Custom, Excise & Service Tax Tribunal
Nissan Motor India Pvt Ltd vs Chennai-Iii on 7 November, 2024
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH, CHENNAI COURT HALL No.IITt SERVICE TAX APPEAL No.41909 to 41911 OF 2017 (Arising out of Order-in-Original No.CHN-SVTAX-003-COM-2 to 4-2017-18 dated 22.05.2017 passed by Commissioner, Service Tax-I1ICommissionerate, Newry Towers, No.2054-I, IJ Avenue, Anna Nagar, Chennai 600 040.)' M/s.Nissan Motors India Private Limited . Appellant Piot No.1, SIPCOT Industria! Park, Mattur Post, Oragadam, Sriperumbudur Taluk, Kancheepuram District, Tamilnadu - 602 105. Versus The Commissioner of GST& Central Excise ...Respondent Chennai Outer Commissionerate Newry Towers, No.2054-I, I Block, Tl Avenue, Anna Nagar, 12". Main Road,. Chennai 600 040. APPEARANCE: Mr. R. Rajaram, Consultant For the Appellant Ms. Anandalakshmi Ganeshram, Assistant Commissioner (A, R) For the Respondent CORAM : HON'BLE MS. SULEKHA BEEVIE C.S., MEMBER (JUDICIAL) HON'BLE MR. M. AJIT KUMAR, MEMBER (TECHNICAL) DATE OF HEARING: 16.10.2023 DATE OF DECISION: ©? 1 #24 "7 : . Iter. n ORDERNES. depo ib-Ho0l®fror2g Ad. I}12-2008 FINAL ORDER Nos._¥i}y13- duis /2024 art 01.11.2024 ORDER:
Per Ms.SULEKHA BEEVI C.S.
1. Brief facts are that the appellant is engaged in providing services in the nature of Business Auxiliary Services, Consultant Engineer, Business Support Services, Erection, Commissioning and Installation, Goods transport Operator, Intellectual Property \-
$1/41909 -- 41911/2017 Services: other than copy right, Cargo Handling Services,
- Scientific and Technical Consultancy _ Services, Interior pecoration Services, Information Technology and Software Services, Maintenance and Repair Services, Renting of Immovable property Services and Supply of Tangible Goods Service. They are registered with the Service Tax Commissionerate.
2. During the audit of accounts of the appellant by the audit team, it was noted that che appellant has entered into 'Secondment Agreement' with M/s.Nissan 'Motor Company Lid, japan. (hereafter referred to as Nissan, Japan) for obtaining employees to the appellant unit in India.
2.1 Some of the salient features of this agreement are as below:
i. The appellant has entered into agreement with M/s. Nissan, Japan to provide secondee to fill the position and carry out _ work in India on a full time basis for the . secondment period set in the agreement.
ii. As per the agreement, the Secondee will » continue to be an amployee of M/s Nissan, japan throughout the Secondment period.
iil. M/s.Nissan, Japan has the right to replace the Secondee OF 'changethe Secondment period at any time by issuing 2 written notice to appellant after consultation. However, in case of retirement, resignation, death, disappearance, iness or injury of the Secondee, M/s.Nissan, Japan shall have | the right to replace such Secondee OF Secondment period by issuing a written notice to appellant without prior consultation.
\-
51/41909 -- 419 11/2047 iy. The appellant may on 6 months prior . written notice discontinue the Secondment of any Secondee and request M/s. Nissan in writing to nominate a new candidate for the Secondment _ if such Secondee has committed any gross misconduct or corruption or is absent on sick leave for ~ cumulatively 3 monthser more in any given calendar year OF has not met the requirements set out in the Secondment.. agreement.
V. Upon expiry of the Secondment period, appellant and M/s.Nissan japan may agree in writing an extension of the Secondment period.
vi. The Secondee shall carry out the work set in the secondment agreement under the guidance, direction and supervision of M/s. NMIPL vii. The appellant shall diligently appraise the Secondee's performance and contribution each year in accordance with rules and standards which shall be agreed upon separately between M/s.Nissan Japan and the appellant.
vill, M/s.Nissan Japan will have complete discretion over the salary, bonus, allowances paid to the Secondee. The amount of the salary will be as get out in the Secondment Agreement. The amount may be revised by M/s. Nissan Japan at the beginning of each fiscal year of M/s Nissan Japan. M/s.NissanJapan will have discretion over the allowances (including, but not limited to: "Split" Family Allowance" and "Repatriation Allowance") of the Secondee. ~ ix. The salary shall be partly paid by M/s. Nissan Japan and partly by appellant in accordance with the salary split formula decided by M/s. Nissan Japan. The part of the salary paid by M/s. Nissan Japan shail be subsequently reimbursed in Japanese:
Yen by appellant to M/s. Nissan Japan by bank transfer upon receipt of the L-
§1/41909 -- a19i1/2017 corresponding invoice. Further all charges and expenses whatsoever related to such reimbursement remittance shall be borne by appellant.
x The contribution to Japanese social security system will 'continue to be borne by M/s. Nissan Japan and the Secondee and unless otherwise agreed between the parties, the contribution to indian social security. system will be borne by appellant in
- accordance with the applicable laws and regulations.
xi. The appeliant shall provide the Secondee with all necessary assistance and support as deemed necessary by M/s. Nissan Japan and bear the costs and expenses incurred.
xii. The termination of this agreement may be done by either party at its sole discretion by giving written notice to the other party where there is material breach. of agreement and the other party fails to _ remedy the breach. The rights or obligation of the either party under this agreement shall be materially altered as the result of any act of relevant government authority in India.
xiii, M/s.Nissan Japan has got sole discretion to terminate this agreement ifappeliant becomes bankrupt, dissolved or liquidated etc. _xiv. The Secondment agreement shall be governed by and construed in accordance under the laws. of Japan.
2.2. The appellant had entered into a separate employment contract with the foreign expatriates, who were employed at the appellant unit pursuant to the Secondment Agreement. This agreement sets out the contract period, place of work, scope of duty, compensation, viz, Basic pay, Housing Allowance, Gas \ --
§1/41909 -- 41911/2017 Allowance, along with other prerequisites like Housing, Schooling of accompanying children, Car for office and personal use, etc. The department was of the view that the expatriate employee provides service on contract basis to an associate company of the employer and therefore the activity of supplying employees to appellant unit would -- fail under Manpower Recruitment or Supply Agency Services.
2.3. The definition of "Manpower Recruitment or Supply Agency's Services" under section 65(68) of the Finance Act, 1994 provides that "Manpower Recruitment or Supply Agency service" means 'any person engaged in providing any service directly or indirectly in any manner for recruitment or supply of manpower, temporarilyor otherwise in any manner to any other person". Thus, even providing supply of manpower service temporarily or otherwise would be covered under the definition of the above service. Accordingly, the activity of deputing the technically qualified staff from one associate company to 'another associate company for 2 consideration would amount to providing Manpower Supply or Racruitment Agency Service.
(MRSA).
2.4. In this connection, the CBEC has clarified vide Circular E.No.137/35/2011-ST dated 13.07.2011 that where one organisation sends its employees to another organisation for a consideration, service tax under the category of Manpower .
supply services would be. attracted and for this purpose the d-
51/41909 -- 4191/2017 motive for providing such manpower or the volume of activity, or absence or presence of profit motive will be irrelevant.
2.5. From the Secondment agreement and the separate Contractof Employment, it appeared that;
a. The appellant company requested Nissan Motor Company Ltd, Japan for services Of skilled employees on deputation basis. | | b. Nissan Motor Company Ltd, Japan has deputed qualified employees to the appellant company. c. The salary to the deputed employees is to be paid _ partly by the appellant_company. and partly by Nissan Motor Company Ltd, Japan. The share of salary to be paid by Nissan Motor Company Ltd, Japan has to be re- imbursed in Japanese yen by the appellant company. d. Nissan Motor Company Ltd, Japan will have complete discretion over salary, bonus, and allowances, to be paid to the deputed employees. | e. The contribution to Japanese Social Security System will continue to be borne by Nissan Motor Company Ltd, japan and the deputed employees. The contribution £0 Indian Social Security System will be borne by the appellant company.
f. The period of deputation will be as specified in the agreement.
g. "Nissan Motor Company Ltd, Japan has lien over the deputed employees.
\ $1/41909 -- 41911/2017 h. The services of the deputed employees in their home country have not been terminated.
2.6 It appeared to department that the deputation of foreign expatriates by Nissan, Japan to appellant company would fall under import of service, of Manpower Recruitment or Supply Agency Service. That the appellant is liable to pay service tax under Reverse Charge Mechanism (RCM) under Section 66A and Section 68 of Finance Act, 1994, read with Place of Provision of Service Rules 2012. According to department, the appellant company has to pay service tax on the entire remuneration paid to the foreign deputed employees.
2.7. The appellant while discharging the service tax under Manpower Recruitment and Supply Agency Service (MRSA) did not include the salary and allowance paid in Indian Currency te the deputed employees. The department was of the view that the appellant has to discharge service tax on the entire remuneration and not on that part of salary that is borne by NissanJapan and reimbursed. According to Department, the appeliant had short paid service tax for which Show Cause Notice dated 17.04.2014, was issued for the period from 2008- 09 (October '08 to March 09) to 2013-14 (up to Jan 14) invoking the extended period alleging that the appellant has suppressed facts of payment of part of the salary in INR to the deputed empioyees and thus reduced the taxabie value with an intent to evade payment of service tax. The Show Cause Notice proposed to demand the short paid service tax along. with L-
$1/41909 -- 41911/2017 interest and for imposing penalties. Statement of Demand (SOD) was issued for the subsequent periods on the same set of facts. After due process of law, the original authority confirmed the demand, interest and imposed penaities. Aggrieved by such order, the appellant is now before the Tribunal. |
3. The Learned Consultant, Shri R.Rajaram appeared and argued for the appellant. The submissions are summarized as under:
3.1 The Appellant had employed certain expatriates to whom part of salary, bonus and ailowances were paid directly in India.
In addition, certain reimbursements of social welfare cost 'incurred by Nissan, Japan were made. Service tax was discharged on such reimbursements made to Nissan, Japan. The issue invoived in this appeal is whether the salary, bonus, allowances and expenses paid by the Appellant directly to the secondees in India, is also to be included in the taxable value for payment of service tax under MRSA under reverse charge mechanism.
3.2. The Impugned SCN proceeds on the presumption that the salaries paid to the seconded employees directly by the Appellant constitute consideration paid by appeliant to Nissan Japan. Thus, department demands tax on such amounts by invoking Section 67 of the Finance Act, 1994 read with Ruje 5(1) of the Service Tax (Determination of Value) Rules, 2006 (STDR). The said Section 67 reads as under: .
\e-
§1/41909 -- 41911/2017 Section 67 of the Finance Act, 1994 prior to 14.05.2015. .
1) Subject to the provisions of this Chapter, where service tax chargeable on any taxable service with reference to its value, then such value shalt;
.
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) In a case where the provision of service is for a consideration which is not ascertainable, is the amount as may be determined in the prescribed manner.
2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax. payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
3) The gross amount charged for the taxable service shall inclide any amount received towards the taxable service before, during or after provision of such service.
yo a 10 $1/41909 -- 41911/2017
4) Subject to the provisions of sub-sections (1), (2) and (3), the value. shaif be determined in such manner as may be prescribed.
Explanation for the purpose of this section:
(a) "consideration" includes any amount that is payabie . for the taxable services provided or to be provided Position of law post Finance Act 2015 amendment to the definition of Consideration effective from 14 May 2015:
Explanation For the purposes of this section,
(a) "consideration" includes i. any amount that is payable for the taxable services provided or to be provided;
li. any reimbursable expenditure or cost incurred by the service provider _and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;
Rule5 of Service Tax (Determination of Values) Rules, 2006 {Inclusion in_or exclusion from valueof certain expenditure or costs:
(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxabie service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shail be included in the value for the purpose of charging service tax on the said service Explanation -For the removal of doubts, it is hereby Clarified that for the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided
2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the Le 11 $T/41909 -- 41911/2017 recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:
i. the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
li. the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
lil, the recipient of service is liable to make payment to the third party;
iv. the recipient of service authorizes the service provider to make payment on his behalf;
Vv. the recipient of service knows that the gocds and -- services for which payment has been made by the service provider shail be provided by the third party; © vi. the payment made by the service provider on behalf of the recipient of service has been. separately indicated in the invoice issued by the service provider to the recipient of service;
vii. the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and viii, The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. ' 3.3 The appellant wishes to submit that since the impugned salary payments are made directly to the employees and never charged by Nissan, Japan, the ground for the levy of service tax fails.
3.4 The SCN relies upon Rule 5 of the Valuation Rules and Section 67, alleging that expenditure/costs incurred by the Service Provider should be included in the taxable value. The _ 12 51/41969 -- 41911/2017 said Rule 5(1) has been struck down by the Hon'ble Supreme Court in the case of UOI vsintercontinental Consultants and Technocrats Private Limited Vs (2018 (3) TMI 357). Accordingly, it is submitted that for the period prior to the amendment of Section 67 (w.e.fi4 May 2015) the demand of service tax on the salary paid to the seconded employees ought to be set aside. Later, Section 67 was amended w.e.f. 14 May 2015. Even after such amendment, service tax is applicable only on those costs that are charged by the Service Provider. In the instant case, as per the agreements the salaries paid in India are not to be charged to the Service Provider: and instead fiabie to be paid directly to the expatriate employees.
3.5 In the Appellant's case, the salary paid to the seconded employees is not charged by Nissan, Japan on the Appellant but is rather paid directly to the seconded employees. This fact has been undisputedly confirmed by the impugned oldat various places (Such as at para 2.1 (ix) on pg 66, para 2.5 (a) on pg 67, para 2.9 on pg. 69 of the Appeal book).
3.6 In pursuance of the above, it is submitted that as per Section 67(1) to include the amount in the taxable value, the amount must be "charged" by the 'service provider' as consideration (or costs) towards taxable services. In this regard, reliance is placed on the following judicial precedents:
a. The Commissioner of CGST, Mumbai Vs Vantage International CESTAT Mumbai -2021 (87) G.S.T.R 358) Management Company 13 $1/41909 -- 41941/2017 b. M/s. Greatship (India) Lid. versus Commissioner of CGST & Central Excise, Mumbai Ceniral (vice-versa) 2021 (9) TMI 1173 - (CESTAT MUMBAI c. SBI Life Insurance vs. Principal Commissioner of -- CGST -2022(7) TMI 457-CESTAT MUMBAI ad. Principal Commissioner of Central Goods &% Service Tax, Delhi South Commissionerate vs M/s. Boeing India DefensePvt. Lid. -2023 (5) TMI 523 -CESTAT NEW DELHI 3.7. Further, the decision of CESTAT -Chennai in the case of : M/s. Neyveli Lignite Corporation Limited (Final Order No.40215/2023) which held that service tax was not payable on such salaries paid directly to the employees was relied.
3.8 It is submitted that to confirm the demand on the salary component paid in INR, the impugned OIO has merely relied upon para 22.4 of Board Circular No: F.No.BI/ 6 /2005-TRU-
- dated 27 July 2005. Such circular has been rescinded vide Circular No.96/7/2007-ST -FNo.354/28/ 2007-TRU dated 23 August 2007. Under the said master circular, no reference is made to levy service tax on salary paid directly to employees.
3.9 Recenily,, the CBEC vide Circular No 199/11/2023-GST dated i7th July 2023, inter alia, provided clarification of secondment agreementin regard to GST. It was clarified that. GST is not applicable on the salary component in respect of internally generated services. The said CBEC circular reads as under:-
Vl 'Subject: Clarificationregardingtaxabilityofservicesprovidedbyanoffi ceofanorganisation in one State to the office of that organisation in another State, both beingdistinctpersons.
i, 14 ST/41909 -- 41911/2017 Various representations have been received seeking clarification on the taxability of activities performed by an office of an organization in one State to the office of that organization in another State, which are regarded as distinct persons under section 25 of Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'the CGST Act'). The issues raised in the said representations have been examined and to ensure uniformity in the implementation of the law across the field formations, the Board, in exercise of its powers conferred under -
sectioni68 (1) of the CGST Act hereby clarifies the issue in succeeding paras. --
2. Let us consider a business entity which has Head Office (HO) located in State-1 and a branch office (BOs) located in other States. The HO procures some input service's e.g. security service for the entire organisation from a security agency (third party). HO also provides some other services on their own to branch offices (internally generated services).
3. The issues that may arise with regard to taxability of supply of services between distinct persons in terms of sub-section (4) of section 25 of the CGST Act are being clarified in the Table below:-
No. Issues Clarification In respect of internally generated services, there may be cases where HO is providing certain services to the BOs for which full input tax credit is available to the concerned BOs.
However, HO may not be issuing tax invoice to the concerned BOs with respect to such services, of the HO may not be including the cost of a particular component such as salary cost of employees involved in providing said services while issuing tax invoice to BOs for the services provided by HO to BOs. Whether the HO is mandatorily required to issue invoice to BOs under section31 of CGST Act for such _ internally generaied services, and/ or whether the cost of all components including salary cost of HO employees involved in providing the -- said services has to be included in the computaiion of value of services provided by HO to BOs when full input tax credit is available to the concerned BOs. .
The value of supply of services made by a registered person to a distinct person needs to be determined as per rule 28 of CGST Rules, read with sub-
section (4) of section15 of CGST Act. As per clause (a) of rule 28, the value of supply of goods or services or both between distinct persons shall be the open market value of such supply... The second proviso to rule 28 of CGST Rules provides that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. Accordingly, in respect of supply of services by HO to BOs, the value of the said supply of services declared in the invoice by HOs shall be deemed to be open market value of such services, if the recipient BO is eligible for full input tax credit.
Accordingly, in cases where full input tax credit is available to a BO, the value declared on the invoice by HO io the said BO in respect of a supply of services shall be deemed to be the open market value of such services, irrespective of the fact whether cost of A 15 $1/41909 -- 41911/2017 any particular component of such services, like employee cost etc. has been included or not in the value of the services in the invoice.
Further, in such cases where full input | tax credit is available to the recipient, if HO has not issued a tax invoice to the BO in respect of any particular services being rendered by HO to the said BO, the value of such services may be deemed to be declared as Nil by HO to BO and may be deemed as open market value in terms of second proviso to Rule 28 of CGST Rules.
3. In respect of internally generated services provided by the HO to BOs, in cases where full input tax Credit is not available to the concerned BOs, whether the cost of salary of employees of the HO involved in providing said services to the BOs, is mandatorily required to be included while computing the taxable value of the said supply of services provided by HO to BOs.
In respect of internally generated services provided by the HO to BOs, the cost of salary of employees of the HO, involved in providing the said services to the BOs, is not mandatorily required to be included' while computing the taxable value of the supply of such services, even in cases where full input tax credit is not available to the concerned BO.
4, It is requested that suitable trade notices may be issued to publicize the contents of this circular.
5. Difficulty if any, in ihe implementation of this circular may be brought to the notice of the Board. Hindi version would follow."
3.10 Without prejudice, the Appellant submits that a considerable portion of the demand pertains to perquisites such as reimbursement of accommodation, cab charges, telephone, school fees and other such expenses, paid directly to the expatriate employees. It is held by CESTAT-Delhi Bench in the case of M/s Boeing India Defence Private Limited vs Principal Commissioner of Central Tax, New Delhi (Final Order No.50638- 50639/2023) that perquisites such as reimbursable expenses paid to seconded employees are outside the ambit of Section 67 oo 16 $1/41909 -- 41911/2017 of the Finance Act, 1994 as there are not being a consideration paid forthere is no quid pro quo for rendering any services.
3.11 Again, it is submitted that the impugned CIO has traversed beyond the contentions raised in SCN because impugned order relied on Board Circular No: F.No.B1/6 /2005-TRU dated 27 July 2005 to confirm the service tax on the salary paid. Whereas the SCN invoked Rule 5 of the STDR 2006, to include the salary component as part of the consideration paid to Nissan, Japan. Since the SCN has wrongly demanded service tax by virtue of Rule 5 of STDR 2006, it is not sustainable. The following judgements were relied:
a. M/s. Ballarpur Industries Ltd, - 2007 (215) E.L.T. 489 (SC) | b. Commissioner of C.Ex., Bangalore Versus Brindavan --
Beverages (P) Ltd. -2007 (213) ELT (487) (SC) 3.12 As per Point of Taxation Rules, 2011 (POTR) Rule 7 states that the earliest of date of making payment (or) date of debit in the books of accounts of person receiving the service shall be the Point of Taxation. In the given situation, no payment has been made by the Appellant to Nissan, Japan nor was any debit made in the books of the Appellant to the Nissan, Japan being» an associate enterprise.Therefore, even by POTR read with Reverse Charge Mechanism Notification No. 30/2012 -ST dated 20th June 2012 (ref pg. 103 to 110) no liability to pay tax shall arise on the salary payments made by appellant directly to the seconded employees. | 17 $1/41909 -- 41911/2017 3.13 The Ld. Consultant drew support from to the decision of the Hon'bie Supreme Court in the case of CCE vs. Edelweiss Financia! Services Ltd. (TS=136-SC-2023-ST) Diary No:
5258/2023 to argue that when there is no flow of consideration from the. service recipient to the service provider, no levy of service tax shall arise.
3.14 The Appellant has executed a separate employment contract with the secondees, under which payments are directly made to the secondee, which is now proposed to be taxed by the Department. The Appellant is considered as the employer of these secondees for various purposes such as Labour laws, Professional tax and Income-Tax, Employment visa, etc. Even assuming that the employer of the secondees is the foreign company, it is submitted that the Appellant is to be considered asa joint employer. In such circumstances, the payments made directly to the employee by a separate contract and not charged by the foreign company ought not to be taxed.
3.15 Some of the seconded employees are also Directors of the Appellant company and any amount paid to such Directors cannot be subject to levy of service tax because the salaries paid to Directors are specifically excluded from the ambit of service tax vide Circular No 115/09/2009 -ST dated 31 July 2009.
3.16 The demand is made on the entire salary portion including the TDS. Service tax cannot be demanded on the income-tax 1 18 $T/41909 ~ 4191/2017 TDScomponent. The Learned Counsel drew support from the foliowing decisions to canvass this argument.
a. Magarpatta Township Development and -- Construction Co Ltd Vs Commissioner of Central Excise, Pune -IT CESTAT Mumbai (2016(3) TMI
811) .
b. T.V.S Motors Company Ltd Vs Commissioner of Central Excise & Service Tax, Chennai -CESTAT Chennai (2021 (9) TMI 81) ¢ Hindustan Oi! Exploration Co Ltd Vs | Commissioner of GST & Centra/ Excise-CESTAT Chennai (2019(2) TMI i248) 3.17 It is submitted that, the SCN and SODs has demanded service tax on the value of salary and perquisites paid to seconded employees, which includes the TDS portion of income tax (ref to pg. 137 to 140 where details of communication made to tax authorities are enclosed), Hence, in case it is held to be taxable, it is prayed to remand the matter to the adjudicating authority to verify and delete the quantum of service tax demanded on TDS.
3.18 Alternatively, the Learned Consultant submitted that as Nissan, Japan facilitates the secondment arrangement. between the Appellant and seconded employees, Nissan, Japan qualifies as an intermediary under Service Tax laws. The Learned Consultant referred to Place of Provision of Service Rules 2012. Rule 2 (f) gives the definition of intermediary. The demand on the salary paid to seconded employees for the intermediary service rendered by Nissan, Japan cannot sustain vide Rule 9 of | Place of Provision of Service Rules, 2012. As per this Rule, the d-
19ST/41909 -- 41911/2017 location of the service provider (Nissan, Japan) would be applicable to demand service tax. The intermediary, Nissan Japan being outside India, the demand cannot sustain.
3.19 The Learned Consultant argued on the ground of limitation also. It is submitted that apart from a vague allegation "that | appellant has suppressed facts with intent to evade payment of duty, there is no positive act of suppression established against the appellant. There were severa! decisions passed by Tribunai holding that an assessee is not required to pay service tax on the amounts paid to the foreign company as per secondment agreement. The issue now stands settled by the decision of the Hon'bie Apex Court in the case of CC, CE & ST Bangalore Vs M/s.Northern Operating Systems Pvt Ltd, 2022 (5) TMI 967 SC, where in it has been held that the assessee is liable to pay service tax under Manpower Recruitment or Supply Agency Services for the amounts paid to the foreign company, as per secondment agreement. Even prior to the judgement rendered by the Hon'ble Supreme Court, the appellant has been paying service tax on the salary amount borne by Nissan, Japan i.€., the amount paid to Nissan, Japan by appellant. The present demand is only on that portion of the salary paid to the deputed employee directly in Indian Rupees. The appellant was under
bonafide belief that as the amount is paid directly in India, it cannot be included in the consideration of import of services. The issue being interpretational, the appellant cannot be saddled with the burden of suppression of facts with intent to | evade payment of tax.20
§1/41909 -- 41911/2017 3.20 Further, the Learned Consultant adverted to various orders passed on the very same issue by different Commissionerates, and which have travelled up to the Tribunal.
It is submitted by the Learned Consultant that in ail these cases the department has raised the demand only on the amount that was paid by the assessee to the foreign company and have not raised any demand on that portion of the salary directly paid to deputed employee in Indian Rupees. The following decisions were relied to support this agreement.
(i) M/s.Komatsu India Pvt Ltd Vs Commissioner of GST & CE, Chennai - 2021(10) TMI 1171
(ii) M/s.Cannon India Pvt Ltd Vs Commissioner of GST, Gurgaon-I - 2020(9) TMI 432
(iii) M/s.Bain & Company India Pvt Ltd Vs CST Delhi
- 2014(4) TMI 542
(iv) Jayaswal Neco Ltd Vs CCE, Nagpur -
2006 (1) TMI 133
(v) Birla Corporation Ltd Vs CCE - 2005 (7) TMI 104, Oo, 3.21 The Learned Consultant relied upon the decision in the case of Jayaswal Neco Ltd and Birla Corporation Ltd., (supra) to canvass the argument that the department cannot be permitted to take a contra view than that taken in an earlier case. The Learned Consultant prayed that the demand raised invoking the extended period as well as penalties may be set aside.
4. The Learned A.R, Ms.Anandalakshmi Ganeshram appeared and argued for the Appellant. It is submitted that the terms of the Secondment Agreement would show that the deputed employees continue to be the employees of Nissan, \--
21$1/41909 -- 41911/2017 Japan. Part of the salary (the contribution of Social Security System of Japan) has to be borne by Nissan, Japan, and the remaining salary is paid to the deputed employees by appellant directly in IndianCurrency. The share borne by Nissan, Japan has to be re-imbursed by appellant company. The appellant has discharged service tax only on this part of the salary. In the case of Manpower Supply Agency Services, an assessee has to pay Service tax on the entire remuneration paid to the employees. The entire remuneration including the expenses and cost form part of the 'consideration'.
4.1 As per Section 66 of Finance Act, 1944, service tax has to be paid on the entire taxable value as arrived under Section -- 67 of the Finance Act 1994. Section 67 provides that the value shall be the gross arnount received. Rule 5 of Service tax (Determination of value) Rules, 2006 specifically provides that any expenses or cost incurred by the service provider in the courseof providing taxable service has to be treated as consideration for arriving at the taxable value.
4.2 Further, as per Place of Provisions of Service Rules, 2012 t/w Notificationno.30/2012-ST dated 20.06.2012; the Place of provision of service shall be the location of the recipient. In this case, the provider of taxable service is located in non-taxable territory and recipient of the service, the appellant, is located in a taxable territory. The appellant then has to pay service tax under Reverse Charge Mechanism (RCM).
\-
22. $1/41909 - 41911/2017 4.3 The appellant has not paid service tax on the salaries, bonus and allowances and other benefits. directly paid in local currency. These amounts have to be included in the taxable value for. discharging service tax under Manpower Recruitment and Supply Agency (MRSA) services.
4.4 The Learned AR, adverted to the secondment agreement to submit that the deputation would not have taken place if the salary and other benefits are not paid/or not agreed to be paid in Indian currency to the employee who is working in India. This is an important condition of the contract. Thus, the second contract entered by appellant with employees is only offshoot of the secondment agreement and not a separate independent agreement. The deputation/secondment of employees by foreign company to appellant company thus falls within the service of Manpower Recruitment or Supply Agency (MRSA) services, and the entire remuneration paid is subject to levy of service tax.
4.5 The Learned AR, submitted that the issue stands covered by the decision of the Hon'ble Supreme Court in the case of CC, CE & ST - Bangalore (Adjudication) Vs M/s.Northern Operating Systems Pyt Ltd,, 2022 (5) TMI 967 (S.C). The said decision was followed by the Tribunal in the case of M/s.Dei/ International Services India Ltd Vs CCE & Customs, Bangalore 2023 (2) TMI/83 Cestat Bangalore, where in, on similar set of facts, the demand under Manpower Recruitment or Supply a Agency Services, was confirmed.
23ST/41909 -- 41911/2017 4.6 The Learned AR, argued that the contentions of the Learned Consultant appearing for appellant that the amount paid in Indian Currency to the deputed employee has not been charged on the service provider, viz, Nissan, Japan cannot be accepted, as all costs incurred in providing the service, are to.
be included in the taxable value.
4,7 The Learned AR, submitted that the appellant had suppressed the fact of paying part of the salary in INR and had discharged service tax only on the amount paid to Nissan, Japan, which was reimbursed. The short payment has come to light only on audit of accounts. Hence, the invocation of extended period and penalties imposed are legal and proper. It is prayed that the appeal may be dismissed.
5. Heard both sides.
6. The issues that arise for consideration are:-
(i) whether demand of service tax and interest under manpower supply or Recruitment Agency services on the part or the salary paid directly in Indian currency by appellant to the seconded/deputed /expatriate employer is sustainable or not.
(ii) Whether the penalties imposed are legal and proper.
(iii) Whether the demand raised invoking the extended period 1 is sustainable or not.24
$T/41909 -- 44911/2017 6.1 The appellant has not contested the levy of service tax under MRSA as they are already discharging service tax on the part of salary borne by Nissan Japan and reimbursed by appellant. The contest in the appeai is only as to valuation and arriving at the taxable value.
6.2 The facts bring out that the appellant has entered into two separate agreements in regard to secondment of employees. The salient features of the secondment agreement entered with Nissan Japan are stated in para 2.1 of this order. From the stipulations in the secondment agreement, it is clear that M/s Nissan Japan will continue to be the employer of the secondee / employee throughout the secondment period. The features of the agreement bring out facts which have some similarity to that of the case of Northern Operating System Pvt. Lid decided by the Hon'ble Apex Court as reported in 2022(61)GSTL 129 (S.C.). In the said case, the Hon'ble Apex Court reversed the decision of the Tribunal and held that, as the foreign Company continues to be the employer, the activity of secondment/deputation of skilled employees to their unit in India will fall under Manpower Recruitment or Supply Agency Services.
6.3 However, in the case of Northern operating system, the seconded employees are to be entirely remunerated through | the payroll of the foreign company. The assessee therein hadto .
reimburse the foreign company, the entire salary, allowance and other perquisites paid by the foreign company tc the seconded employees. It was held by the Apex Court that the \-
25$1/41909 -- 41911/2017 amount so paid by the assessee to the foreign company is the consideration for providing Manpower Recruitment or supply Agency services and is subject to levy of service tax. The view taken by the Tribunal that an employer- employee relationship existed between the assessee and the seconded employee was negated by the Hon'ble Apex Court. The relevant paras are reproduced 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 giobal 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, 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 Ae 26 $1/41909 -- 41911/2017 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.
XXKKK XXKK XXXKK KKKKK 53: Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the contro! of the assessee, and works under its direction. vet, the fact remains that they are on the pay rolis 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. Tt 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) 27 51/41909 -- 41911/2017 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 packages, with allowances, etc, are all expressed in foreign currency (eg. USS 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 366,700 In addition, an annual utility allowance of 23.97,500/- js 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 4 certain salary structure- as well as social. security benefits. These employees, having regard to their expertise and specialization, are seconded (a term synonymous with the commonly used term in India, deputation) to the concerned local municipal entity (in this case, the assessee) for the use of their skills. Upon the cessation of the term of secondment, they \U 78 $1/41909 --41911/2017 return to their overseas employer, or are deployed on some other secondment.
56. This court, upon a review of the previous judgment in Sushilaben Indravadan (supra) held that there no one single determinative test, but that what is applicable is 4 conglomerate of alf applicable tests taken on the totality of the fact situation in a given case that would ultimately yieid, particularly in a complex hybrid situation, whether the contract fo be construed is a contract of service or a contract for service. Pepending on the fact situation of each case, al! the aforesaid factors would not necessarily be relevant, or, if relevant, be given the same weight."
57. Taking a cue from the above observations, while the control (over performance of the seconded employees' work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment. Secondly, the overseas employer for whatever reason, pays them their salaries. Their terms of employment - even during the secondment - are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their Original places, to await deployment or extension of \-
secondment.
29$1/41909 -- 41911/2017
58. One of the arguments of the assessee was that arguendo, the arrangement was "manpower supply" (under the unamend 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 secondrent agreement, where the assessee has the benefit of experts for limited periods, is implicit in the overall scheme of things."
(emphasis supplied} 6.4 In the case of Northern Operating Systems, the entire salary was paid by foreign company to the seconded employee and the assessee reimbursed the same inciuding all expenses. The relevant part of the secondment agreement extracted in the judgment reads as under:- | "DUTIES AND OBLIGATIONS OF NOS"
NOS reimburse expenses paid by NTMS as foliows. During the Secondment Period, as defined in Appendix I and Appendix II hereto, NOS shall reimburse NTMS for the following amounts (collectively the "Reimbursable Expenses").
\-30
$1/41909 -- 41911/2017 (1) All remuneration of the Employees, including but not limited to, Salary, incentives and employment benefits of the Employees paid by NTMS, and (2) All out-of-pocket expenses incurred by the seconded Employees and reimbursed by NTMS including but not limited to, business travel expenses and other miscellaneous expenses, directly related to the secondment of the Employee. it is.
specifically agreed that the payments by NOS to NTMS shal! be limited to actual costs incurred, including administrative costs, as may be reasonably attributable to payroll services provided by NTMS. Administrative cost for this purpose would be 1% of actuai cost incurred. The parties agree that during the Secondment Period, the role of NTMS is restricted to that of a payroll services provider only.
6.5 Again, extract of the 'Master Services Agreement' extracted in the judgment of NOS reads as under:-
"1. The fees for the Services shailf be payable by TNTC Chicago for the Services rendered by NOS for TNTC Chicago
2. The fees for the Services performed by NOS under the Agreement Shall be the Total Service Costs (as defined below) incurred by NOS for rendering the Services plus a mark-up on the Total Service Cost Mark-up shall be 15% on Total Service Costs for the period of agreement. This shall be revised from d--341
$1/41909 -- 41911/2017 time to time depending upon the market conditions and transfer pricing requirements, "
6.6 The facts before us in the present case are slightly different. The appellant reimburses to Nissan, Japan only part of the salary which is borne by Nissan Japan. In other words, part of the salary is paid by the foreign company, viz. Nissan Japan and part of the salary is paid directly in Indian rupees to the employee by the appellant. This is mainly because; the social security contribution of Japan is shouldered by Nissan Japan. The remaining salary and perquisites are borne by appeliant anc paid directly to employee. This part of the salary is_ mot charged on Nissan Japan.As per the secondment agreement the seconded employee continues to be an employee of Nissan Japan during period of secondment agreement. Therefore, the activity definitely falls under Manpower Recruitment. or Supply Agency Services. The question is whether the whole remuneration of the seconded employee including the salary borne by the appellant and not charged on Nissan Japan has to be included in the taxable value for discharging service tax.
6.7 Section 67 of the Finance Act speaks about'Valuation of taxable services for charging service tax'. The relevant part of Sec.67 has already been noticed in para 3.2 of this order. Sub clause (i) of subsection (1) of Section 67 states that taxable vaiue shall be, the gross amount charged by the service \ 32 §1/41909 -- 41911/2017 provider if the consideration is in money. The words used are 'gross amount charged'. The service of Manpower Recruitment or Supply Agency is taxable on forward charge basis. This means the service provider has to pay the service tax. In the case on hand, the service provider is Nissan Japan and the service recipient is the appellant. Though the appeliant is the service recipient, as per Section 66A, the appellant is liable to 'pay the service tax under Reverse charge basis as the service provider is in non-taxable territory. Thus, the liability to pay the service tax is on Reverse charge basis (RCM).
6.8 Though sub clause (i) of subsection (1) .of Section 67 uses the word 'consideration', the Finance Act 1994 does not provide any definition for the word consideration. Clause (a) of subsection (4) of Section 67 prior to 14.05.2015 merely stated as under:-
"consideration" includes any amount that is payable for the taxable services provided or to be provided"
6.9 An amendment was brought forth in section 67 by adding an Explanation which reads as under:-
"For the purposes of this section,-
"consideration" includes-
Any amount that is payable for the taxable services provided or to be provided;
33 | $1/41909 -- 41911/2017 Any reimbursable expenditure or cost incurred by the service provider and charged,in the course of providing or agreeing to provide a taxable service, except in such Circumstances, and subject to such conditions, as may be prescribed;
6.10 Prior to the amendment, the reimbursable expenses charged by the service provider were not specifically mentioned in Section 67. Rule 5(1) of Service Tax (Determination of value) Riles 2006 provided that all expenditure and costs incurred by the service provider shall be treated as consideration 'and has £0 be included in the taxable value for discharging the service tax. The Hon'ble Apex Court vide judgment reported in UOI Vs Intercontinental Consultants and Technocrats Pvt Ltd. 2018(3). TMI 357 affirmed the decision of the Hon'ble High Court which held Rule 5 (1) to be ultra vires. Thereafter as per amendment w.e.f. 14.05.2015 the reimbursable expenses and costs incurred and charged for providing service is made part of consideration or taxable value. | 6.11 itis pertinent to note that the provision under sub clause
(i) of Section 67(1) uses the words 'gross amount charged'.
Similarly, the Explanation to this section states that consideration includes any reimbursable expenditure or cost incurred by the service provider and charged. In the present case, the appellant, though a service recipient steps into the shoes of the service provider for discharging service tax liability. The payment of social security of Japan made by Nissan Japan, the actual service provider is reimbursed by the i 34 ST/41909 -- 41911/2017 appellant. The appellant has discharged service tax on this amount. In other words, Nissan Japan 'has charged the appellant on such expenses. Whereas, that part of salary which is paid by appellant directly to employees is not charged by Nissan Japan, the service provider. The appellant has incurred these amounts on their own.
6.12 The Ld. Consultant appearing for appellant has relied on the decision of the Tribunal passed by this very same bench dt. 30.3.2023, in the case of Commissioner of CE & ST, LTu, Chennai Vs M/s.Neyveli Lignite Corporation Ltd. (NLC) 2023-VIL 500 Cestat-CHE-ST. The facts of the said case are such that as per the joint venture agreement entered between NLC and Tamil Nadu Electricitiy Board, the Joint Venture project, namely, M/s.NLC Tamilnadu Power Limited (NTPL) was created.
From May 2008, NTPL is in the process of implementation of 2 x 500 MW power project at Tuticorin. The employees of NLC who were skilled and have requisite functional expertise were posted at NTPL during the project period. Their salary and wages was paid by NLC. However, the same was reimbursed by NTPL. The original authority dropped the proceedings, holding that the activity does not fall under MRSA services. On appeal filed by department, the Tribunal by above said decision dt.30.3.2023 followed the decision of the Hon'ble Apex Court in the case of Northern Operating System and heid that the activity is taxable under MRSA services. However, NLC (service provider- assessee) had contended therein that NTPL had reimbursed NLC only from June 2008 to 31.03.2011. That after 31.03.2011, a 35 $1/41909 -- 41911/2017 NTPL was paying Salary and wages directly to the deputed | employees and was not reimbursed by NLC/assessee. The Tribunal upheld the demand of service tax on MRSA on merits, and remanded to verify whether NTPL had reimbursed NLC after 31.03.2011. It was observed by the Tribunal that, if the salary and wages are paid directly and not reimbursed by the assessee (NLC) the assessee would not be liable to pay service tax after 31.03.2011. The relevant paras read as under:
"13. From the above discussions, the appeal filed by the Department has to be allowed, on merits. However, we uphoid the finding of the Adjudicating Authority that the invocation of extended period of limitation cannot sustain. Part of the demand falls within the normal period. As the issue on merits is found in favour of the Revenue and against the assessee, we -- remand the matter for the normal period included in the. period from 01.04.2011 to 31.03.2012 to the Adjudicating Authority to verify whether any amount in the nature of salary and wages has been received by the respondent from NTPL during this period. Neediess to say, if received, then the respondent is liable to pay Service Tax along with interest on the said amount. The matter, for the period from 01.04.2011 to | 31.03.2012, is remanded to the Adjudicating Authority. We however make it clear that the same grounds discussed on the issue of limitation would apply to the proposal in the Show Cause Notice to impose penalty. We direct that no penaities are Ae 36 $1/41909 -- 41911/2017 imposable for the disputed period in respect of which the matter is remanded to the Original Authority.
14. In the result:
The issue on merits is answered in favour of the Revenue.
The issue on fimitation is answered in favour of the assessee/respondent.
The matter for the period from 01.04.2011 to 31.03.2012 is remanded to the Adjudicating Authority. "
6.13 Again, the Tribunal in the case of Principal Commissioner of Central Goods & Service Tax, Delhi South Commissionerate Vs M/s.Boeing India Defence Pvt Ltd., 2023 (5) TMI 457 had occasion to consider similar issue. The F.0.No.50638- 50639/2023 was decided on 10.05.2023. The facts show that the demand of service tax under the category of MRSA services was raised on the assessee (the service recipient in India) on the amounts paid towards hotel stay, school tuition fees, and car expenses paid directly by the assessee to the deputed employees. These expenses were incurred by assessee directly, except for school tuition fees, which were paid to the deputed employees by assessee on reimbursement basis. The assessee contended that these are expenses incurred in India and cannot be included in the taxable value. The Tribunal in para 11 &12 a 37 $1/41909 - 41911/2017 referred the decision in the case of UOI Vs Intercontinental Consultants & Technocrats Pvt Ltd.,2018(3) TMI 357 (S.C) and held that only the gross amount charged has to be taken into consideration. The discussion in para 12 of the order of the Tribunal in the case of M/s.Boeing India Defence Ltd., reads as under:
"42. We note that this issue with regard to non-payment of service tax on the reimbursable expenses travelled upto Hon'ble Apex Court wherein it got settled by the decision in the case of Union of India and Anr. v. M/s.Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (3) TMI 357 (S.C.) = 2018 (10) G.S.T.L. 401 (S.C.)]
- 2018-VIL-11-SC-ST The Apex Court has held as per Section 67 (un- amended prior to 1° May,2006) or after its amendment with effect from 1* May,2006, the only possibile interpretation of the said Section 67 is that for the valuation of taxable services for charging service tax, the aqross amount charged for providing such taxable services only has to be taken into consideration. Any other amount which is not for providing such taxable service cannot be the part of the said value. It was clarified that the value of service tax cannot be anything more or less than consideration paid as quid pro quo for rendering such services. Accordingly, it was held that Section 67 of Finance Act, 1994 do not allow inclusion of reimbursable expenses in valuation of service rules.
6.14 The Tribunal in the above case set aside the demand, holding that the amounts incurred by assesse directly, and not charged on the service provider is not subject to levy of service tax. The facts are identical to the case on hand. The issue has Le 38 $1/41909 -- 41911/2017 been held in favour of assessee. The Hon'ble Apex Court, in the case of Intercontinental Consultants & Technocrats Pvt Ltd., has observed that while dealing with valuation of a taxable service, the said provision which deals with valuation has to be taken into consideration. Section 66 is the charging section for levy of. service tax. This section refers to various services taxable as provided in Section 65. The valuation of taxable services for discharging service tax is the gross amount charded for providing the taxable service. The relevant paras of the decision of Hon'ble Apex Court read as under:
weeny " 21) Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'.
Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the ~ provisions of Section 67 of the Act.
22) Section 66 of the Act is the charging Section which reads as under:
"there shall be levy of tax (hereinafter referred to as the service tax @ 12% of the value of taxable services rendered to in sub-
clauses....of Section 65 and collected in such manner as may be \-
prescribed."39
S$T/41908 -- 41911/2017
23) Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services.' Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the ourpose of calculating © the service tax payable thereupon.
24) In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount is charged for providing 'such' taxable services.
As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such 'taxable service.' That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May O1, 2006) or aiter its amendment, with effect from, May 01, 2006. Once this interpretation is to be given to Section 67, it hardly needs toe be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shali be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or jess than the consideration paid as quid oro qua for rendering such a service.
6.15 The Ld Consultant appearing for appellant has relied on the decisions in the case of M/s.Vantage International 40 $1/41909 -- 41911/2017 Management Company Vs Commission of CGST Mumbai . 2021(2) TMI 564-Cestat Mumbai and the decision in the case of M/s. Great ship (India) Ltd Vs Commissioner of CGST & CE to argue that the cost of free supplies. cannot be included in the taxable value. The expenses when not charged on the service provider and incurred by. the service recipient, such expenses/costs cannot be included in the taxable vaiue. The Apex Court in the case of CST Vs M/s.Bhayana Builders 2018 (10) GSTL 118(S.C) held that only such amounts which are charged on the service provider need to be included in the taxable value for the purpose of discharging service tax liability. Similar view was taken in the case of M/s. SBI Life Insurance Company Ltd Vs Principal Commissioner of CGST-Mumbai 2022(7) TMI 457 Cestat Mumbai. The relevant para reads as -- under:
A perusal of the above provisions indicate that the "consideration" for the purposes of levy of service tax include any amount that is payable for the taxable services provided or to be provided and any reimbursable expenditure are cost incurred by this service provider and charged. In the instant case it is not the case of the Revenue that the expenses in question were incurred by the service provider i.e. the insurance agents and charged to the appellants. It is the appellants that have incurred the expenditure, though it can be argue, that the expenses on pre-recruitment training/re-furbisher training should have been borne by the agents themselves in order to obtain a license from the Regulatory Authority, the explanation to Section 67 as above does not provide for inclusion of any expenditure that could have been borne by the service providers. The only \U Al §1/41909 ~41911/2017 condition under which such expenditure shall be includabie for the purposes of levy of service tax is that the expenditure should be borne by the service provider and the same should be charged to the | service recipient. Therefore, the facts and circumstances of the. case, we find that the expenses incurred by the appellants are not goes required to be included in terms of the explanation under Section 67 D. therefore, we find that demands confirmed on the various expenses incurred by the appellants are not sustainable. Accordingly, they need to be set aside. When the demands are liable to set aside various penalty imposed are also not sustainable.
6.16 From the above, as per Section 67 of the Finance Act, 1994, only such expenses and costs charged by the service provider can be included in the taxable value. As already stated, this Bench in the case of M/s.Neyveli Lignite Corporation (supra) has considered the very same issue had held that if the salary is paid directly and borne by the assessee (not charged) the amount cannot be included in the taxable value and the demand cannot sustain.
6.17 | The Ld. Consultant has been fair enough to draw our attention to a recent decision passed by this Bench in the case of M/s.Renaulf Nissan Automotive India Pvt Ltd. Vs Commissioner of GST & CE 2023(7) TMI & 35 Cestat Chennai. The facts of the said case reveal that part of the salary was to - 'be paid by the foreign company (Nissan Motor Co., Japan) and the other part is paid directly to employee by the assessee. The part paid by foreign company is reimbursed by assessee in ye 42 S$T/41909 -- 41911/2017 Japanese Yen to foreign company. Though, the Tribunal extracted Section 67 in para 13.3 of the order, the issue as to valuation as under Section 67 has not been discussed specifically. The Tribunal has followed the decision of the Apex _ | Court in the case of Northern Operating Systems and upheid the demand, raised on the part of salary directly paid to employee and not charged on the foreign company.
6.18 We find that the above decision of the Tribunal was passed on 15.06.2023 which is subsequent te the decisions passed in the case of M/s.Neyveli Lignite Corporation and M/s.Boeing India Defence Pvt Ltd. The decision in the above cases were not brought to the notice of the Tribunai and therefore the decision passed in the case of M/s.Renault Nissan Automative India is perincurium and not applicable.
6.19 From the foregoing, we find that as per Section 67 the costs incurred which are not charged cannot form part of the consideration and cannot be included in the taxable value. The decisions of the Tribunal in the case of M/s.Neyvelf Lignite Corporation and M/s.Boeing India Defence Pvt Ltd., would be squarely applicable and we hold that the demand cannot sustain and requires to be set aside. The issue on merits is answered in favour of assessee and against the department.
8. The Ld. Consultant has argued on the ground of limitation also. The issue is purely interpretational in nature. Further the appellant has been discharging service tax on that part of i 43 $1/41909 -- 41911/2017 Salary borne by Nissan Japan. The agreements and the amounts paid to the employees directly were properiy accounted. We cannot find any evidence indicating suppression of facts with intent to evade payment of service tax.
S. The issue has been contentious for a long time and still there are litigations before various forums as to the levy of service tax on the amount paid directly to the employees. The Ld. Consultant has drawn our attention to show cause notices issued by department (various. other Commissionerates) where the demand raised by department in SCN is confined to the amount paid to the foreign company and no demand has been raised on the amount paid directly to employees. The department itself has taken different views. Taking these facts inte consideration, we hold that the invocation of extended period is not legal and proper. So also the penalties are not warranted to be imposed. The appellant succeeds on the issue _ Of limitation also.
10. Inthe result, the impugned orders are set aside.
11. The appeals are allowed with consequential reliefs, if any. -
(Pronounced in court on i. ER: 'Lory Of | .Y | {oct Ge beet rare ves (M. AJIT KUMAR) (SULEKHA BEEVI C's') Member (Technical) Member (Judicial) RKP/PR 44 S$1/41909 --41911/2017 Per Contra M. Ajit Kumar,
12. JI have had the advantage of perusing the judgment of the - learned Member Judicial Ms. Sulekha Beevi c.S. and I regret my inability to agree with her. |
13. I find that this is a case where the dispute is regarding valuation, for purposes of determining and quantifying the service tax payable on the service rendered. The period involved is from October 2008 to Jan 2014 involving a demand for service tax of Rs 10,97,75,229/.
14. Brief facts are that Nissan Motors India Private Limited (Appellant) have entered into a secondee / deputation agreement with Nissan Motor Co Ltd, Japan (Nissan) for obtaining employees of the Japanese company for working in the Appellant's unit in India. A dispute has arisen regarding the value to be adopted for the Manpower Recruitment or Supply Agency Service rendered by the overseas supplier.
15. There is no dispute by the contesting parties regarding the fact that the service rendered by the overseas employer (Nissan) is a taxable service of 'Manpower Recruitment or Supply Agency Service"
(Manpower Supply Services) under section 65(68) of the Finance Act 1994 (FA 1994) and that the Appellant has to discharge service tax on the said service, under the Reverse Charge Mechanism (RCM). There is also no dispute regarding the payment of service tax on the payments made by the overseas supplier i.e. Nissan to the secondee in Japanese Yen, although the amount is reimbursed by the Appellant in terms of the Agreement. Further although the show cause notice has also invoked rule 5(1) of the Service Tax (Determination of Value) Rules 2006, the said Rule was struck down by the Supreme Court in \, 45 ST/41909 -- 4191 1/2017 its judgement in the case of UOI versus Intercontinental Consultants and Technocrats Private Limited [Civil Appeal No. 2013 OF 2014/ 2018 (10) G.S.T.L. 401 (SC)], and hence the Rule need not detain us in discussion of its intricacies as it is inapplicable of deciding the dispute. |
16. There are two agreements / contracts entered: into by the Appellant. The first agreement is with Nissan which sets out the terms and conditions of the agreement for the loan of employees (secondee) by Nissan to the Appellants unit in India. Secondly, the Appellant has also entered into separate agreements with the seconded / deputed employees, setting out the terms of their individual engagement. The first Agreement is pivotal and sets the tone of the discussion on the value to be adopted for purpose of assessment to tax and will help us find a solution to the lis between the contesting parties. The second agreement between the Appellant and the secondee and is not of direct concern here.
17. While examining an Agreement it is the true nature of the agreement that matters and not the form, for otherwise clever drafting can camouflage the real intention of the parties. The Supreme Court, in Commr. of Customs, Central Excise and Service Tax v. Northern Operating Systems (P) Ltd. [2022 SCC Online SC 658] which is critical in determining this issue states the law for service tax on secondee's, that "the nomenclature of any contract, of document, is not decisive of its nature". The Hon'ble Court further 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,"46
ST/41909 -- 41911/2017 17.1 Some of the important points figuring in the Secondee agreement between the Appellant and Nissan Japan, other than those listed at para 2.5 above, are--
A. Nissan shail instruct the Secondee to carry out the work specified under the guidance, direction and supervision of the Host company (Appellant). The secondee shall abide by the host Co's internal Rules but shall enjoy extra holidays and leave as set out.
B. Salary of Secondee will be decided by Nissan. The amount may be revised by Nissan at the behest of Nissan's fiscal year.
C. During the period of deputation in India, the entire salary, including the home country salary and host country salary of the secondee shall be paid by the Host Company.
D. Bonus and Allowances shall be paid to the Secondee as per the applicable laws and policies of Nissan and the Host Company.
E. Termination of the Agreement caused by either Party's breach or non-performance of this Agreement shall not affect the right of the other Party to claim the breaching or non-performance of Party to_pay damages arising from such breach, non-performance or termination of the Agreement.
18. The issues examined in this order are given in the table below:
Ss. No. Subject Para No.
1. What is the 'consideration' and 'gross 19 47 amount charged' to be paid by the appellant to Nissan for Manpower Supply Services?
1(a) What represents 'consideration' for the 19(a) 47 services rendered by the overseas SU lier, 4(b) Whether the consideration paid by the 19(b) | 52. appellant is 'charged' by Nissan on the Appellant.
Whether reimbursable charges are to 55 be included in the value "2 (a)_| No tax payable as per POTR 2012 20.9 | 60
3. __ | Implication of duty paid under RCM rs an) eee 47 $1/41909 -- 41911/2017 | 4 Whether an employer-employee 22 66 relationship exists between' the appellant and the secondee
5. Whether the appellant is a joint 23 «#©+|68 employer of the secondee
6. Is Nissan an intermediary 24 69
7. Service tax cannot be demanded on 25 70 the TDS component of Income Tax .
8. Lack of uniformity among field 26 72 formations
9. Judgments cited by rival parties and 27 73 their analysis
10. No suppression of fact, hence 29 77 extended time cannot be invoked or _ | penalty imposed
11. Summary 31 78
19. What is the 'consideration' and 'gross amount charged' to be paid by the appellant to Nissan for supply of Manpower Supply Services?
19(a). What represents 'consideration' for the services rendered by the » overseas supplier.
19.1 FA 1994 Section 67 of FA 1994 has been reproduced at para 3.2 above and is hence not repeated in its entirety. Section 67(1)Ci) states that where service tax is chargeable on any taxable service with reference to its value, then such a value shall, in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him.
19.2 It is the Appellant's case that the payments made to the secondee, held to be taxable in the impugned order, is paid to the secondees in India by the appellant in Indian Currency, and is not charged by Nissan on the Appellant and hence does not represent 'consideration' for the service. Hence, the salary, bonus and allowances paid by the appellant to the secondee in India will not form a part of Me 4g ST/41909 ~ 41911/2017 consideration and cannot be taken for the purpose of computing the value of the service.
19.3 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 1944 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 has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; (emphasis added) 19.4 To illustrate the definition with the impugned situation, say if A 'enters into an agreement with B, to supply his employee C to B. The contracting parties agree to split the consideration for service rendered by A towards pay and allowances of C on a formula indicated by A. A pays a part of the salary to C (which is to be reimbursed to B by A) and B pays the remaining part equal to the balance of salary to C. This shows that there is a promise by A and a valid consideration for the promise by B which is lawful and enforceable by the contracting parties, though one of the beneficiary of the contract is not a party to the L contract.
49ST/41909 -- 41911/2017 19.5 To elaborate on the example using the present facts it can be stated, when Nissan makes a proposal for deputation of secondees to the Appellant for a certain consideration, which when accepted by the Appellant becomes a promise. Then Nissan is the promisor and the Appellant the promisee. The promise forming the consideration is an agreement. Hence when at the desire of Nissan, the Appellant has agreed to pay the consideration as an amount in money to the secondee. This is further split as per the desire of Nissan, and paid to the secondee directly and also indirectly through Nissan (amount paid by Nisan Japan to the secondee is reimbursed to Nissan by the Appellant). Such an act involving the payment by the Appellant of the gross amount of the contract for supply of manpower by Nissan, as salary, bonus and allowances to the secondee, is the consideration for ihe promise made in the Agreement. In other words the amount paid by the Appellant to the overseas manpower supply service provider i.e. Nissan is the gross amount charged by them as consideration for the services and is equivalent to the salaries, bonus and allowances of the seconded employees. The mode of this payment:is by the Appellant disbursing the monies to the secondee as per the instructions of Nissan.
19.6 With the above understanding under the Contract Act, the issue can be examined under FA 1994. Section 67 of the finance act, 1994 has an inclusive definition of the term consideration. Section 67(4)(a) during the relevant time stated that consideration includes any amount 'that is payable for the taxable services provided or to be provided.
Therefore, the following elements must be present to constitute a valid k consideration, namely:
50$1/41909 ~ 41911/2017 (i} any amount
(ii) that is payable
(iii) for the taxable services
(iv) provided or to be provided The nature and substance of the Agreement is with regard to a proposal for deputation / supply of secondees to the Appellant made by Nissan and sets the terms and conditions for the same. The quid-pro-quo for the secondment agreement, (as mentioned in Northern Operating System. (supra)), where the appellant has the benefit of experts for limited periods, is implicit in the overall scheme of things. Hence, as rightly pointed out by the learned AR, any amount that is payable to the overseas supplier of manpower for the taxable service, if paid or payable directly or indirectly to the secondee at the behest of the supplier i.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.
19.7 The judgment of the Apex Court in Commissioner of Service Tax Etc. Vs. M/s. Bhayana Builders Pvt. Ltd. [2018 (10) GSTL 118° (SC)] has examined the phrase 'the gross amount charged by the service provider for such service provided or to be provided by him', as per Section 67 of FA 1994. The relevant portion is reproduced below:
"12. Ona reading of the above definition, it is clear that both prior and after amendment, the value on which service tax _is payable has to satisfy the following ingredients: .
/ 5] : , ST/41909 -- 41911/2017 a. Service tax is payable on the gross amount charged:- the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it.is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that - the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67,
-- unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payabie.
b. The amount charged should be for "for such service provided": Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided.
Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the. service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined" | 3K AS OK AK OK OK OE OE OK 3K OK oe
16. In fact, the definition of "gross amount charged" given in Explanation (c)} to Section 67 only provides for the modes of the payment or book adjustments by which the . consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services.
(emphasis added) 52 | $T/41909 -- 41911/2017 The Apex court has hence clarified that the word "gross" indicates that it is the total amount charged in the agreement / contract without deduction of any expenses, the Department cannot go beyond the contract value. The stand taken above is in conformity with the judgment. Hence consideration is the gross amount paid to the secondees as salary etc at the behest of Nissan, for the purpose of valuation of the taxable services rendered by the oversea supplier. The issue relating to the term "charged" as explained in the above judgment will be discussed next. | | 19(b). Whether the consideration paid by the appellant is 'charged' by Nissan on the Appellant.
19.8 Section 67(1)(i) uses the words 'gross amount charged' and is reproduced for clarity:
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shali--
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(emphasis added) 19.9 In Bhayana Builders Pvt. Ltd. (supra) it has been explained that in fact, the definition of "gross amount charged" only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It was held that by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. I find that the impugned agreement / contract between parties is a contract in the realm of private law. The term 'billed' has to be understood in terms of the Agreement entered into by the L ST/41909 -- 41911/2017 Appellant with the overseas manpower supplier and is examined at para 20.9 below. Further the judgment states that any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. In this. case, as will be seen, the gross amount charged has clear nexus with the taxable service and is a consideration for the service provided and hence becomes a part of the value which is taxable under Section 67.
19.10 it is the Appellants contention that the amount paid by the Appellant directly to the seconded employees in Indian Currency is not 'charged' by Nissan on the appellant and hence will not form part of the assessable value. This is a play of semantics. It is seen from the section reproduced above that the gross amount. charged by the service provider is in the context of such service provided or to be provided by him. As stated by the Apex Court in Northern Operating Systems (supra), 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. A look at the secondee Agreement shows that the appellant company has accepted the promise of Nissan for services of skilled employees on payment of the gross amount charged by Nissan as per certain conditions including a split formula to be decided by Nissan, for payment of salary. However as per the desire of Nissan, the consideration equal to salary to the deputed employees is to be paid partly by the Appellant and partly by Nissan while the secondee remains on the rolls of Nissan. The portion paid by Nissan is reimbursed by the Appellant to Nissan in foreign currency. During the l 54 ST/41909 -- 41911/2017 period of deputation of the secondee in India, the entire salary, including the home country salary and host country salary of the secondee shall be paid by the Host Co. (Appellant). A clause of the Agreement states that the contribution to the Japanese social security system will be borne by Nissan of the deputed employees. The contribution to the Indian social security system will be borne by the Appellant company. The Agreement also states that Nissan will have complete discretion over salary, bonus and allowances, to be paid to the deputed employees. Nissan has lien over the deputed employees. It is clear from the agreement that Nissan dictates the terms of employment, of the deputed employees to the appellant. The appellant has no discretion to vary the terms of employing the deputed employees. Hence by full filling the conditions of the Agreement and making payment / debiting the books of account to pay the secondee his full salary, bonus and allowances as per the gross amount 'charged' by the overseas supplier i.e. Nissan, service tax gets attracted.
19.11 The conclusion above is an echo of the Supreme Court's judgment in Northern Operating Systems (supra) which 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 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 55 ST/41909 -41911/2017 reimbursement of the employees' salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business.
(emphasis in italics as per original. Portion underlined by me) 19.12 This reinforces the view that the consideration as per the Agreement for using the services of the secondee (beneficiary of the consideration) consists of the payment of the full amount of salary, | bonus and allowances i.e. both in foreign currency and in Indian Rupees as per the desire of the supplier. The two consequences, pointed out by the Hon'ble Court above, due to the obligation of the overseas employer to maintain the secondee on its payroll, shows that the consideration is agreed upon by Nissan and the Appellant to compensate Nissan for maintaining the secondee / deputed employees on its payroll, which is a financial burden to Nissan_and the cost of which is incurred by them. As stated earlier the appellant has acquiesced to paying tax on the payments made by Nissan to the secondee abroad as a part of the Agreement. The principle of equivalence is in-built into the concept of service tax and the different colour or name of the currency or the formula / route adopted for making / paying the agreed consideration to the overseas service provider, cannot change its nature and substance. Hence the appellants plea does not succeed.
20. Whether reimbursable charges are to be inciuded in the value on which tax is collected | 20.1 The next issue for consideration is the reimbursable payment's made by the appellant to the secondee employees' in the form of allowances. The nature and substance of the allowances which are statedly reimbursable has not been discussed elaborately by either of L 56 §T/41909 -- 41911/2017 the parties before us. It is the view of the appellant that these charges do not form a part of the consideration and are hence not to be included in the taxable value. They have cited certain case laws of the Tribunal in this regard as stated below.
(i) Commissioner of CGST, Mumbai Vs. Vantage International 'Management Company - 2021 (87) GSTR 358 |
(ii) Greatship (India) Ltd. Vs. Commissioner of CGST and Central Excise, Mumbai Central - 2021 (9) TMI 1173 | |
(ii) SBI Life Insurance Vs. Principal Commissioner of CGST -- 2022 (7) TMI 457
(iv) Principal Commissioner of CGST, Delhi South Vs. Boeing India Defence Pvt. Ltd. -- 2023 (5) TMI 523 20.2 Judgments at SI. No. (i) to (iii) above do not pertain to Manpower Supply Services and answer the question of inclusion of free supplies in the assessable value by relying on the 'Bhayana Builders' judgment (supra) of the Hon'ble Apex Court which deals with whether the value of materials/goods supplied free of cost by the service recipient to the service provider/assessee is to be included to arrive at the 'gross 'amount' and have not considered the Northern Operating System judgment (supra) which deals with services and is specific to the case of secondees. Again, the Tribunal in the case at sl no (iv) i-e. Boeing India Defence Pvt. Ltd., discusses an issue pertaining to the salary reimbursement for the secondment of employees. However, while it notices the Apex Courts judgment in Northern Operating System (supra), no discussion is found with regard to the applicability of the said judgment. Hence all the cited judgments are of limited precedential value. l a7 S1/41909 -- 41911/2017 20.3 The Bhayana Builders judgment has been discussed above with respect to the understanding of the term 'gross amount' and 'charged' and it is found to admit of the stand taken in this order with respect to contractual obligations. I further find that the Appeliants view is not supported by the Hon'ble Supreme Court's judgement in the case of Northern Operating System (supra)- The issue regarding including reimbursable costs of services was examined by the Hon'ble Supreme Court's (3 judge) in Northern Operating System (supra). The two Judge Bench judgment in Intercontinental Consultants and Technocrats Pvt. Ltd (supra) pertaining to Rule 5 and reimbursables was brought to the Hon'ble courts notice and it was stated that, the demand of the service tax was being computed on the salaries and allowances paid to the employees. That any cost or expense reimbursed does not represent the gross value of taxable service and cannot be a consideration for charging service tax. This view did not find favour and the Hon'ble Supreme Court, who while discerning the true nature of the relationship between the seconded employees and the assessee, made a co-joint reading of the terms and found that the salary payable as well. as other allowances, such as hardship allowance, vehicle allowance, servant allowance, paid leave, housing allowance, etc. underscore the fact that the seconded employees are of a certain skill and possess the expertise, which the assessee requires. It also observed that it is doubtful whether without the comfort of this insurance, the deputed employees would agree to the secondment. The Hon'ble Court applied the test of substance over form and held revenue's appeals to succeed and the assessee was held liable to pay service tax. Judicial discipline requires that the Apex Courts judgment ke 38 ST/41909 -- 41911/2017 in Northern Operating System be followed more so in the case of overseas Manpower Supply Service.
20.4 In Intercontinental Consultants and Technocrats (supra) it was averred by Revenue before the Apex Court that the expression "gross amount charged' would clearly include all the amounts which were charged by the service provider and would not be limited to the remuneration received from the customer. The Hon'bie Court held that | the value of taxable service shail 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 qua for rendering such a service. As discussed earlier the entire Agreement entered into by Nissan with Appellant is only the gross amount charged by the service provider 'for such service'. As far as the Appellant is concerned the true nature of the gross amount charged by Nissan cannot be taken as that of 'salary' etc paid to the secondee but only as a payment of consideration in fulfillment of the conditions of the Agreement reflecting the desire of Nissan Japan. The mode of the Appellant paying the consideration by splitting it as per the desire of Nissan must not be confused with the payment of salary of the secondee who is on the pay roll of Nissan. The payments made to the secondee is only an arrangement for paying the consideration as per the desire and on behalf of Nissan and not on their own accord, as discussed at para 19.5 above. As stated by the Apex Court in Northern Operating System the amounts paid by the Appellant are "equivalent to the salaries of the seconded employees".
20.5 The main object of the Agreement under consideration of the impugned order is a pay and allowance package that cannot be L 59 ST/41909 -- 4191 1/2017 vivisected if the services of the secondee is to be secured by the Appellant. In facts as stated the Appellant cannot change any aspects of the pay and package of the secondee which is as fixed by the overseas service provider Nissan in the Agreement and by Company policy. As stated by the Apex Court in the Bhayana Judgment (supra), the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses.
20.6 A view has been expressed by the appellant that in the case of Northern operating system, the entire payment was made in foreign currency whereas in their case a part of the salary including the reimbursable charges of the allowances of the secondee was being paid by them directly in Indian Rupees. Hence, all reimbursable charges would not find a part of the assessable vatue.
20.7 I do not find any. merit in this argument. Firstly it has been discussed both in the context of the Indian Contract Act and FA 1994 that the amounts paid by the Appellant is only the consideration as per the Agreement for the services to the service provider which are "equivalent to the salaries of the seconded employees", they do not amount to being the salary itself. Secondly the paramount test of understanding an Agreements is * the intention of the parties' as stated by the Supreme Court in a catena of cases. Taking a cue from various Supreme Court judgments the question to be asked is did the parties have in mind or intend separate rights arising out of payments to the secondee made is foreign currency and separate rights for payment in 3 60 ST/41909 -- 41911/2017 Indian Rupees. If there was no such intention, then in this case the Agreement was an indivisible contract.
20.8 I find that the consideration paid by the Appellant to the overseas supplier was a part of a consolidated package which he has no power to change and if any part was varied, the service provider could sue him for breach of Agreement. As per the conditions of the Agreement Nissan should instruct the secondee to carry out the work specified. In. the situation the secondee was unlikely to be asked to join the work in India and the Agreement itself was likely to be shelved. Hence no separate rights were intended based on the currency or mode of payment. That the consideration is split and paid as salary of the secondee as per the formula and desire of the overseas service | provider does not affect the nature of the payment. The taxing authorities cannot ignore the legal character of the consideration. Hence, the entire salary, bonus and allowances including its foreign _and Indian component has to be taken as the gross amount charged for providing 'such' taxable services and representing the consideration for the service of the secondee and no deduction can be given for renewable charges, if any.
2(a) No tax payable as per POTR 2012 20.9 The Appellant has further stated that if one were to explore the Point of Taxation Rules 2012, (POTR), Rule 7 states that the point of | taxation shall be the date of debit in the book of accounts of the person receiving the service or date of making the payment whichever is earlier. That in their case no payment has been made by the appellant to the Nissan nor any debit was made in the books of the Appellant to Nissan Japan. Hence no tax shall arise on the payments made directly l-
61ST/41909 -- 41911/2017 to the secondee. To begin with it must be stated that levy, assessment and collection are independent actions determined by the Statute and the Rules framed there under. In Somaiya Organics (India) Ltd. v. State of U.P., [(2001) 5 SCC 519] a five judge bench of the Apex Court examined the terms 'levy' and 'collect' in Article 265 of the Constitution and held as under:
"The words used in Article 265 are levy and collect. In taxing statute the words levy and collect are not synonymous terms, (refer to Assistant Collector of Central Excise, Calcutta Division vs. National Tobacco Co. of India Ltd. at page 572), while levy would mean the assessment _or charaing or imposing tax, collect in Article 265 would mean the physical realisation of the tax which is levied or imposed. Collection of tax is normally a stage subsequent to the levy of the same. The enforcement of levy could only mean realisation of the tax imposed or demanded.
Collection is part of the machinery provision, the method or point of collection of duty does not affect or influence the value to be adopted for the service being rendered, which is a part of assessment of the service. The point of collection of tax is framed for administrative convenience and has to be read harmoniously so as to not defeat the levy. The POTR only determines the point of collection of the tax and is not useful in understanding the valuation of services done as a part of assessment of the taxable service rendered. As held in Intercontinental Consultants and Technocrats (supra):
26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner:
"Now if there is any conflict between a statute and.the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the bye-law, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with." \ 62 $T/41909 -- 41911/2017
27) The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act.
28) It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel:
"the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
On merits I do not find any substance in this argument too. A contract is an agreement between parties, creating mutual obligations that are enforceable by law. Any agreements made between parties on how the consideration, agreed for in the contract, is to be paid cannot be determinative of its taxability under a special tax law. The nomenclature of any contract, of document, is not decisive of its nature. As discussed earlier it is clear that the entire salary, bonus and allowances form the consideration representing the gross amount - charged by the service provider irrespective of the method or mode of payment. They are already paying RCM of the amount they. pay to Nissan in foreign currency as part of their obligation under the Agreement. Having billed the part of consideration paid in Japanese Yen they cannot now refuse to pay tax just because apart of the consideration is billed in Indian Currency. Once payments / debits in the books of accounts are made, whether for payments in India or abroad, in Indian currency or foreign currency, the dates of such payments being billed to Nissan in furtherance of the Agreement and L determines the POT as per Rule 7 of the POTR.
S1/41909 - 41911/2017 20.10 If the appellants views on the duality of the consideration, split at the behest of Nissan, are to be accepted it could lead to two peculiar situations;
1) If the parties so arrange that the entire salary and prerequisites of the secondee is paid by the recipient of service who is within the taxable territory, then although there would be a supply of manpower services from abroad, no tax would be leviable due to the value of the taxable service being computed as 'zero'. As stated earlier this may
- encourage clever drafting of Agreements by unscrupulous parties to camouflage the real intention of the parties, leading to tax evasion.
2) It would be discriminatory and violative of Art. 14 of the Constitution inasmuch as it creates a discrimination between two sets of assessees who are service recipients of secondee's provided by overseas supplier's but who have either to pay tax or are exempted from it only due to the colour or name of the currency they pay the secondees with, for the same service.
20.11 In Intercontinental Consultants and Technocrats (supra) cited by the appellant it was stated as under:
»94. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'." -
The Hon'ble Supreme Court in the said judgment stated that the authorities are to find what is the gross amount charged for providing 'such' taxable services. From the discussions above it was found that considering the nature and substance of the Agreement that the entire salary, bonus and allowances including the foreign and Indian component of salary, split at the behest of the service provider, has to be taken as the gross amount charged for providing 'such' taxable services and attracts service tax. It represents the consolidated b 64 ST/41909 -- 41911/2017 consideration paid to Nissan for being provided the service of the secondee and no deduction can be given for renewable charges, if any which forms a part of the consideration to the Agreement. This conclusion is within the framework of the Hon'ble Court's judgment in Northern Operating System (supra).
21. Implication of duty paid under RCM 21.1 Although the above discussions make it clear that the prayer in the appeal to cull out the reimbursable allowances paid to the secondee in the taxable territory from the taxable value fails on merits, there is one more angle to the issue. Revenue in their written submissions have alluded to service tax liability of the appellant under the 'Reverse Charge'. It is not disputed by the parties to this appeal that when the provider of taxable services is located in a non-taxable area and the recipient of the service (i.e. the Appellant in this case) is located in the taxable territory, the Appellant then has to pay service tax under the Reverse Charge Mechanism (RCM). RCM is a deeming provision of law, whereby the appellant is deerned to be the service provider. When a thing is deemed to be something else it is to be treated as if it is that thing, though, in fact, it is not. As per this provision all payments made by the receiver of service, who is deemed to be the provider of service, towards the salary and advances of the secondee (both in Indian and foreign currency) would form a part of the assessable value on which duty has to be levied. The Hon'ble Supreme Court in Builders Association of India and others etc. etc., Vs Union of India and _ others etc. [AIR 1989 SUPREME COURT 1371] held:
"36. ....When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it."
V 65 ST/41909 -- 41911/2017 Section 68 of FA 1994 provided for payment of Service Tax under RCM. It read as under:
68. i1[Payment of service tax (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section A4[66B] in such manner and within such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 4[66B] and all the provisions of this Chapter shail apply to such person as if he is the person liable for paying the service tax in relation to such service. ] [Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider. ] EE KK OK 2K AK 2 OK OK Notes :
1. Substituted by the Finance (No. 2) Act, 1998, w.e.f. 16-
10-1998. Earlier section 68 was amended by the Finance (No. 2) Act, 1996 and later on substituted by the Finance Act, 1997.
2. Substituted by Finance Act, 2012, w.e.f. 1.7.2012, before it was read as, "any taxable service notified"
3. Inserted by Finance Act, 2012 w.e.f. 1.7.2012.
4. Substituted vide Order dated 15-6-2012, before it was read as, "66"
Section 68 (2) states that the service tax on.the taxable service shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66B (section 66 prior to 15/06/2012) and all the provisions of this Chapter shall apply to such person as if_he is the person liable for paying the service tax in relation to such service.
From this legal angle too service tax would have to be calculated on LV 66 ST/41909 -- 41911/2017 the value of the consolidated consideration paid | to the secondee including the part paid in Indian currency as per the Agreement. Hence consideration will not change when seen from the angle of 'forward charge' or 'reverse charge' mechanism of paying tax. What's sauce for the goose is sauce for the gander.
22. Whether_an_ employer - employee _relationship exists between the Appellant and the Secondee It is the Appellants contention that an employer -- employee relationship exists between them and the secondee and that the impugned order has failed to recognise the same. They have after referring to the Supreme Court judgments in Lakchminarayan Ram Gopalan vs The Government of Hyderabad [1954 AIR 364] and Ram Prasad Vs Commissioner of Income Tax [(1972) 86 ITR(SC)] summed up what they feel is the test for establishing the relationship of employer-employee. Para 43 of the 'Statement of Fact' given in their Appeal Booklet is reproduced below. The appellant submits that on a reading of the Secondment Agreement and the employment contract, it is clear to them that the test for establishing the relationship of employer-employee is satisfied in their case:-
a) The expatriate employee has to work under the guidance, supervision and direction of the Host Company i.e. the Appellant;
b) The Appellant pays the monthly salary as listed in the Employment Contract after reducing appropriate TDS as per the Indian Income Tax Act and also makes contribution to the Provident Fund
c) The expatriate employee while carrying out his duties must strictly comply with the relevant laws and regulations and comply with the appellant's rules and policies
d) The expatriate employee would report to the team manager of the appellant company 67 $1/41909 -- 41911/2017
e) The appellant has the right to terminate the employment of the expatriate employee
f) The appellant would be responsible for the appraisal of the work done by the expatriate employee
g) The jurisdiction governing the Employment Contract is that of India I now examine the 'test' prescribed by the Appellant with the facts as on record in the agreements, on a point-by-point basis:
a) As per Article 2 of the 'Secondment Agreement', Nissan shall instruct the Secondee to carry out the work specified ("Work") under the guidance, direction and supervision of the Host Company. Thus, the appellant has operational or functional control over the secondee as is available to any service recipient of man power, which they exercise by way of guidance, direction and supervision of the secondee, who has to abide by the Appellants internal Rules. The Appellant has no other control on the secondee.
b) The Appellant is obliged to pay Nissan the consideration as per their Agreement with them for the secondment of manpower. Failure (non-performance) of meeting this obligation could lead to the Appellant being sued for damages as per Article 9.4. ibid. The secondee continues on the pay roll of Nissan and continues to be an employee of Nissan throughout the secondment period. The real nature of the consideration is that it is a payment to Nissan for the . supply of manpower and is equivalent to the entire salary, bonus and allowances of the secondee (measure of the consideration), whether paid to the secondee in India and abroad or in Indian Rupees or in.foreign currency. This nature and character of the payment is not fost and the consideration to Nissan with regard to the supply of manpower (secondees) does not make the consideration to become the pay, bonus and allowances of the secondee, although labeled so for convenience. The consideration for the Agreement between Nissan and the Appellant for supply of manpower cannot take the colour of the measure used to determine the amount of consideration. The arrangement of paying the consideration by splitting it up is as per the desire of the manpower supplier i.e. Nissan does not make the secondee the Appellants employee. In the normal course the Appellant should have paid Nissan the consideration as agreed in the Employment Contract for supply of secondees and who in turn should have paid their employees (secondees). An arrangement for split payment of consideration is purely for administrative convenience of the contracting parties and as per the desire of Nissan. Payment of taxes as per the laws of the land where the employee works is again for administrative convenience and as agreed 68 ST/41909 -- 41911/2017 upon resulting in the payment of consideration after reducing appropriate TDS as per the Indian Income Tax Act and also makes contribution to the Provident Fund.
No employee can work in an organization on his own whims and fancies. What is important is that as per Article 2 of the 'Secondment Agreement', it is at Nissan's instruction that the Secondee complies with the relevant Jaws and regulations and rules and policies of the Appellants company.
d) Any hired manpower has to report for day-to-day work to
e)
f) designated personnel of the Appeliant's company. What is important is that Article 1.1 makes it clear that the secondee will continue to be the employee of Nissan throughout the secondment period.
The Appellant does not have the right of immediate or unilateral termination of the employment of the secondee as per Articie 1.4. They have to give a. six-month prior written notice based on reasons which must satisfy a limited set of conditions set out in the Agreement and await Nissans agreement to the proposal. This is hardly in the nature of an employer employee relationship.
The appellant is responsible for the appraisal of the work done by the expatriate employee so that they can submit the same to Nissan as an important reference in. secondee evaluation by Nissan. A poor appraisal report is not a ground mentioned in Article 1.4, for the Appellant seeking the termination of the employment of a secondee.
g) That the jurisdiction governing the Employment Contract is of India is not decisive of the employer - employee relationship but is for administrative convenience of the contracting parties.
The Appellant is hence seen to have failed his own test for employer -- employee relationship.
23. Whether the appellant is a joint employer of the secondee Having being doubtful of an employer-employee relationship the Appellant in their 'synopsis' have proposed another relationship. It is an accepted principa! of law that one who exerts should prove. They are required to provide precise data in support of their pleading which are within their knowledge, as the burden of proof is cast upon them.
They should also specify the various ingredients of law applicable in L 69 $T/41909 -- 41911/2017 their case, and how the facts relate to cited provisions of law. Hence having failed the test of an employer-employee relationship, it is for the Appellant to show that they are the joint owners of the secondee by putting forward sufficient, convincing and relevant material within their knowledge. I find this evidence missing. However, from the discussions above it is clear that Nissan is 'the' employer of the secondees and the secondee continues to be an employee on the pay roll of Nissan throughout the secondment period. On completion of the deputation period the secondee returns to Nissan Japan, the overseas employer. The secondee does not become integrated into the Appellants organisation. Hence the appellant is not a joint employer of the secondee, but only a service recipient.
24. Nissan is an intermediary and not liable to pay service tax as per Place of Provision of Service Rules The appellant has again made a very brief alternate mention of the subject, without detailing the facts of the work undertaken by Nissan as an intermediary, because in reality they do not appear to fulfill that role. Their submission made is reproduced below:
"Without prejudice, since NML facilitates the secondment arrangement between the appellant and the seconded employees, it qualifies as an intermediary under service tax laws. Hence, presuming that tax ought to be discharged on the salary paid to seconded employees for the intermediary service rendered by NML, the same is not permissible vide Rule 9 of Place of Provision of Service Rules, 2012. This is for the reasons that the location of the supplier (NML) and piace of provision of service (location of NML) are both outside the Indian territory. | The Appellant, nor the learned Chartered Accountant representing only the Appellant, have stated their locus standi to represent a third party like Nissan before a legal forum and to discuss and have determined its legal status under FA 1994. This sort of an action for fishing out L 70 S1/41909 -- 41911/2017 legal issues just to sustain their case, does not serve the cause of law well. That apart it has not been demonstrated from facts on record as to how Nissan being the actual employer of the secondees can be considered as a broker or an agent or any other person who arranges or facilitates a provision of a service on behalf of the principal i.e. Nissan. An intermediary merely acts for his principal. Prima facie nothing is on record to show that Nissan is an 'intermediary' employed to do any act for another, or to represent another in dealings with third persons. They are, as per their actions being examined in the impugned dispute, seen to be employers of the secondees as a 'principal'. Hence this submission has no legs to stand an. While, it may be sportive or perhaps at times even necessary to fish in muddy waters the same cannot be said if one were to muddy the waters before fishing.
25. Service tax cannot be demanded on the TDS component of Income Tax.
The appellant has also taken a stand saying that TDS deductions should not form a part of the value. Section 67 of the Finance Act, 1994 stipulates that the value of any taxable service should be the gross amount charged by the service provider. I find that section 67 (2) of FA 1994, after its amendment w.e.f. May 01, 2006 states (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
A similar provision prior to the amendment, by way of Explanation 2 to the said section, stated:
Explanation 2 - Where the gross amount charged by a service provider is inclusive of service tax payable, the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged.
L
7) ST/41909 -- 41911/2017 Prima facie there does not appear to be a bar on tax being a part of assessable value. The Apex Court (5 judge) in Jain Bros. & Others vs The Union Of India & Others [1970 AIR 778 / 1970 SCR (3) 253], a case pertaining to Income Tax, held:
It is not disputed that there can be double taxation if the iegislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channell J. in Stevens v. The Durban-Roddepoort Gold Mining Co. Ltd.('). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of s. 23 (5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation..... If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over. (emphasis added) The Director General of service tax clarified that tax deducted at source (TDS) is includible in the gross amount charged and is as under:
Q.When payment is made. by a client to an assessee after deducting his Income Tax liability under the Tax deduction at source (TDS) provision, whether the Service Tax liability of the assessee is only towards the amount actually received from that client or tax is to be paid on the amount including the Income Tax deducted at source also?
Service Tax is to be paid on the gross value of A. taxable service which is charged by a Service Tax assessee for providing a taxable service. Income tax deducted at source is includible in the charged amount. Therefore, service Tax is payable on the gross amount including the amount of Income Tax deducted at source also.
A 'Disclaimer' information is seen in the booklet: stating that the clarifications are purely as a measure of public facilitation, and that the | 72 ST/41909 -- 41911/2017 Directorate General of Service Tax, Mumbai does not hoid itseif liable for any consequences, legal or otherwise, arising out of the use of any such information. Such a clarification without discussing the legal nuances involved cannot be the source of taxability or otherwise. I find that the TDS paid/deposited to the government by the appellant arises out of a statutory liability. In the normal course TDS cannat be held to be a 'consideration' for the service unless specifically mandated/ deemed by law. No such provision of law for the inclusion of TDS in the value for purposes of calculating Service Tax has been brought to notice. Hence in case such amounts have entered into the calculation of value the same should be deleted and duty reworked.
26. Lack of uniformity among field formations 26.1 The Appellant has referred to certain decisions of other formations where the valuation of the impugned service has been handled differently and there is a lack of uniformity. No Order in Original have been provided. Rule 23. of the Customs Excise Service Tax Appellate Tribunal (Procedure) Rules, 1982 states that the parties to the appeal shall not be entitled to produce any additional evidence, either oral or documentary, before the Tribunal. In any case the Apex Court in State of Bihar Versus Upendra Narayansingh [CIVIL APPEAL NO.1741 OF 2009, (Arising out of S.L.P. (C) 16871 of 2007)] held as under:
"24... By now it is settled that the guarantee of equality before law enshrined in Article 14 is a positive concept and it cannot be enforced_by_a_ citizen or court in a negative manner. If an_illegality or irregularity has been committed in_ favour of any individual or a group of individuals or a wrong order has been passed by a judicial forum, others cannot invoke the jurisdiction of the higher or superior Court for repeating or multiplying the same irregularity or iHegality or for passing wrong order - Chandigarh Administration and another v. Jagjit Singh and another [(1995) 1 SCC 745], 73 $1/41909 -- 41911/2017 Secretary, Jaipur Development Authority, Jaipur v.. Daulat Mal Jain and others [(1997)1 SCC 35], Union of India [Railway Board] and others v. J.V. Subhaiah and others [(1996) 2 SCC 258], Gursharan Singh v. New Delhi Municipal Committee [(1996) 2 SCC 459], State of Haryana v. Ram Kumar Mann [(1997) 1 SCC 35],Faridabad CT Scan Centre v. D.G. Health Services and others [(1997) 7 SCC 752], Style (Dress Land) v. Union Territory, Chandigarh and another[(1999) 7 SCC 89] and State of Bihar and others v. Kameshwar Prasad Singh and another[(2000) 9 SCC 94],Union of India and another v. International Trading Co. and another{(2003) 5 SCC 437] and Directorate of Film Festivals and others v. Gaurav Ashwin Jain and others [(2007) 4 SCC 737}."
(emphasis added) The Hon'ble Court failed to see how equality/ precedent can be attracted in cases where wrong orders are issued in favour of others.
For the said reasons I find that the submissions made by the Appellant -
fails.
27. Judgments cited by rival parties and their analysis Coming to the Judgements cited by the appellant. The cases in favour of and against the impugned order are stated below.
d.
(i)
(ii)
(iii)
(iv)
(v) Case laws cited by the appellant: -
Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India and Anr. - 2018 (3) TMI 35/7 Commissioner of CGST, Mumbai Vs. Vantage International Management Company - 2021 (87) GSTR 358 Greatship (India) Ltd. Vs. Commissioner of CGST and Central Excise, Mumbai Central - 2021 (9) TMI 1173 SBI Life Insurance Vs. Principal Commissioner of CGST --- 2022 (7) TMI 457 Principal Commissioner of CGST, Delhi South Vs. Boeing India Defense Pvt. Ltd. = 2023 (5) TMI 523 L 74 | $T/41909 -- 41911/2017
(vi) Commissioner of CE & ST, LTU, Chennai Vs Neyveli Lignite Corporation Ltd (NLC) [2023-VIL 500 CESTAT CHE CHE-ST] b. Case laws cited by the Respondent-Revenue:-
(vii) Commissioner of Central Excise, Bangalore Vs. Northern Operating Systems Pvt. Ltd. -- 2022 (5) TMI 967 -- Supreme Court |
(viii) Renault Nissan Automotive India Pvt. Ltd. Vs. Commissioner of CGST & Central Excise - 2023 (7) TMI 635 - CESTAT, Chennai.
(ix) Dell International Services India Pvt. Ltd. Vs. Commissioner of Central Excise, Bangalore ~ 2023 (2) TMI 183 - CESTAT Bangalore
(x) M/s Chemplast Sanmar Ltd [2023 (7) TMI 482 - CESTAT Chennai] 27.1 I find that it is an accepted principle that it is neither desirable nor permissible to pick out a word or a sentence from a judgment divorced from the context of the question under consideration and treat.
it to be complete law. Each contract has to be understood in the terms set out therein. As stated earlier the issue regarding including reimbursable costs was examined by a three Judge Bench of Hon'ble Supreme Court's in Northern Operating System (supra). The two Judge Bench judgment in Intercontinental Consultants and Technocrats Pvt. Ltd was brought to the Hon'ble courts notice. However, the Hon'ble Court applied the test of substance over form and held revenue's appeals for including pay, allowances and perks of the secondee in the assessable value, to succeed and the assessee was held liable to pay service tax. Judgments at SI. No (ii) to (iv) above have been discussed earlier and have been distinguished. The judgment in the case of L 75 ST/41909 -- 41911/2017 Neyveli Lignite Corporation Ltd (NLC) was rendered in the peculiar facts of the case where NLC was under a Joint Venture with the Electricity Board. As per the facts of the case NLC brought its own staff into the new Joint Venture Project and from 30/03/2011 paid salary and wages directly to their own staff who were on their own pay rolls and is hence distinguished.
27.2 Revenue has relied on the above judgments listed at (vii) to (x). The judgment in Northern Operating Systems has already been discussed and found in favour of Revenue in this case. The judgment of the Coordinate Bench of this Tribunal in Renault Nissan Automotive India Pvt. Ltd. cited by Revenue, relates to a case where the appellant in that case entered into a secondment agreement with Nissan Motor Co Ltd Japan (the same manpower supplier as in this case), which are nearly identical with that in the present case. After examining the relevant Supreme Court judgments the Coordinate Bench held that service tax was payable on the Manpower Supply Services. Judicial discipline requires that we follow the said judgment. The fact that the Neyveli Lignite Judgment (supra) was not brought to the notice of the Bench was of no consequence as the Neyveli Lignite Judgment was delivered in the peculiar facts of that case and moreover did not concern a foreign man power supplier and the main case of the appellant in this case relies on distinguishing the payments made abroad and in India. Whereas in the impugned case the overseas manpower supplier is the same as that of 'Renault Nissan Automotive (supra) and the agreement and issues are near identical.
27.3 It is seen that all the judgement of the Tribunal referred to by the Appellant are bound by the law as declared by the Hon'ble Supreme L 76 ST/41909 -- 41911/2017 Court in Northern Operations Ltd. (supra) regarding taxability of secondee's supplied by overseas manpower suppliers. The said judgment is a precedent for what is held and not for what could be inferred. Inferring that the judgment is based on the fact that the appellant in that case paid for the services in foreign currency is not correct. No such declaration has been made in the judgement and a passing one-line reference to the fact regarding payments for the service being made in foreign currency cannot be torn and used to label the entire transaction. It was also seen that the judgement was rendered after examining the judgment in Intercontinental Consultants and Technocrats and hence its ratio has to be followed in this case.
27.4 I find that the true ratio of each judgment cited before us, is an authority in the setting of its own facts. None can serve as a precedent, for this case without advertence to the identical nature of facts. Hence Judicial discipline would require one to rely on the Supreme Court's judgment in Northern Operations (supra) which is specific to the point in the impugned dispute, apart from that of the Coordinate Bench of this Tribunal in Renault Nissan Automotive India Pvt. Ltd. (supra) which deals with the same supplier of manpower and on similar terms. 27.5 It has been held by the Apex Court in its judgment in the case of Collector of Central Excise, Calcutta v.. M/s. Alnoori Tobacco Products and Anr. [Civil Appeal Nos.4502-4503 of 1998 decided on 21-7-2004].
"10. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
11.The following words of Lord Denning in the matter of applying precedents have become locus classicus:77
ST/41909 -- 41911/2017 "Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive."
5 KOK OK KOK OK "Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you wil! find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it."
The said judgment has been approved and repeated by the Apex Court in a number of cases [see Escorts Ltd Vs CCE, Delhi-II, 2004 (173) ELT 113 (SC); Union of India_& Anr. Vs Major Bahadur Singh, (2006) 1 SCC 368].
28. LIhence do not find any of the judgements cited by the Appellant, applicable on all fours to the facts of this case to have precedential value and are hence distinguished. |
29. There is no suppression of fact, hence extended time cannot be invoked or penalty imposed.
30. I find that the issue regarding Manpower Supply Services relating to overseas suppliers, unlike supply of manpower where both supplier and recipient of service are within the taxable territory, has been a complex one and has found clarity after the judgment of the Hon'ble Supreme court in Northern Operating Systems (P) Ltd (supra) decided on 19/05/2022, where the demand pertains to the earlier period. In such a situation suppression of facts with an intention to evade duty is not established and cannot be alleged on the Appellant and the demand is to be limited to the normal period. I hence agree with the Appellant L 78 ST/41909 -- 41911/2017 that invocation of extended period and imposition of penalty in the impugned situation is not justified. It is also clarified that interest on delayed payments in the normal period is necessarily linked to the duty payable, such liability arises automatically by operation of law. As per the Hon'ble Supreme Court's judgment in Commissioner of Central Excise, Pune Vs M/s SKF India [2009-TIOL-82-SC-CX] interest is to be paid on delayed or deferred payment of duty for whatever reasons. Hence interest if any on duty demanded during the normal period needs to be paid.
31. Summary For the sake of clarity and completeness, I have briefly summarised my position in relation to the issues raised in the appea!:
A. An agreement enforceable by law is a contract. Since the definition of consideration in a special act like FA 1944 is an 'inclusive' one, it would be beneficial to look at the definition of the said term under the Indian Contract Act, 1872 also.
B. Any amount that is paid or payable to the secondee's /-- deputationist for his service, if paid or payable directly or indirectly, only represents the consideration for the taxable service provided or to be provided by the overseas manpower supply service provider as per the Agreement. Since if this entire amount is not paid the deputation / secondment would not have taken place and the Agreement would not be operable.
C. The Apex court in M/s. Bhayana Builders Pvt. ttd. (supra) has clarified that the word "gross" indicates that it is the total amount charged in the agreement / contract without deduction. of any L 79 ST/41909 ~ 41911/2017 expenses, the Department cannot go beyond the contract value. The impugned order is not violative of this directive.
D. In M/s. Bhayana Builders Pvt. Ltd. (supra) it has also been explained by the Apex Court that by the use of the word "charged", i is clear that the same refers to the amount billed by the service provider to the service receiver. The judgment states that the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider i.e. to the machinery provisions of law.
E. The term 'billed' has to be understood in terms of the Agreement entered into by the Appellant with the overseas manpower supplier. Hence by full filling the conditions of the Agreement the full salary gets paid as consideration and is as 'charged' by the overseas supplier. Service tax thus gets attracted. The arrangements made by the parties to the contract towards payment of the secondees pay, bonus and allowances, do not obliterate the fact of the gross amount being charged by Nissan from the Appellant as per the Agreement.
F. As far as the Appellant is concerned the true nature of the gross amount charged by Nissan cannot be taken as that of 'salary' etc paid to the secondee but only as a payment of consideration in fulfillment of the conditions of the Agreement reflecting the desire of Nissan Japan. The mode of the Appellant paying the consideration by splitting it as per the desire of Nissan must not be confused with the payment of salary of the secondee who is on the pay roll of Nissan. This view finds strength from the observations of the Apex Court in Northern Operating Systems (supra) that the assessee paid (through \ 80 ST/41909 -- 41911/2017 Operating Systems (supra) that the assessee paid (through reimbursement) the amounts 'equivalent to the salaries' of the seconded employees.
G. The consideration is agreed upon by Nissan and the Appellant to compensate Nissan for maintaining the secondee / deputed employees on its payroll, which is a financial burden to Nissan and the cost of which is incurred by them.
H. The principle of equivalence is in-built into the concept of service © tax and the colour or name of the currency or the formula / route adopted for making / paying the consideration, cannot change the nature and substance of the consideration.
I, The issue regarding including reimbursable costs was examined by the Hon'ble Supreme Court (3 Judge Bench) in Northern Operating System (supra) when the judgment in Intercontinental Consultants and Technocrats Pvt. Ltd (2 Judge Bench) (supra) was brought to the Hon'ble courts notice. It was submitted by the assessee that, the demand of the service tax was being computed on the salaries and allowances paid to the employees. That any cost or expense reimbursed does not represent the gross value of taxable service and cannot be a consideration for charging service tax. This view did not find favour with the Hon'ble Supreme Court. | j. The paramount test of understanding an Agreements 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 is foreign currency and separate rights for payment in Indian Rupees. If there was no such intention, then in this y case the Agreement was an indivisible contract.
$1 S7/41909 -- 41911/2017 K. The consideration paid by the Appellant to the overseas supplier was a part of a consolidated package which he has no power to change and if any part was varied, the service provider could sue him for breach of Agreement. As per the conditions of the Agreement Nissan should instruct the secondee to carry out the work specified. In the situation the secondee was unlikely to be asked to join the work in India and the Agreement itself was likely to be shelved. Hence no separate rights were intended based on the currency or mode of payment. That the consideration is split and paid as salary of the secondee as per the formula and desire of the overseas service _provider does not affect the nature of the payment. The taxing authorities cannot ignore the legal character of the consideration.
L. Services of the secondee cannot be vivisected and held to be rendered in parts, dehors the Agreement. To hold otherwise would be to treat equal payments made towards the salary of a secondee by the overseas supplier and the Appellant as per an indivisible contract unequal only because one part of the payment is in foreign currency and the other part of the payment is in Indian Rupees.
M. Once payments / debits in the books of accounts are made, whether for payments in India or abroad, in Indian currency or foreign currency, the dates of such action are payments made to Nissan in furtherance of the Agreement and determines the POT as per Rule 7 of the POTR. | N. ° As per this provision of RCM all payments made by the receiver of service, who is deemed to be the provider of service, towards the salary and advances of the secondee (both in Indian and foreign \ 82 ST/41909 -- 41911/2017 currency) would form a part of the assessable value on which duty has to be levied.
OQ. The Appeliant is seen to fail the 'test', as suggested by them for establishing their relationship to the secondee as are of employer- employee.
P. As per the Judgment of the Supreme Court in Jain Bros. & Others (supra), the Constitution does not contain any prohibition against double taxation and there can be double taxation if the legislature has distinctly enacted it. No such provision has been brought to notice regarding TDS. In the normal course TDS cannot be held to be a 'consideration' for the service unless specifically mandated/ deemed by law. Hence in case such amounts have entered into the calculation of value the same should be deleted and duty reworked.
Q. If an illegality or irregularity has been committed in favour of any individual or a group of individuals or a wrong order has been passed by a judicial forum, others cannot invoke the jurisdiction of the higher or superior Court for repeating or multiplying the same irregularity or illegality or for passing wrong order.
R. It is an accepted principle that it is neither desirable nor permissible to pick out a word or a sentence from a judgment divorced from the context of the question under consideration and treat it to be complete law.
S. Judicial discipline would require one to' rely on the Supreme Court's judgment in Northern Operations (supra) which is more specific L to the point in the impugned dispute.83
§$1/41909 -- 41911/2017 T. The issue regarding Manpower Supply Services relating to overseas suppliers, unlike supply of manpower where both supplier and recipient of service are within the taxable territory, has been a complex one and has found clarity after the judgment of the Hon'ble Supreme court. in Northern Operating Systems (P) Ltd (supra). Hence the invocation of extended period and imposition of penalty in the impugned situation is not justified.
32. Based on the discussions above, I find that the impugned order merits to be upheld, and is so ordered, except for the following modifications.
i) The demand is to be limited to the normal period.
ii) Penalties are set aside.
ii) If amounts deducted towards TDS have entered into the calculation for demanding duty, the same should be deleted and duty reworked for the normal period and intimated to the Appeliant.
33, The appeal is disposed of on the above terms.
(M,. Ajit Kumar) Membér (Technical) Rex Sty aul AOQGe Hite peer | B84 In view of the difference of opinion between the Members, the following question are framed for resolution :
POINTS OF DIFFERENCE PUINIS VP bea sss (1) | Whether r part of salary / emoluments paid by appellant to a secondees in India in Indian: RUpees | will form part 'of consideration ; as under Section 67 of Finance Act,. 1994 for the services of MRSA : 'provided: by N Nissan Japan to appellant.
(2) -Whether- payments of part of salary to secondees in indian | currency will form part of * 'gross amount charged' for arriving at.the wpe OY So taxable value.3
(pronounced in court on Ws 2+ 707") (SULEKHA. (BEEVI SEVI CS.) MEMBER QUDICIAL gs ao ST/41909-41911/2017 PER: S.S. GARG
34. The difference on the following issues recorded in terms of two separate orders passed by two Members of the original Division Bench, has been placed before me to give my opinion as a Third Member:
(i} Whether part of salary/emoluments paid by the 'appellant to secondees in India on Indian Rupees will form part of consideration as under Section 67 of the Finance Act, 1994 for the services of MRSA provided by Nissan Japan to the appellant.
or _ (ii), Whether payments of part of salary to secondees in Indian Rupees will form part of 'gross amount charged' for arriving at the taxable value.
35, Heard the Id. Counsel for the appellant as well as the Special Counsel for the Revenue on the above stated points and also perused the respective opinions recorded by both the ld.
'Members.
36. Though the facts of the case have already been recorded by | the Members of the Original Bench, therefore, I shall not repeat the entire facts. But briefly issues involved are that the appellant who_ is engaged in the business of sales, marketing and distribution of automobile products dealt by Nissan Group entities. The appellant employed certain expatriates to whom. salaries, bonus and Fory 36 $¥/41909-41911/2017 allowances were paid directly in India. In addition, certain reimbursements of social welfare cost incurred by NML were made.
Due service tax was discharged on such reimbursements made to NML and the only issue involved is weather the Salary, bonus, allowances and expenses paid by the appellant directly to the secondees in India, constitute part of the consideration paid to NML towards the secondment arrangement, includible in the assessable ~ value of services received from NML. The department entertained the view that expatriate employees provide service on contract basis to an associate company of the employer and therefore, the activity of supplying employees to the appellant's unit would fall under Manpower Recruitment or Supply Agency (MRSA) service. It appeared to the department that the deputation of foreign expatriates by Nissan Japan to the appellant's unit would fall under the import of service of MRSA; hence, the appellant is liable to pay service tax under Reverse Charge Mechanism (RCM) under Section 66A and Section 68 of the Finance Act, 1994 read with Place of Provision of Service Rules, 2012. The appellant while paying the service tax under MRSA did not include the salary and allowances paid in Indian Currency to the deputed employees. The department was of the view that the appellant had to discharge the service tax on the entire remuneration and not on that part of salary i.e. borne by Nissan Japan and reimbursed by the appellant.
37. Both the sides have filed their written submissions along ' with the judgments relied upon by them in Support of their by et $T/41909-41911/2017-.
submissions. The submissions of the Id. Counsel for the appellant are reproduced/summarized in para 3 to para 3.21 of the Interim Order passed by the Member (Judicial) and the submissions of the Id. AR for the Revenue have been recorded in para 4 to 4.7 of the Interim Order. Besides the submissions recorded in the Interim Order, both the counsels have filed their written submissions also before me,.which have been taken on record.
38. Before dealing with the difference of opinions, let me firsts state the issues on which both the Members have concurred, which are as follows:
(i) Demand of service tax on salary and perquisites along with consequential levy of interest as per Section 75 of the Finance Act, 1994 Shall be limited to normal period of limitation and extended period cannot be invoked (refer para 6.19 of the Interim Order).
(ii) Penalties imposed under Sections 76 and 78 of the Finance Act, 1994 ought to be dropped (refer para 9 and para 30 of the Interim Order). |
(iii) Demand of service tax on income tax TDS to be reduced from _ the total demand as they cannot be held as consideration for the services (refer para 25 of the Interim Order).
39.1 The learned Counsel for the appellant has summarized the views of both the Members on the issues of difference in a bog tabulated form as under:
Qe $T/41909-41911/2017 No. Points of difference Brief view of the Member (J) Brief view of the Member (T) Whether part of the salary / emoluments paid to secondees in India in Indian Rupees will form part of consideration under Section 67 of the Finance Act f1994 for the services of MRSA provided by Nissan Japan to the appellant.
The Member (J) observed that only such expenses and costs charged by the service provider can be included in the taxable value as.
per Section 67 of the Finance' Act.
Therefore, -- costs not charged by the appellant to Nissan Japan cannot be subject to service tax. (para 6.16 of the Interim Order) The Member (T) held Salary payments to secondees will form part of consideration as payments made to secondees is only an arrangement for paying the consideration as per the desire and behalf of Nissan.
(para 20.4 of the Interim Order) Whether payments of part of the salary to secondees in Indian Rupees will form part of 'gross = amount charged' for arriving the taxable value.
The Member (J) held. that as the salary paid to secondees by the appellant were not charged the same cannot be included in taxable value.
(para 6.19 of the Interim Order) The Member (T) held that- the -
salary, bonus and other emoluments paid to seconded employees form part of gross amount charged because if the gross amount is © not agreed to be paid then the deputation would not have taken place. (para 19.5 and para 19.6 of the Interim Order) 39.2. The Id. Counsel for the appellant further refers to the key findings of the Id. Member (J) which are recorded in para 6.6 of the Interim Order, which precisely elucidates the question under dispute before the Tribunal. He further referred to para 6.11 of the Interim Order wherein the Id. Member (J) has held that the proviso dee $1T/41909-41911/2017 to clause (ii) of Section 67(1) of the Finance Act, 1994 envisages a levy on the 'gross amount charged' and that the salaries and emoluments paid to secondees in India were paid by the appellant on their own, and not charged by NML, the service provider.
39.3 He places reliance on the decisions of the Tribunal in the cases of M/s Nayveli Lignite Corporation [Final Order No.
-40215/2023] and M/s Boeing India Defense Private Limited [Final Order No. 50638-50639/2023], which were also cited by the Id. Member (J) at para 6.12 to 6.14 of the Interim Order; the Id. Member (J) has concluded that the facts in the appellant's case are identical to those in the cases cited supra and adjudged that the ratio decidendi therein squarely applies to the appellant's case in as much as no demand of tax ought to be made on the salaries:
and emoluments paid directly to the secondees by the appellant.
39.4 He further submits that the Member (J) has also relied upon the decisions of the Tribunal in the cases of Commr of CGST vs. Vantage International Management Company - 2021 (2) TMI 564 CESTAT MUMBAI, Greatship India Ltd vs. Commr of CGST (and vice versa) --~ 2021 (9) TMI 1173 CESTAT MUMBAI and SBI Life Insurance Co. Ltd vs. Commr of CGST. - 2022 (7) TMI 457 CESTAT MUMBAI, wherein it has been-held that only such expenses and costs charged by the service provider can be included in the taxable value, and hence the salaries and emoluments directly paid by the appellant and not charged by NML, fp cannot be brought to tax.
qo $1/41909-41911/2017 39.5 He also refers to the ruling of the co-ordinate bench of the - Tribunal in. the case of Renault Nissan Automotive India Pvt Ltd vs. Commr of CGST - [FINAL ORDER NO. 40436/ 2023 dt.
- 15.06.2023 CESTAT CHENNAI]. The Id. Member (J) also cited this ruling in her findings and held that the said ruling does not specifically discuss the issue as to valuation and also observed that the said decision is per incuriam.
39.6 The Id. Counsel for the appellant further submits that the view taken by the Member (T) is erroneous as he has travelled beyond the scope of show cause notice and Order-in-Original. He also submits that it is a settled law that the department cannot travel beyond the show cause notice and cannot set up a case which is not in the show cause notice. He also submits that the Member (T) at para 19 of the Interim Order has completely overlooked the employment agreement between the appellant and the secondees.
39.7 He further submits that the Member (T) fails to distinguish between a condition to the contract and consideration for the contract. He has relied on the decision of the Tribunal in the case of Shiv Vilas Resorts P. Ltd. vs. Commr of CGST -- 2023 (12) TMI 1006 CESTAT NEW DELHI wherein the Tribunal has distinguished between condition of the contract and consideration for the contract.
cary 91 $T/41909-41911/2017 39.8 He further submits that it is undisputed that the salaries _ paid to the secondees were neither charged on the appellant by NML, nor is the amount under the employment agreement payable at all to NML. Therefore, no tax can be demanded on the payments made directly to the secondees by the appellant.
39.9 He further submits that under the scheme of Reverse Charge Mechanism, the appellant wishes to highlight that only such of those taxable services are sought to be taxed in the hands of the service receiver by Notification No. 30/2012-ST dated 20.06.2012 which are "provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory."
39.10 He further submits that the decision of the Hon'ble Apex Court in the case of CC, CE & ST vs. Northern Operating | Systems (P) Ltd - [2022 SCC Online SC 658] which has been heavily relied upon by the Member (T) is not. applicable in the facts of the present case and is distinguishable on the ground that the employment agreement between the appellant and the secondees which is the genesis of the salaries and emoluments paid to. the secondees existed prior to the ruling of the Hon'ble Apex Court in 'the said case. The fact that the appellant always discharged due tax under RCM on all reimbursements made to NML, stand testimony to the bona fide of the appellant's intentions.
sep 92 $1/41909-41911/2017 39.11 He further submits that the emoluments paid to the seconded employees in Indian Currency were never charged by NML on the appellant and therefore, cannot form part of consideration for any taxable services rendered by NML to the ~ appellant.
39.12 He further submits that the Member (T) has observed that the rulings in the cases of Vantage International Management Company (supra), Greatship India Ltd (supra) and SBI Life Insurance Co. Ltd (supra) have limited precedential value since they are not in the context of Manpower Supply Services and do. not consider the ruling of the Hon'ble Apex Court in Northern Operating Systems (P) Ltd 's case.
39.13 He further submits that the Member (T) at para 20.9 of the Interim Order falsely presumes that the amounts paid directly to the secondees by the appellant were 'billed' in Indian Currency and therefore, proceeds to invoke provisions of the Point of Taxation Rules. In this regard, the appellant reiterates that it is an undisputed fact that such salaries and emoluments paid to the secondees were neither billed/charged by NML on the appellant nor paid by the appellant to NML. Hence, when the entire emoluments were paid through the payrolls of the appellant, the demand of tax on such payments ought to be dropped.
39.14 He further submits that the Member (T) has disregarded the precedential value in the case of M/s Boeing India Defense 'ry.
935T/41909-41911/2017 Private Limited (supra) by merely citing that no discussion on the decision in the case of Northern Operating Systems (P) Ltd (supra) was made in the said ruling. He further submits that the said ruling was appealed by the Revenue before the Hon'ble Apex Court, which dismissed the appeal and upheld the decision of the Tribunal on non-taxability of payments made directly to the employees.
39.15 He further submits that the Member (T) has not accepted the relationship between the appellant and the secondees as employer-empioyee relationship on the basis of employment contract. He also submits that the Member (T) has not accepted the submissions of the appellant regarding the joint-employment of the secondees by NML and the appellant and also turned down the submissions of the appellant that NML can be considered as intermediary.
39.16 He further submits that the Member (T) at para 27.2 has cited the ruling of the co-ordinate bench of the Tribunal in the case Of appellant's sister concern Renault Nissan Automotive India Private Limited to uphold the demands raised on the appellant. Whereas, the Member (J) has held that: the said decision in the "case of Renault Nissan Automotive India Private Limited is per incuriam as the said decision was rendered without considering the subsequent decisions of the Hon'ble Apex Court in Neyveli Lignite Corporation (supra) and Boeing India Defense (supra).
ort G4 $T/41909-41911/2017 40.1 On the other hand, the learned Special Counsel (AR) for the Revenue supports the view expressed by the Id. Member (T) and submits that the Member (T) has considered the agreement entered into between the appellant. and NML and perusal of those terms and conditions of the agreement clearly bring out that the © secondees are employees of NML and the salaries of the secondees will be decided by the Nissan during the period of deputation in India. Further, the bonus and allowances Shall be paid to the. secondees as per the applicable laws and policies of Nissan and the Host Company.
40.2 He further submits that the nature and substance of the agreement is with regard to a proposal for deputation/supply of secondees to the appellant made by Nissan and sets the terms and conditions for the same. The quid-pro-quo: for the secondment agreement, where the appellant has the benefit of experts for limited 'periods is implicit in the overall scheme of things. Any amount that is payable to the overseas supplier of manpower for taxable service, if aid or payable directly or indirectly to the secondees at the behest of the both the overseas supplier and the reimbursable plus the appellant represents the gross consideration. This is agreed consideration and if there is any breach or non-:
performance, the parties to the contract could sue the other for da mages.
40.3. He further submits that the Member (T) at para 19 of the Interim Order has examined "what is consideration and gross Sy 95 $T/41909-41911/2017 amount charged". The Member (T) at para 19.7 of the Interim | Order has also cited the judgment of Hon'ble Apex Court in the case of CST vs. Bhayana Builders Pvt Ltd ~ 2018 (10) GSTL 118 (SC), wherein he has examined the phrase 'the gross amount charged by the service provider for such service provided or to be provided by him' as per Section 67 of the Finance Act, 1994.
40.4 He further submits that it is clear from the agreement that Nissan dictates the terms of employment of the deputed employees to the appellant and the appellant has no discretion to vary the terms of employing the deputed employees.
40.5 He further submits that the decision of the Hon'ble. Apex Court in the case of Northern Operating Systems (P) Ltd (supra) is applicable in the present case also.
40.6 He also submits that the Member (T) has agreed that in the normal course TDS cannot be held to be a 'consideration' for the services and hence, such amount should be deleted and duty reworked.
40.7 He also submits that the Member (T) has summarized his findings at para 31 of the Interim Order wherein he has again cited the decision of Hon'ble Supreme Court in 'the case of Bhayana Builders Pvt Ltd (supra), which has clarified that the word "gross", indicates that it is the total amount charged in the agreement/contract without deduction : of any expenses; the dyeey--
96§1/41909-41911/2017 department cannot go beyond the contract value. It has also been . explained in the case of Bhayana Builders Pvt Ltd (supra) that the word "charged" refers to the amount billed by the service provider to the service receiver. The said judgment states that the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of payment or book adjustment by which the consideration can be discharged by the service recipient to the service provider i.e. to the machinery provision of law.
40.8 He further submits that the Member (T)'s decision is based on the decision of Hon'ble Supreme Court in the case of Northern Operating Systems (P) Ltd (supra) and the decision of the co- ordinate bench in the case of Renault Nissan Automotive India Private Limited (supra), sister concern of the appellant. Hence, the Member (T)'s decision is legal and based on the correct legal position and should be upheld. ©
41. I have considered the submissions made by both the parties and also perused the views expressed by both the Id. Members in the Interim Order dt. 11.12.2023.
42. It is a fact that on certain issues, there are concurrences between the two Members regarding the fact that extended period:
of limitation cannot be invoked in the present case and the penalties under Sections 76 & 78 of the Finance Act, 1994 ought to be dropped; and also the demand of service tax on income tax TDS iy $1/41909-41911/2017 is to be reduced from the total demand as they cannot be held as consideration for the services.
43. Further, I find that the ld. Member (J) has observed at para 6.16 of the Interim Order that only such expenses: and costs charged by the service provider can be included in the taxable value as per Section 67 of the Finance Act and therefore the costs not charged by the appellant to Nissan Japan cannot be subject to service tax; whereas, the Id. Member (T) has observed at para 20.4 of the Interim Order that salary payments to secondees will form part of consideration as payments made to secondees is only an arrangement for paying the consideration as per desire and on behalf of Nissan. Though, both the Id. Members have examined the various clauses of Section 67 of the Finance Act, 1994, which envisages a levy on the 'gross amount charged' and the judgments of Hon'ble Supreme Court in the case of Bhayana Builders Pvt Ltd (supra) and also in the case of Northern Operating Systems (P)} Ltd (supra).
44. I also find that the Id. Member (T) has elaborately dealt with the concept of consideration as defined in the Contract Act, 1872 _ and the gross amount charged which is paid by the appellant to Nissan for supply of manpower services. It is pertinent to reproduce the said findings of the Id. Member (T) from para 19.6 to para 19.12, which are reproduced herein below:
"19.6 With the above understanding under the Contract Act, the issue can be examined under FA 1994. Section 67 of the dm 98 $1/41909-41911/2017 finance act, 1994 has an inclusive definition of the term consideration. Section 67(4)(a) during the relevant time stated that consideration includes any amount that is payable for the taxable services provided or to be provided. Therefore, the following elements must be present to constitute a valid consideration, namely:
(i) any amount
(ii) that is payable
(iii) for the taxable services
(iv) provided or to be provided The nature and substance of the Agreement is with regard to a@ proposal for deputation / supply of secondees to the Appellant made by Nissan and sets the terms and conditions for the same. The quid-pro-quo for the secondment agreement, (as mentioned in Northern Operating System (supra)), where the appellant has the benefit of experts for limited periods, is implicit in the overall.scheme of things.
Hence, as rightly pointed out by the learned AR, any amount that is payable to the overseas supplier of manpower for the taxable service, if paid or payable directly or indirectly to the secondee at the behest of the supplier i.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.
19.7 The judgment of the Apex Court in Commissioner of Service Tax Etc. Vs. M/s. Bhayana Builders Pvt. Ltd. [2018 (10) GSTL 118 (SC)] has examined the phrase 'the gross amount charged by the service provider for such service dp 99 $1/41909-41911/2017 provided or to be provided by him', as per Section 67 of FA 1994, The relevant portion is reproduced below:
"12. On a reading of the above definition, it is Clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients:
a. Service tax is payable on the gross amount charged:- the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount -charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable.
b. The amount charged should be for "for such service provided": Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to. be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged -- and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined"
2K KOK oR OK SE KOK sho diptt 400 $1/41909-41911/2017
16. In fact, the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. (emphasis added) The Apex court has hence clarified that the word "gross" indicates that it is the total amount charged in the agreement / contract without deduction of any expenses, the Department cannot go beyond the contract value. The stand taken above is in conformity with the judgment. Hence consideration is the gross amount paid to the secondees as salary etc at the behest of Nissan, for the purpose of valuation of the taxable services rendered by the oversea supplier. The issue relating to the term "charged" as explained in the above judgment will be discussed next.
19(b). Whether the consideration paid by the appellant is 'charged' by Nissan on the Appellant.
19.8 Section 67(1)(i) uses the words 'gross amount charged "and is reproduced for clarity:
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shalf--
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (emphasis
- added) 19.9 In Bhayana Builders Pvt. Ltd. (supra) it has been explained that in fact, the definition of "gross amount charged" only provides for the modes of the payment or book adjustments by which the consideration can be by 401 ST/41909-41911/2017 discharged by the service recipient to the service provider. It was held that by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. I find that the impugned agreement / contract between parties is a contract in the realm of private law. The term 'billed' has to be understood in terms of the Agreement entered into by the Appellant with the overseas manpower supplier and is examined at para 20.9 below. Further the judgment states that any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. In this case, aS wilf be seen, the gross amount charged has clear nexus with the taxable service and is a consideration for the service provided and hence becomes a part of the value Which is taxable under Section 67.
19.10 It is the Appellants contention that the amount paid by the Appellant directly to the seconded employees in Indian Currency is not 'charged' by Nissan on the appellant -- and hence will not form part of the assessable value. This is a play of semantics. It is seen from the section reproduced above that the gross amount charged by the service provider is in the context of such service provided or to be provided by him. As stated by the Apex Court in Northern Operating Systems (supra), 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. A look at the secondee Agreement shows that the appellant company has accepted the promise of. Nissan for services of skilled employees on payment of the gross amount charged by Nissan as per certain conditions including a split formula to be decided by WNissan, for payment of salary. However as per the desire of Nissan, the consideration. equal to salary to the deputed employees is to be paid partly by the Appellant and partly by Nissan while the secondee remains on the rolls of Nissan. The portion be 4102 ST/41909-41911/2017 paid by Nissan is reimbursed by the Appellant to Nissan in foreign currency. During the period of deputation of the secondee in India, the entire salary, including the home country salary and host country salary of the secondee shall be paid by the Host Co. (Appellant). A clause of the Agreement states that the contribution to the Japanese social security systern will be borne by Nissan of the deputed employees. The contribution to the Indian social security system will be borne by the Appellant company. The Agreement also states that Nissan will have complete discretion over salary, bonus and allowances, to be paid to the deputed employees. Nissan has lien over the deputed employees. It is clear from the agreement that Nissan dictates the terms of employment, of the deputed employees to the appellant. The appellant has no discretion to vary the terms of employing the deputed employees. Hence by full filling the conditions of the Agreement and making payment / debiting the books of account to pay the secondee his. full salary, bonus and allowances as per the gross amount 'charged' by the overseas supplier i.e. Nissan, service tax gets attracted.
419.11 The conclusion above is an.echo of the Supreme Court's judgment in Northern Operating Systerns (supra) Which 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 py 103 $1/41909-41911/2017 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. (emphasis in italics as per original. Portion underlined by me) 19.12 This reinforces the view that the consideration as per the Agreement for using the services of the secondee ( beneficiary of the consideration) consists of the payment of the full amount of salary, bonus and allowances i.e, both in foreign currency and in Indian Rupees as per the desire of the supplier. The two consequences, pointed out by the Hon'ble Court above, due to the obligation of the overseas employer to maintain the secondee on its payroll, shows that fhe consideration is agreed upon by Nissan and _ the Appellant to compensate Nissan for maintaining the' secondee / deputed employees on its payroll, which is a financial burden to Nissan and the cost of which is incurred _ by them.-As stated earlier the appellant has acquiesced to paying tax on the payments made by Nissan to the secondee abroad as a part of the Agreement. The principle of equivalence is in-built into the concept of service tax and. the different colour or name of the currency or the formula / route adopted for making / paying the agreed consideration to the overseas service provider, cannot change its nature .
and substance. Hence the appellants plea does not succeed."
45. Further, I find that the ld. Member (T) has also discussed in details as to whether reimbursable charges are to be included in the value on which tax is collected during the relevant time. The Id.
dry
104. ST/41909-41911/2017 Member (T) has also considered the judgments of Hon'ble Supreme Court in the case of Bhayana Builders Pvt Ltd (supra) as well as Northern Operating Systems (P) Ltd (supra); thereafter, in para 20.8, he has observed as under:
"20.8 I find that the consideration paid by the Appellant to the overseas supplier was a part of a consolidated 'package which he has no power to change and if any part was varied, the service provider could sue him for breach of Agreement. As per the conditions of the Agreement Nissan should instruct the secondee to carry out the work specified, In the situation the secondee was unlikely to be asked to jain the work in India and the Agreement itself was likely to be shelved. Hence no separate rights were intended based on the currency or mode of payment. That the consideration is split and paid as salary of the secondee as per the formula and desire of the overseas service provider does not: affect the nature of the payment. The taxing authorities cannot ignore the legal character of the consideration. Hence, the entire salary, bonus and allowances including its foreign and Indian component has to be taken as the gross amount charged for providing 'such' taxable services and representing the consideration for the service of the secondee and no deduction can be given for renewable charges, if any."
46. As regards the employer-employee relationship as- claimed by the appellant, Id. Member (T) has examined this issue in details _ keeping in view the terms and conditions of the agreement and has held that the appellant has failed to prove the relationship of employer and employee in the present case.
47. As regards the submission of the appellant that Nissan is an intermediary and not liable to pay service tax as per Place of Provision of Service Rules, the Id. Member (T) has also examined this issue and has negated the same. The ld. Member (T) has also distinguished the judgments relied upon by the appellant. The Id.
arp 4.05 $1/41909-41911/2017 Member (T) has heavily relied on the judgment of the co-ordinate bench of the Tribunal in the case of Renault Nissan Automotive India Private Limited (supra), which relates to sister concern of the appellant and the appellant in that case entered into secondment agreement with Nissan Japan (the same manpower Supplier as in the instant case), which is merely identical with that in the present case. After examining the relevant decisions of the Hon'ble Supreme Court, the co-ordinate bench in the case of Renault Nissan Automotive India Private Limited (supra) held that the service tax was payable on manpower supply services. The _Id. Member (T)} has observed that judicial discipline required that we should follow the said decision.
48. Further, the Id. Member (T) has observed that the decision in the case. of Neyveli Lignite Corporation (supra) was not brought to the notice of the bench, was of no consequence as the Neyveli Lignite Corporation (supra)'s judgment was delivered in the peculiar facts of that case and moreover, did not concern. a foreign manpower supplier and the main case of the appellant in the case relies on distinguishing the payments made abroad and in India; whereas in the impugned case the overseas manpower supplier is the same as that of Renault Nissan Automotive India Private Limited's case and the agreement and issues are merely identical.
49, Since, the issue involved in the present case has also been considered by the division bench of Chennai Tribunal in the case of --
4 106ST/41909-41911/2047 Renault Nissan Automotive India Private Limited (supra) wherein the co-ordinate bench of this Tribunal has held that the assessee is liable to pay service tax on the salaries and allowances paid by the assessee in India under Section 67 of the Finance Act, 1994, therefore, it is pertinent to reproduce the relevant extracts of the findings of the co-ordinate bench, which are reproduced herein below:
"13.5.1 We have seen that in terms of the agreement between the parties, specifically Article 4, where 'salary, bonus and others' have been provided for, it is clear that it is for the appellant to pay the salary, bonus, perks, etc., to the secondees working for it in India, and there is also no dispute that the above clauses of the agreement are binding on both the parties. .
13.5.2 It is thus clear that what is paid is towards the cost incurred for making available the service which the appellant has received, Further, in terms of the definition under Section 67 ibid., 'consideration' would include any amount that is payable for the taxable services provided or to be provided and thus, in view of our discussions in the above paragraphs, there is no doubt in our. mind that what is.provided by M/s. NMC is nothing but manpower recruitment service. --
13.6.1 At this juncture, we deem it appropriate to refer to the decisions of the Hon'ble Apex Court in the cases of M/s. International Merchandising Company, LLC (supra) and M/s. Northern Operating Systems Pvt. Ltd. (supra).
13.6.2 In the decision in the case of M/s. International Merchandising Company, LLC (supra), the Hon'ble Apex Court has observed as under: -
"8. The Commissioner ruled that the consideration paid to FSE for appearance of VA for a sports fournament is taxable under the definition of "manpower recruitment or supply agency". The Commissioner observed that the source of supply of skilled manpower is outside India and has been received by the appellant in India. The Commissioner further ruled that any programme made by a programme producer and then offered for sale to different TV channels or broadcasters for relay is a taxable activity. The Commissioner concluded that (pt 104 ST/41909-41911/2017 the transaction made by the appellant with Zee Telefilms includes element of service and is taxable.
9. Aggrieved by the order of the Commissioner, the appellant lodged appeals before the Tribunal. The Tribunal by its judgment dated 29 May, 2020 held against the appellant. It observed that the services provided by FSE were in the nature of supplying, recruiting, and providing players. for sport events organized by the appellant. It held that such services will be covered under the definition of "manpower recruitment or supply agency" under Section 65(105)(k) read with Section 65(68) of the Finance Act, 1994. The Tribunal further relied upon the decision in Board of Controf for Cricket in India v. Commissioner [2015 (37) S.T.R. 785 (Tri. - Mum.)] to uphold. the order of the Commissioner imposing the demand of service tax under the category of programme producer services during the relevant period. The Tribunal did not accept the argument of the appellant that the Commissioner could not have invoked the extended period of limitation as the issues involved interpretation of legal provisions. On the issue of imposition of penalty on the appellant, the Tribunal directed the Commissioner to redetermine the amount of penalty in remand proceedings."
13.6.3 After hearing both sides, the Hon'ble Apex Court has observed as under; -
"14, While. analysing the rival submissions, it would be necessary to set out the essential ingredients of the definition contained in Section 65(68). The ' provision defines a "manpower recruitment or supply agency" to mean (i) any person engaged in providing any service; (ii) directly or indirectly; (iii) in any manner; (iv) for recruitment or supply of manpower;
(v) temporarily or otherwise; and (vi) to any other person. In other words, the definition encompasses a --
situation where a person is engaged in providing a -- service for the recruitment or supply of manpower to any other person. The definition incorporates a recruitment as well as a supply of manpower. The expression 'supply' is of a wider connotation than recruitment. Moreover, the width of the provision is abundantly clear by the use of the expressions "directly or indirectly®, "in any manner" and "temporarily or otherwise".
15. In the present case, there can be no manner of doubt that FSE, which is admittedly a company with a distinct legal identity, had an agreement with the appellant in terms of which the services of VA were to be provided. There was undoubtedly nothing on the record to indicate that VA was an employee of vad 103 ST/41909-41911/2017 FSE. The issue however is as to whether the definition which has been extracted earlier of
- "manpower recruitment or supply agency" must be constrained by a further requirement of the existence of an employer-employee relationship between the manpower supply agency and the person whose services are provided. Plainly, the definition does not incorporate such a requirement or condition.
V/. wu... But if does not postulate that such a relationship must exist for the statutory definition to be attracted. Hence, the fact that there may be no relationship of employment between VA and FSE
- would not be dispositive for the purposes of the statutory definition in Section 65(68). For the above reasons, we are of the view that the decision of the Tribunal on this aspect of the matter cannot be faulted with."
13.6.4 In the decision in the case of M/s. Northern Operating Systems Pvt. Ltd. (supra), which is decided by the Three- Judge Bench of the Hon'ble Supreme Court, the relevant observations of the Hon'ble Court are as under: -
"11. The CESTAT then, on an examination of the agreements, interpretation of documents on record (including the agreements entered by the respondent with its group company), held that the subject matter of the contract was not supply of manpower. The group companies were not engaged in supply of manpower. The CESTAT held that those seconded to the assessee working in the capacity of employees and receiving salaries by group companies were only for disbursement purposes. The employee-employer relationship existed and that the activity, therefore, could not be termed as "manpower recruitment and supply agency." It was 'held that the assessee obtained from its group companies directly or by transfer, service of expatriate employees who were paid salaries by the assessee in India, for which tax was deducted and paid to statutory benefits - such as provident fund. The assessee also remitted contributions to be paid toward social security and other benefits on account of the employees, under the laws applicable to the group companies abroad. In these circumstances, it was held that the overseas group companies which had contracted with the assessee were not in the business of supply of manpower and that the assessee was not a service recipient. On the strength of this reasoning, the assessee's appeals were allowed and the revenue's appeals were rejected,"
$1/41909-41911/2017 13.6.5 After hearing both sides and after going through the relevant documents, it has been observed by the Hon'ble Supreme Court, as under: -
"42. The assessee's contention before the CESTAT, inter alia, was that apart from it having control over the nature of work of the seconded employees, no consideration was charged by the foreign entities from it for providing the supply of manpower as the revenue alleged.
44, The question is what are the services provided to the assessee, and by whom? Do they include the provision of services, through employees, by its overseas group companies or affiliates? After 1- 7-2012, the definition of "service" underwent a2 change. Except fisted categories of activities excluded from, or kept out of the fold of the- definition, every activity virtually is "service". Now, by Section 65(44), "service" means
(a) any activity
(b) carried out by a person for another
(c) for consideration, and
(d) includes a declared service (the term "declared service" is defined in Section 66E).
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.
50. The above features show that the assessee had operational or functional control over the seconded employees; it was potentially liable for the performance of the tasks assigned to them. That it paid (through reimbursement) the amounts equivalent to the salaries of the seconded employees - because of the obligation of the by 410 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.
33. Facially, or to put it differently, for alf 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.
5/7. Taking a cue from the above observations,. while the control (over performance of the seconded employees' work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment.
Secondly, the overseas employer - for whatever reason, pays them their salaries. Their terms of employment - even during the secondment - are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their original places, to await deployment or extension of secondment.
hry ST/41909-41911/2017 412 ST/41909-41911/2017
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.
61. In view of the above discussion, 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 (in relation to which show cause notices were issued)."
(Emphasis supplied by us, in bold) 13.7 We find from the clauses of the SA in the case on hand, which are extracted elsewhere in this order, that the terms and conditions and scope of the SA is more or less identical to that of the assessee before the Hon'ble Apex Court in the case of M/s. Northern Operating Systems Pvt. Ltd. (supra).
13.8 The above decisions of the Hon'ble Apex Court, according to us, clearly hold that the definition of manpower recruitment or supply agency is wide enough to include 'recruitment' as well as 'supply' of manpower. The expression -- 'supply' is of a wider connotation. than recruitment. We are therefore of the view that the ratio of the above rulings squarely apply to this case and thus, there is no escape for the appellant before us from Service Tax liability in respect of al 4412 S1T/41909-41911/2017 manpower recruitment or supply agency service under reverse charge mechanism.
13.9 As such, we hold that the appellant is required to pay applicable Service Tax for the normal period along with interest. However, we agree with the contention of the. appellant there is no suppression of facts involved and that being the case, the penalties imposed are set aside."
50. In view of my analysis above, I am of the considered view that the opinion expressed by the id. Member (Technical) is legally correct and I hold the same view; accordingly, I affirm the findings recorded by the Id. Member (Technical).
51. Now, let the matter be placed before the Regular Division Bench for drawing majority view.
(Order pronounced in the open court on a |yo|2=25) s. sO MEMBER (JUDICIAL) 413 $1/41909-41911/2017 MAJORITY ORDER The Third Member has agreed that the view expressed by the Member (Technical) is legaily correct. He has affirmed the findings recorded by the Member (Technical). In the light of the same, the impugned order is upheld except for the following modifications :
(i) The demand is to be limited to the normal period;
(ii) Penalties are set aside. -
(ili) If amounts deducted towards TDS have entered into the calculation for demanding duty, the same should be deleted and duty reworked for the normal period and intimated to the Appellant.
The appeal is disposed of on the above terms.
t (order pronounced in court on 6+/ [t [ 20 2tp | (M. AJIT KUMAR) | (P. DINESHA) MEMBER (TECHNICAL) : MEMBER (JUDICIAL) qs