTBCI is exempt as per Section 26(1) of the SEZ Act subject to the conditions prescribed under Section 26(2) of the SEZ Act. Conditions as referred to in Section 26(2) of the SEZ Act is limited only to the conditions spelt out in SEZ law and nothing else, as can be seen from Section 2(w) of the SEZ Act which defines the word "prescribed" means to the prescriptions in the rules made by the Central Government under the SEZ Act. It has also been submitted that....
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.... of the Act", proceeded to analyse the statutory provisions and the relevant portions of the discussions are reproduced below: "19. The only argument of Smt. Sundari R. Pisupati, Learned Senior Standing Counsel for the Department is that since SEZ Act, 2005 and the Rules framed thereunder do not constitute a self-contained Code, the availability of exemptions under Section 26 of the Act would certainly depend upon the terms and conditions stipulated in the notifications issued under the respective enactments indicated in clauses (a) to (g) of sub-section (1) of Section 26. But, the contention of Mr. S. Niranjan Reddy, Learned Senior Counsel appearing for the petitioners, is that there is no scope for restricting Section 26, especially when the SEZ Act, 2005 which is also a parliamentary enactment of a later date, is given an overriding effect under Section 51 of the Act. 20. In order to find an answer to this question, one must understand in conceptual terms, what a Special Economic Zone is. As pointed out by the Madras High Court in Nokia India Sales, a SEZ (1) is a territory outside the Customs Territory of India for the purpose of undertaking authorized operati....
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....ided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur; (e) exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone; (f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre; (g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur. (2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1)." 22. It may be noted that sub-section (1) of Section 26 begins....
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....nces of exceptional nature to be stated in such order." 27. A look at Section 93 of the Finance Act, 1994 would show that it has nothing to do with the units located in a SEZ. Section 93 is a general power of exemption available for the benefit of all and sundry. In fact, Section 93 was substituted in its present form by Finance (No. 2) Act, 1998 with effect from 16-10-1998. The notifications issued under Section 93 may cover taxable services of any description. Even the units located outside a SEZ are entitled to the benefit of the notifications issued under Section 93 of the Finance Act, 1994, if the conditions stipulated in those notifications are fulfilled. 28. The SEZ Act, 2005 is also a parliamentary enactment issued later in point of time to the Finance Act, 1994 and Section 51 of the Act declares that the provisions of the SEZ Act, 2005 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Section 51 reads as follows : "51. Act to have overriding effect. - The provisions of this Act shall have effect notwithstandin....
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....ection 50 of the SEZ Act, 2005 enables State Governments to enact laws for the grant of exemption from state taxes, levies and duties. Since a Central Law cannot provide for exemption from the levy of State taxes, Section 50 merely enables the State Governments to enact laws. 32. A combined reading of Sections 7, 26 and 50 of the SEZ Act, 2005, would show that SEZ Act, 2005 speaks of three different types of exemptions. They are, - (1) exemption from payment of taxes under the enactments specified in the First Schedule, in respect of goods and services exported out of, or imported into or procured from a DTA by a unit in a Special Economic Zone or a Developer under Section 7, (2) exemption from payment of duties under the Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1994, Central Excise Tariff Act, 1985, Finance Act, 1994, Finance (No. 2) Act, 2004 and Central Sales Tax Act, 1956, covered by Section 26 (1); and (3) exemption from payment of state taxes, levies and duties covered by Section 50, provided there is a state enactment to the said effect. 33. The word "prescribe" is used in the present tense in Section 26(2) and in t....
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....r a unit to carry on the authorised operations by the Developer or entrepreneur (2) Duty under the Customs Tariff Act, 1975 (2) All goods exported from or services provided from a SEZ or from a unit to any place outside India. (3) Duty of excise under the Central Excise Act, 1944 or Central Excise Tariff Act, 1985 (3) All goods brought from DTA to a SEZ or unit to carry on the authorised operations by the Developer or entrepreneur (4) Service tax (4) on taxable services provided to a developer or unit to carry on the authorised operations in a SEZ (5) Securities transaction tax leviable in Finance (No. 2) Act, 2004 (5) If the taxable securities transactions are entered into by a non-resident through the international financial service centre. (6) Taxes under the Central Sales Tax Act, 1956 (6) If such goods are meant to carry on authorised operations by the Developer or entrepreneur. 38. Thus, the SEZ Act clearly indicates the persons who are entitled to the benefit of exemptions. The Act also lists out the duties from which exemption is granted. The Act enlists the operations or activities in respect of which exemption is available. ....
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....s. In so far as exemption is concerned, sub-section (1) makes the entitlement of a Developer to exemption, subject only to the provisions of sub-section (2) of Section 26. Sub-section (2) of Section 26 empowers the Central Government to prescribe both the manner in which as well as the conditions subject to which exemptions may be granted. Therefore, the area relating to exemption is completely occupied by the rules. 43. It is only the issues relating to refund, demand, adjudication, review and appeal, which were left unoccupied by the SEZ Act and the Rules framed thereunder. Realising the vacuum in respect of these specific areas, sub-rule (5) was inserted under Rule 47. Sub-rule (5) of Rule 47 makes a reference to the provisions of the three enactments namely Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 and the Rules made thereunder and the notifications issued thereunder. It is by virtue of this sub-rule (5) that the authorities can fall back upon the Rules and notifications issued under those three enactments. The very fact that sub-rule (5) was inserted would show, that but for its insertion, the respondents cannot fall back upon the Rules framed ....
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....mmr. of CGST & C.Ex, Navi Mumbai, 2023 (72) G.S.T.L 99 (Tri-Mumbai), wherein the demand of service tax was made on the appellant finding that the appellant had rendered services to SEZ units without discharging its service tax liability and the adjudicating authority had held that the appellant therein ought to have abided by the conditions of the service tax notification and paid the liability at first and claimed refund subsequently adhering to the procedural requirements therein. The Tribunal held that procedural infirmities does not in any way supplant the exemption accorded to the impugned supply of services. It was also found that the findings of the adjudicating authority do not arrive at a conclusion that, but for the said procedural infirmities, the eligibility of the appellant to render such services without payment of service tax was in question. The Tribunal held that in light of the decision cited, the overriding nature of the exemption afforded by Section 26 of the SEZ Act 2005 and the breach of conditions being procedural, the demand pertaining to the rendering of services was set aside. The civil appeal preferred by Revenue against the said decision of the Tribunal ....
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....tend all the facilities and entitlements admissible to a unit in a Special Economic Zone subject to the Special Economic Zones Act, 2005 and the rules and orders made thereunder to RNTBCI for undertaking authorised operations. The specific contention of RNTBCI that the seconded expats worked only for the assignments or projects which are part of authorised operations of the SEZ unit in R & D and engineering activities and thus the impugned manpower supply service received by RNTBCI were utilized exclusively for the purpose of authorised operations, remain uncontroverted in the Orders in Original impugned by RNTBCI. While the Revenue has contended in its appeal that the onus is on RNTBCI to evidence that the services are exclusively used for authorised operations to be extended the benefit of the service tax notification, we find that it has never been the case of the Department that the output services have been used for services other than authorized operations nor any finding to this effect has been recorded in the impugned Orders in Original. In any event, we find that in light of the decision in GMR Aerospace Engineering, the said contention is untenable given the overriding ef....