Custom, Excise & Service Tax Tribunal
Bangalore International Airport Ltd vs Commissioner Of Central Tax, Bangalore ... on 9 July, 2024
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 2429 of 2011
(Arising out of Order-in-original No. 95/2011 dated 29.04.2011 passed by
the Commissioner of Central Excise and Service Tax, Bangalore.)
Bangalore International Airport
Limited,
Administrative Block, Appellant(s)
Bengaluru International Limited,
Devanahalli,
Bangalore - 560 300.
VERSUS
The Commissioner
Office of the Commissioner of
Service Tax, Respondent(s)
No.16/1, 5th Floor,
SP Complex, Lalbagh Road,
Bangalore - 560 027.
With
(i). Service Tax Appeal No. 248 of 2012 (Bangalore
International Airport Limited)
(Arising out of Order-in-Original No. 171/2011 dated 24.10.2011
passed by the Commissioner of Service Tax, Bangalore.)
(ii). Service Tax Appeal No. 27281 of 2013 (Bangalore
International Airport Limited)
(Arising out of Order-in-original No. 22/2012-13 dated 21.01.2013
passed by the Commissioner of Central Excise and Service Tax,
Bangalore.)
(iii). Service Tax Appeal No. 22511 of 2014 (Bangalore
International Airport Limited)
(Arising out of Order-in-Original No. 24/2013-14 dated 03.02.2014
passed by the Commissioner of Central Excise and Service Tax,
Bangalore.)
(iv). Service Tax Appeal No. 21132 of 2016 (Bangalore
International Airport Limited)
(Arising out of Order-in-Original No. BLR-EXCUS-004-COM-002-
2016-17 dated 25.04.2016 passed by the Commissioner of Central
Excise and Service Tax, Bangalore.)
(v). Service Tax Appeal No. 20568 of 2018 (Bangalore
International Airport Limited)
(Arising out of Order-in-Appeal No. 87/2018-CT dated 24.01.2018
passed by the Commissioner of Central Tax(Appeals-II), Bangalore.)
Page 1 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
APPEARANCE:
Mr. Harish Bindumadhavan, Advocate for the Appellant
Mr. Dymappa Airani, Joint Commissioner(AR) for the Respondent
CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL)
HON'BLE MRS R BHAGYA DEVI, MEMBER (TECHNICAL)
Final Order Nos. 20546 - 20550, 20551 /2024
DATE OF HEARING: 11.01.2024
DATE OF DECISION: 09.07.2024
PER : DR. D.M. MISRA
These appeals are filed against the respective Orders-in-
Original passed by the Commissioner of Central Tax, Bangalore
North Commissionerate, Bangalore/ Order-in-Appeal passed by
the Commissioner(Appeals-II), Bangalore. Since common issues
are involved, all these appeals are taken up together for hearing
and disposal.
2. Brief facts of the case are that the appellants are
registered with the Department for rendering various taxable
services viz. Airport Services, Business Auxiliary Services,
Consulting Engineering Service, Manpower Recruitment Agency
service etc. On the basis of intelligence, investigation was
initiated which revealed that the Appellant though recipient of
taxable services provided from outside India had not discharged
appropriate service Tax e under Rule 2(1)(d)(iv) of Service Tax
Rules,1994. It further revealed that the appellant had entered
into a service agreement with M/s. Unique (Flughafen Zurich
AG), Switzerland (M/s. Unique, for short) for providing personnel
Page 2 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
to work with the appellant and the salaries are agreed to be paid
in convertible foreign currency for which the overseas company
M/s. Unique raised debit notes on the appellant with details of
remuneration disbursed on behalf of the appellant. It is alleged
that the activity attracts service tax under the category of
"Manpower Recruitment or Supply Agency Services" under
Section 65(68) read with Section 65(105)(k) prior to 01.07.2012
and under the provisions of Section 65(B)(44) read with Section
65(B)(51) of the Finance Act, 1994, but did not discharge service
tax on the same. Also, it reveled that the Appellant had received
'Management Consultancy service', 'consulting Engineering
service, etc. from the service providers outside India and also
rendered Airport services in India, but failed to discharge service
tax, besides they had availed inadmissible CENVAT credit on
various input services, accordingly, show-cause notices have
been issued to the appellant for recovery of Service Tax being
recipient of the services as per Section 66(A) of the Finance Act,
1994 read with Rule 2(l)(d)(iv) of the Service Tax Rules, 1994,
for rendering airport services and availing inadmissible CENVAT
Credit during the relevant period with interest and penalty. The
first show-cause notice was issued to them on 23.04.2010
proposing recovery of service tax on various services including
'Manpower Supply Service' received from the overseas company
M/s. Unique and also the demanding service tax on Airport
Services, inadmissible cenvat credit availed invoking extended
period of limitation. Subsequent show-cause notices have been
issued periodically demanding service tax on receiving
Page 3 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
'Manpower Supply Service' from the overseas company. On
adjudication, the demand Notices were confirmed by the
Commissioner with interest and penalty, except in appeal
ST/20568/2018, wherein the Commissioner (Appeals-II), passed
the order upholding the Order-in-Original. The demands
involved Appeal wise is tabulated as below:-
Appeal No. Period Total Break-up of demand confirmed Interest &
demand Rs. Penalty
confirmed
Rs.
ST/2429/2011 April 2,46,49,943 Management 41,26,163 u/s 75
2004 to consultancy u/s 76
March Airport services 28,68,873 u/s 77
2009 Ineligible cenvat 6,63,716 u/s 78
credit
Manpower 1,69,91,194
supply
ST/248/2012 April 59,44,906 Ineligible cenvat 18,652 u/s 75
2009 to crredit u/s 76
March Manpower 59,26,254 u/s 77
2010 supply
ST/27281/2013 April 28,95,209 Manpower supply u/s 75
2010 to u/s 76
March u/s 77(2)
2011
ST/22511/2014 April 57,07,992 Ineligible cenvat 30,85,869 u/s 75
2011 to credit u/s 76
March Manpower 26,24,123 u/s 77(1)(a)
2012 supply u/s 77(2)
u/s 78
ST/21132/2016 April Manpower 29,44,814 u/s 75
2012 to supply u/s 76
March u/s 77(1)(a)
2013 u/s 77(2)
ST/20568/2018 April Manpower 67,58,560 u/s 75
2013 to supply u/s 76
March u/s 77(1)(a)
2016 u/s 77(2)
3. At the outset, the learned advocate for the appellant has
submitted that the appellant Company was promoted by the
following indigenous and overseas companies viz. (a) M/s.
Siemens Project Ventures, Germany ('SPV'), (b) M/s. Unique
Zurich Airport Limited, Switzerland (UZA), (c) Larsen & Toubro
Limited (L&T), (d) Airport Authority of India (AAI) and (e)
Karnataka State Industrial Investment Development Corporation
(KSIIDC). He has submitted that the entities at (a), (b), (c) are
private promoters and (d) & € are state promoters; besides (c),
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ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
(d) and (e ) resident promoters and (a) & (b) are non-resident
promoters.
3.1 Assailing confirmation of demand on 'Manpower
Recruitment or Supply Agency services', he has submitted that
by respective agreements with overseas company M/s. Unique,
the appellant has recruited some of the employees of M/s.
Unique on fulltime basis as assigned and exclusively for the
service of the appellant during the assignment period. He has
submitted that the terms and conditions of the Secondment
Agreement in issue is quite different from the judgment
delivered by the Hon'ble Supreme Court in CC, CE&ST,
Bangalore (Adjudication) Vs. Northern Operating Systems
Pvt. Ltd. [2022(61) GSTL 129 (SC)]. Distinguishing the facts of
the said case, he has submitted that the Supreme Court
judgment was delivered in the context where Secondment
Agreement was a warranty to the 'Master Service Agreement'
between the assessee and the overseas group company; the
assessee therein was provided with manpower only to aid the
ultimate rendition of services to the overseas group company.
The seconded employees were also chosen by the assessee.
Thus, the Secondment Agreement was in furtherance of
subsisting service provider and service recipient relationship
between the assessee and the overseas group company. Thus,
the employees remained entirely in the payroll of the overseas
group company. In the present case, there was no separate
contract of employment between expats and the assessee
Page 5 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
therein. The entire salary also was paid by the overseas
company and no part of salary was paid by the assessee. In the
present case, however, the appellant recruited employees from
M/s. Unique for their own purpose on a principal-to-principal
basis i.e. there is no underlying economic benefit in these
agreements. Further the employees are also chosen by the
appellant. The preamble to the 'Expatriate Remuneration
Reimbursement Agreement' dated 01.07.2005 itself
unequivocally lays down that parties to the agreement are not
be considered to have rendered any services by way of assigning
employees. Therefore, the facts of the present case are
completely different from the facts underlying in the said
decision of the Hon'ble Supreme Court, which is not applicable.
Therefore, the service tax as confirmed by the adjudicating
authority in all these appeals for supply of manpower to the
appellant cannot be sustained. Alternatively, the learned
advocate for the appellant has argued that in the event the
judgment of the Hon'ble Supreme Court in Northern Operative
Systems Pvt. Ltd. (supra) is followed, then levy of interest and
penalty be set aside and prayed that tax paid under reverse
charge mechanism be declared as eligible to cenvat credit. In
support, they have relied on the following judgments:-
i. CCE&ST, Rohtak Vs. Merino Panel Products Ltd. [2022(12)
TMI 453-Supreme Court]
ii. Dell International Services India Pvt. Ltd. Vs. CCE&C,
Bangalore [(2023 5 Centax 111 (Tri. Bang.)]
iii. Uniflex Cables ltd. Vs. CCE, Surat [2011(271) ELT 161
(SC)]
iv. CST, Bangalore Vs. Motor World [2012(27) STR 225 (Kar.)]
Page 6 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
3.2 Further he has submitted that the demand of
Rs.41,26,163/- confirmed by the ld. adjudicating authority under
'Management Consultancy Services' under Section 66A of the
Finance Act, 1994 is unsustainable. Further he has submitted
that the learned Commissioner analysing the scope of the
definition of 'Management Consultancy Service' held that the
appellant had paid the cost/expenses with regards to services
viz. design, engineering and development of the project, air
traffic study etc. 01.01.2005 to 31.03.2006; hence squarely fall
within the Section 65(65) read with Section 65(105)(r) of the
Finance Act, 1994. Further, he has submitted that the appellant
accepting their liability under the scope of 'Management
Consultancy Services', excluding the development cost, paid
service tax of Rs.6,15,221/- for the period 2005-06. Out of this
total amount of Rs.30,26,246/-(excluding development cost),
Rs.6,15,221/- has been paid by them under the said service;
Rs.99,144/- relates to legal consultancy received prior to
18.4.2006 and Rs.1,48,285/- for the period after 18.4.2006. It is
his contention that legal service became taxable only from
01.9.2009, hence, not sustainable. It is his contention that
Section 66A was inserted w.e.f. 18/04/2006, and therefore,
demands prior to that date are unconstitutional as held by the
Hon'ble Bombay High Court in the case of Indian National
Shipowners Association [2009(13) STR 235 (Bom.)] and
affirmed by the Hon'ble Supreme Court in 2010(17) STR J57
(SC). Further, he has submitted that the amount of
Rs.17,15,138/- confirmed under the above category of
Page 7 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
Management Consultancy (development cost), payment to
promoters for setting up the Airport and make it operational, for
the period prior to 18.4.2006 is prior to introduction of 66A and
hence covered by the judgement in Indian National
Shipowners Association's case(supra).
3.3 He has also submitted that the amount of 21,63,596/-
relates employee salary relating to costs and bonus paid to UZA
as reimbursement. paid by them are reimbursable expenses at
actuals; hence covered by the decision of the Hon'ble Supreme
Court in the case of UOI Vs. Intercontinental Consultants
and Technocrats Pvt. Ltd. [2018(10) GSTL 401 (SC)] for the
period prior to 14.05.2015. Therefore, the demand on this count
is also not sustainable.
3.4 On the issue of admissibility of CENVAT Credit in appeal
No.ST/2429/2011 and ST/248/2012 and ST/22511/2014, the
learned advocate has submitted that the services received is in
the nature of input services viz. Business Auxiliary Service
(Sodexo passes for employees), photography and videography
services, Public relation agency service etc) are square covered
by the judgement of the Tribunal in the case of JSW Steel Ltd.
Vs. CCE [2021(121) TMI 381 - CESTAT Bangalore].
3.5 Further, he has submitted that the airport services
rendered by the appellant during the relevant period are in the
nature of services to development / running of airport. Out of
Page 8 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
the total demand of Rs.78,87,102/-, the appellant had already
discharged service tax of Rs.50,18,229/- where the amount has
been collected from the successful bidders who, after being
successful in the bid, rendered services to the appellant after
issue of the work order.
3.6. However, it is also submitted that on the refund of the
amount collected from unsuccessful bidders, the learned
Commissioner analysing the scope of services held that there
was no evidence placed by the appellant to substantiate their
claim that the amount received from the unsuccessful bidders
were not connected with airport services; hence confirmed the
demand of Rs.26,68,873/- against the category of airport
services. The said observation of the Ld. Commissioner is
erroneous as no service was rendered by the unsuccessful
bidders and received by the Appellant.
3.7. He has also submitted that the credit of Rs.6,63,716/-
availed on various services which do not fall under the scope of
definition of input service under Rule 2(l) of the CENVAT Credit
Rules, 2004; therefore, rightly confirmed by the learned
Commissioner.
3.8. Learned advocate, further assailing the confirmation of
demand on Airport Services' relating to tender fee collected and
retained, has submitted that the tender fee is collected from the
contractors who seek to bid/tender for specific work/projects
Page 9 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
that are awarded by the appellant. The purpose for collection of
tender fees are: (a) to ensure genuineness of contractors and
(ii) to meet tender expenses. Therefore, these collections are
not towards provision of any service but collected qua 'invitation
for invitation for offer' and not the offer itself. Therefore, there
is no service tax liability on these collections.
3.9. Further, it is submitted that the appellant collected the said
fees for providing tender documents to bidders which ultimately
enables them to express interest and participate in the tender.
The appellant had paid VAT against these costs and hence
service tax is not payable on the said fees. In support, they
have referred to the decision in the case of UFO Moviez India
Ltd. Vs. Commissioner [2017 (9) TMI 507 - CESTAT Mumbai];
which was later upheld by the Hon'ble Supreme, wherein it has
been held that once VAT is paid, question of demanding service
tax on the same transaction does not arise. Further, they have
submitted that the show-cause notice dated 23.04.2010 in
appeal No.ST/2429/2011 has been issued invoking extended
period, which cannot be sustained except for the normal period
from October 2008 to March 2009, as there was no suppression
of fact and the issues involved are pure questions of
interpretation of law. Also, they have submitted that since the
issue involved is interpretation of question of law, interest and
penalty cannot be levied on the appellant.
Page 10 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
4. The Learned Authorized Representative for the Revenue,
reiterating the respective impugned orders, has submitted that
the assigned employees have been deputed by M/s. Unique
under 'Expatriate Remuneration Reimbursement Agreement' and
it is evident from record that such employees do not cease to be
employees of the overseas company during the period of
assignment. These employees are rendering services on the
request of the appellant and against such assignment; the
appellant pays M/s. Unique which is in the nature of international
assignee, costs and other remuneration to the assigned
employees. Therefore, the activity is in the nature of 'Manpower
Recruitment and Supply service' prior to 2012 and post-2012,
'service' as defined under Section 65B(44) of the Finance Act,
1994. He has submitted that the agreement / contract under
which M/s. Unique has assigned its employees is more or less
similar to the Secondment Agreement considered by the Hon'ble
Supreme Court in the case of CC,CE&ST, Bangalore
(Adjudication) Vs. Northern Operating Systems Pvt. Ltd.
(supra) and the principle laid down in the said case is squarely
applicable to the facts of the present case. Therefore, the
demand is rightly confirmed by the adjudicating authority on this
count. He has fairly accepted that in view of the judgement of
the Hon'ble Supreme Court in Northern Operating Systems Pvt.
Ltd. (supra), the invocation of larger period of limitation cannot
be sustained.
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ST/22511/2014; ST/21132/2016; ST/20568/2018
4.1. The Ld. Authorized Representative appearing for the
Revenue has submitted that the Ld. Commissioner also
confirmed the demand on 'Management Consultancy Services'
and 'Airport Services' for the period from April 2004 to March
2009.
4.2. Supporting the finding of the Ld. Commissioner, he has
submitted that during the period in question, the appellant had
received services in relation to design, engineering and
development of projects, air traffic studies, design studies, etc.,
which squarely fall within the scope of the definition of
'Management Consultancy Service' and also the definition of the
taxable service as prescribed under Section 65(105)(r) of the
Finance Act, 1994. Therefore, it is contended that the services
with regard to development of airport, being provided as per the
shareholder's agreement and the appellant having discharged
the payments in foreign currency for all the expenses incurred
with regard to design, engineering and development of project,
the same are to be considered as "consideration" paid by the
appellant for the services rendered by the overseas company;
therefore, the said services squarely fall under the concept of
'gross value' as defined under Section 67 of the Finance Act,
1994, which was in existence even prior to 18.04.2006.
It is also submitted that inclusion of various charges / expenses
like hotel charges, telephone charges, travelling expenses, etc.,
in the gross value made effective from 19.04.2006 read with
Rule 5 of the Service Tax (Determination of Value) Rules, 2006,
are in the nature of basic primary expenses incurred in the
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ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
course of provision of services and hence the same are taxable
even prior to 19.04.2006. He has submitted that these expenses
are to be treated as "consideration" paid for receiving
Management Consultancy Services and consequently, the
Service Tax of Rs.17,15,138/- on the developmental cost
received by the appellant during the period from 01.01.2005 to
31.03.2006 is correctly chargeable to Service Tax.
4.3. Further, he has submitted that out of the Service Tax
demand of Rs.30,26,246/-, the appellant has already accepted
Rs.6,15,221/-, payable under 'Management Consultancy Service'
and the actual demand of Rs.24,11,025/- is also chargeable
under Management Consultancy Service for the period 2005-06
to 2008-09 to Service Tax, being the amount paid on receipt of
legal services which are in the nature of due diligence report
prepared by the overseas legal consultants and squarely covered
vide the Order No. 1/1/2001/ST dated 27.06.2001 issued by the
Ministry under Section 37B.
4.4. Further, supporting the order of the Ld. Commissioner for
confirmation of demand under Airport Services, he has
submitted that the tender fee / pre-award costs collected is in
the nature of advance for providing the said services and to be
treated as the amount collected for providing Airport Services.
Therefore, it is contended that with regard to the total amount of
Rs.2,03,19,923/- received from various unsuccessful bidders
that, in the absence of documentary evidence to prove that the
said amount relates to unsuccessful bidders, the same is
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ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
correctly held to be leviable to Service Tax of Rs.28,68,873/-
under 'Airport Services'.
5. Heard both sides and perused the records.
6. The issues involved in the present appeals for
consideration are whether:
(i) the appellant is required to discharge service tax under
reverse charge mechanism for services received under the
category of 'Management Consultancy Services",
'Manpower Supply Agency Service' during the relevant
period involved in each of the appeal in the light of the
judgment of Hon'ble Supreme Court in the case of CC,
CE&ST, Bangalore (Adjudication) Vs. Northern Operating
Systems Pvt. Ltd.;
(ii) service tax is leviable under airport services (Appeal
No.ST/2429/2011) on the deposit amount collected from
unsuccessful bidders;
(iii) cenvat credit is admissible on various input services;
(iv) extended period of limitation is invokable in appeal
No.ST/2429/2011; and interest and penalty are leviable on
the appellant.
7. To analyse the first issue, that is, whether manpower
service supplied by M/s. Unique to the appellant, is leviable to
service tax under reverse charge basis, for the period in
question, it is necessary to examine whether the ratio of the
judgment in the case of CC,CE&ST, Bangalore (Adjudication)
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ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
Vs. Northern Operating Systems Pvt. Ltd. (supra) is
applicable to the facts and circumstances of the present case.
It is the Revenue's argument that the judgment is squarely
applicable to the present case; whereas the advocate for the
appellant has submitted that the circumstances of the
secondment agreement considered by the Hon'ble Supreme
Court is different from the present one; hence not applicable.
8. Reading the judgment of the Hon'ble Supreme Court, it is
clear that in para 3, the nature and content of the agreement
has been narrated which reads as follows:-
3. The nature and contents of the agreements, are
discernible in their description, extracted from the
impugned order - where the assessee has been
referred to as "the appellant" by the CESTAT - which
is as follows :
"The relevant terms of the agreement to
understand the activity are as follows :
(a) When required Appellants requests the
group companies for managerial and technical
personnel to assist in its business and
accordingly the employees are selected by the
group company and they would be transferred
to Appellants.
(b) The employees shall act in accordance
with the instructions and directions of
Appellants. The employees would devote their
entire time and work to the employer seconded
to.
(c) The seconded employees would continue
to be on the payroll of the group company
(foreign entity) for the purpose of continuation
of social security/retirement benefits, but for all
practical purposes, Appellants shall be the
employer. During the term of transfer or
secondment the personnel shall be the
employee of Appellants. Appellants issue an
employment letter to the seconded personnel
stipulating all the terms of the employment.
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(d) The employees so seconded would receive
their salary, bonus, social benefits, out of pocket
expenses and other expenses from the group
company.
(e) The group company shall raise a debit
note on Appellants to recover the expenses of
salary, bonus etc. and the Appellants shall
reimburse the group company for all these
expenses and there shall be no mark-up on such
reimbursement."
As a matter of fact, the assessee issues the prescribed
forms to the seconded employees, in terms of the
Income-tax Act, 1961 (hereafter "IT Act"). Those
individuals too file income-tax returns and contribute
to the provident fund. Furthermore, NOS remits the
above amounts in foreign exchange, which are
reflected in its financial statements. The assessee is
reimbursed (by the foreign entity, Northern Trust
Company - hereafter described as such) for the
amounts it pays as salaries, to these seconded
employees. The assessee pays for certain services
received from the group companies. The assessee
used to discharge service tax on payments for such
services in terms of Section 66A of the Act. The
appropriate major expense heads were 'Salaries &
Allowances', 'Relocation expenses', 'Consultancy
Charges', 'Communication Expenses' and 'Computer
Maintenance and repairs.'
9. The terms and conditions relevant to the present case,
extracted from the agreement dated 11.07.2005 to examine the
rival claims, are as below:-
EXPATRIATE REMUNERATION REIMBURSEMENT
AGREEMENT
THIS AGREEMENT is entered on July 11th, 2005 by and
between Bangalore Internation Airport Ltd., a
company organized and existing under the laws of
India and located at Khanija Bhavan, Ground Floor,
#49, Race Course Road, Bangalore 560 001
(hereinafter referred to as 'BIAL') and Unique
(Flughafen Zurich AG), a corporation established
under the laws of Switzerland and located CH-8058
Zurich-Flughafen (hereinafter referred to as "Unique").
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ST/22511/2014; ST/21132/2016; ST/20568/2018
WHEREAS BIAL is engaged in the business of
Developing the construction and operation of the
airport at Devenahalli, Bangalore.
WHEREAS BIAL desires to recruit some of the
employees of Unique whose particulars are as set out
in Schedule 1 attached hereto and as amended from
time to time, (each hereinafter referred to as the
'Assignee') on a full time basis as assignees to work
exclusively for BIAL during the assignment period.
WHEREAS Unique has accepted the specific request
made by BIAL for assigning the Assignee to work
exclusively for BIAL during the assignment period;
WHEREAS the Assignee is agreeable to such
arrangement whereby he will work exclusively for
BIAL, during the assignment period;
WHEREAS it is expressly understood and agreed upon
by and between the Parties to this Agreement that
Unique shall not be considered to have rendered any
services, whatsoever, to BIAL by the assignment of
the Assignee to BIAL and that Unique shall not be held
responsible for any acts or omissions of the Assignee
during the Assignees assignment with BIAL;
WHEREAS BIAL expressly acknowledges and agrees
that the Assignee would not have any authority
whatsoever to act on behalf of or bind Unique in
connection with his duties towards BIAL and further
that the Assignee would have no express or implied
authority whatsoever to act for or represent or bind
Unique;
WHEREAS during the period of the Assignee's term
with BIAL, it is understood and agreed between the
Parties to this Agreement that in addition to any local
currency remuneration paid to the Assignee directly by
BIAL, the Assignee would be entitled to remuneration
in foreign currency delivered to him outside of India,
by Unique (hereinafter referred to as the 'Foreign
Currency Remuneration');
WHEREAS the Foreign Currency Remuneration shall be
made out of the items listed in Schedule of this
Agreement;
WHEREAS it is expressly understood and agreed upon
by the parties to this Agreement that BIAL will bear
the Foreign Currency Remuneration of the Assignee
paid by Unique and also the amount of any taxes
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payable thereon to the Indian Income Tax Authorities;
and
WHEREAS it is understood and agreed by the Parties
that BIAL will promptly reimburse to Unique such
Foreign Currency Remuneration being paid by Unique
and from the Effective Date (as hereinafter defined) in
accordance with the terms and conditions herein
1.0 ... ....
2.0 ......
3.0 Reimbursement of the Foreign Currency
Remuneration.
3.1. In consideration for the assignment services to
be provided by the Assignee of Unique to BIAL during
the period commencing as set out in Schedule 1, BIAL
agrees to reimburse Unique for the Foreign Currency
Remuneration made by Unique to the Assignee subject
to any requisite approval of the Government of India /
Reserve Bank of India.
3.2. The Foreign Currency Remuneration paid by
Unique to the Assignee shall be reimbursed by BIAL
on a cost to cost basis.
3.3. Unique shall quarterly send to BIAL Debit Notes
for the reimbursement of the Foreign Currency
Remuneration paid by it to the Assignee and BIAL
agrees to pay the notes within 30 days of receipt.
3.4. The Foreign Currency Remuneration
reimbursable by BIASL to Unique under this
Agreement shall be net of any withholding or other
applicable taxes which shall be the sole responsibility
of and borne by BIAL.
3.5. It is hereby expressly agreed that all payments /
reimbursements described in this clause to be made
by BIAL to Unique are subject to full compliance of all
applicable legislation in India more specifically but not
limited to the obtaining of necessary approvals if any
required from the Reserve Bank of India / The Indian
Income Tax Authorities as per applicable regulations in
this regard as may exist from time to time.
4.0 Instructions and supervision
It is the parties clear understanding that during
the assignment of the Assignee to BIAL that the
Page 18 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013
ST/22511/2014; ST/21132/2016; ST/20568/2018
overall responsibility regarding instructions and
supervision of the Assignee remains with BIAL
...................................................................................................
SCHEDULE 1 Particulars of Assignees and Term of Assignment S.No. Person Estimated period Appropriate start of assignment in and finish dates India
1. Albert Brunner 6½ years April 1, 2002 till September 30, 2008
2. Stephan Widrig, COO 3¼ years July 1, 2005 till September 2008 SCHEDULE 2 Foreign Currency Remuneration S.No. Person Remuneration item Amount
1. Albert Brunner Basic salary CHF CEO 149'006.gross salary minus social security, pension and insurance contributions.
Social security including pension contribution Approx. 24.9% of gross salary and performance bonus Administration and Overhead and Tax 13% of Basic salary and Social security.
Performance Bonus Maximum 108'357 of gross salary
2. Stephan Widrig, Basic salary CHF 92'400 gross CCO salary minus social security, pension and insurance contributions.
Social security including Approx. 24.9% of
pension contribution gross salary and
performance
bonus
Administration and 13% of Basic
Overhead and Tax salary and Social
security.
Performance Bonus Maximum 67'200
of gross salary
Page 19 of 30
ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018
10. In the 'Expatriate Remuneration Reimbursement Agreement' dated 11.7.2005 between the appellant and M/s. Unique reveals that the terms and conditions are more or less similar to the one referred to in para 3 of the judgment of the Hon'ble Supreme Court in Northern Operating Systems Pvt. Ltd. (supra). In the present case also, the appellant was in need of personnel for facilitating the business operations in India and the overseas company, which has such personnel, who possesses the requisite qualification and skill desired to employ such persons on exclusive basis and the overseas company has duly consented to depute such personnel. The deputed personnel while under employment with the appellant was not in any way subjected to any kind of instruction or control or direction or supervision of the overseas company and they would report only to appellant's management. They function solely under the control, direction and supervision of appellant and in accordance with the policy, rules, guidelines applicable to the employees of the appellant. The appellant shall have the sole right to take punitive steps against misconduct, negligence, fraud or unsatisfactory performance of work by the dispatched personnel during employment with the appellant company and also have the right to terminate the employment. The remuneration to be paid by the appellant to dispatched personnel as laid down at Schedule 2 comprising of Monthly salary in India; Monthly Salary in Switzerland; Bonus in Switzerland and any other allowance paid / cost incurred for the dispatched personnel during the employment period. Further it is agreed that in respect of monthly salary in India and monthly salary in Switzerland and bonus in Switzerland on the request of the dispatched personnel as his home country is Switzerland and for administrative convenience, appellant company to request overseas company to make such payments in Switzerland which shall be reimbursed by the appellant on actual cost basis. It is also stipulated that such arrangement in no manner be Page 20 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 considered as employer-employee relationship between the overseas company and the dispatched personnel.
11. In the sample 'Expatriate Remuneration Reimbursement Agreement', the dispatched personnel agree with all the conditions settled between the appellant and the overseas company under the sample 'Expatriate Remuneration Reimbursement Agreement'.
12. A careful reading of the sample 'Expatriate Remuneration Reimbursement Agreement' and also the contract of the employment, letter of employment etc., we do not find any substantial difference from the facts stated in the judgment of Hon'ble Supreme Court in Northern Operating Systems Pvt. Ltd.'s case. After analysing the secondment agreement, their Lordships observed as follows:-
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.
49. A co-joint reading of the documents on record show that :
(i) Attachment 1 to the service agreement ensures that the overseas group company assigns, inter alia, certain tasks to the assessee, including back office operations of a certain kind, in relation to its activities, or that of other group companies or entities;
(ii) The assessee is paid a mark up of 15% of the overall expenditure it incurs, by the overseas company (clause 2, read with attachment 1 of the Service Agreement);
(iii) By the Secondment Agreement, the parties agree that the overseas employee is temporarily loaned to the assessee (Article I read with the Schedule);
(iv) During the period of secondment, the assessee has control over the employee, i.e. it Page 21 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 can require the seconded employee to return, and likewise, the employee has the discretion to terminate the relationship (Article II);
(v) The overseas employer (group company) pays the seconded employee, which is reimbursed to the overseas company, by the assessee (Article III);
(vi) The assessee is responsible for the work of the seconded employee, i.e., the overseas employer, during the secondment period, is absolved of any liability for the job or work of its seconded employees (Article VII);
(vii) The secondment is for a specified duration, and the employment with the assessee ceases upon the expiration of that period (Article II of the secondment agreement and the "Duration" clause in the letter of understanding with the seconded employee);
(viii) The letter of understanding issued to the seconded employee specifies that the tenure with the assessee is an assignment (in one place, the term used is "At its conclusion, repatriation will be in accordance with the Global Mobility Repatriation Policy");
(ix) The terms include the salary payable as well as other allowances, such as hardship allowance, vehicle allowance, servant allowance, paid leave, housing allowance, etc. The nature of salary and other perks underscore the fact that the seconded employees are of a certain skill and possess the expertise, which the assessee requires.
50. The above features show that the assessee had operational or functional control over the seconded employees; it was potentially liable for the performance of the tasks assigned to them. That it paid (through reimbursement) the amounts equivalent to the salaries of the seconded employees - because of the obligation of the overseas employer to maintain them on its payroll, has two consequences : one, that the seconded employees continued on the rolls of the overseas employer; two, since they were not performing jobs in relation to that employer's business, but that of the assessee, the latter had to ultimately bear the burden. There is nothing unusual in this arrangement, given that the seconded employees were performing the tasks relating to the Page 22 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 assessee's activities and not in relation to the overseas employer. To put it differently, it would be unnatural to expect the overseas employer to not seek reimbursement of the employees' salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business.
51. As discussed previously, there is not one single determinative factor, which the courts give primacy to, while deciding whether an arrangement is a contract of service (as the assessee asserts the arrangement to be) or a contract for service. The general drift of cases which have been decided, are in the context of facts, where the employer usually argues that the person claiming to be the employee is an intermediary. This Court has consistently applied one test: substance over form, requiring a close look at the terms of the contract, or the agreements.
52. A vital fact which is to be considered in this case, is that the nature of the overseas group companies business appears to be to secure contracts, which can be performed by its highly trained and skilled personnel. This business is providing certain specialized services (back office, IT, bank related services, inventories, etc.). Taking advantage of the globalized economy, and having regard to locational advantages, the overseas group company enters into agreements with its affiliates or local companies, such as the assessee. The role of the assessee is to optimize the economic edge (be it manpower or other resources availability) to perform the specific tasks given it, by the overseas company. As part of this agreement, a secondment contract is entered into, whereby the overseas company's employee or employees, possessing the specific required skill, are deployed for the duration the task is estimated to be completed in. This Court is not concerned with unravelling the nature of relationship between the overseas company and the assessee. However, what it has to decide, is whether the secondment, for the purpose of completion of the assessee's job, amounts to manpower supply.
53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid - and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their origin. It is doubtful whether without the comfort Page 23 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 of this assurance, they would agree to the secondment. Furthermore, the reality is that the secondment is a part of the global policy - of the overseas employer loaning their services, on temporary basis. On the cessation of the secondment period, they have to be repatriated in accordance with a global repatriation policy (of the overseas entity).
54. The letter of understanding between the assessee and the seconded employee nowhere states that the latter would be treated as the former's employees after the seconded period (which is usually 12-18 months). On the contrary, they revert to their overseas employer and may in fact, be sent elsewhere on secondment. The salary package, with allowances, etc., are all expressed in foreign currency (e.g., US $ 330,000/- per annum in the letter produced before Court, extracted above). Furthermore, the allowances include a separate hardship allowance of 20% of the basic salary for working in India. The monthly housing allowance in the specific case was ` 3,66,700. In addition, an annual utility allowance of ` 3,97,500/- is also assured. These are substantial amounts, and could have been only by resorting to a standardized policy, of the overseas employer.
55. The overall effect of the four agreements entered into by the assessee, at various periods, with NTS or other group companies, clearly points to the fact that the overseas company has a pool of highly skilled employees, who are entitled to a 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 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 "a conglomerate of all applicable tests taken on the totality of the fact situation in a given case that would ultimately yield, particularly in a complex hybrid situation, whether the contract to be construed is a contract of service or a contract for service. Depending on the fact situation of each case, all the aforesaid factors would not necessarily be relevant, or, if relevant, be given the same weight."
Page 24 of 30ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018
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.
58. One of the arguments of the assessee was that arguendo, the arrangement was "manpower supply"
(under the unamended Act) and a service [(not falling within exclusion (b) to Section 65(44)] yet it was not required to pay any consideration to the overseas group company. The mere payment in the form of remittances or amounts, by whatever manner, either for the duration of the secondment, or per employee seconded, is just one method of reckoning if there is consideration. The other way of looking at the arrangement is the economic benefit derived by the assessee, which also secures specific jobs or assignments, from the overseas group companies, which result in its revenues. The quid pro quo for the secondment agreement, where the assessee has the benefit of experts for limited periods, is implicit in the overall scheme of things.
59. As regards the question of revenue neutrality is concerned, the assessee's principal contention was that assuming it is liable, on reverse charge basis, nevertheless, it would be entitled to refund; it is noticeable that the two orders relied on by it (in SRF and Coca Cola) by this Court, merely affirmed the rulings of the CESTAT, without any independent reasoning. Their precedential value is of a limited nature. This Court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. That a particular rate of tax - or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount.
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60. This Court is also of the view, for similar reasons, that the orders of the CESTAT, affirmed by this Court, in Volkswagen and Computer Sciences Corporation, are unreasoned and of no precedential value.
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).
13. Applying the aforesaid principle to the present case we are of the opinion that service tax is applicable on the amount paid to M/s Unique for receiving Manpower service by the Appellant.
However, the demand of service tax confirmed by the Ld. Commissioner cannot be sustained for the period prior to 18.4.2006 and also for the extended period as their Lordships on the issue of invocation of extended period of limitation, decided in favour of the assessee. Consequently, the demand be restricted to normal period of limitation in appeal No.ST/2429/2011.
14. Resisting the demand confirmed in the impugned Order under the taxable category of 'Management Consultancy Services' (ST/2429/2011), for the period April 2004 to March 2009 amounting to Rs.41,26,163/-, it is submitted that the demand pertaining to the period prior to 18/04/2006 cannot be sustained in any case in view of the judgment of the Hon'ble High Court of Bombay in the case of Indian National Shipowners Association (supra) and upheld subsequently by the Hon'ble Supreme Court. For the demands raised on account of said services post 18.04.2006, it is argued that these are in Page 26 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 the nature of reimbursable expenses; hence cannot be sustained in view of the judgment of the Hon'ble Supreme Court in the case of UOI Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. (supra) prior to 14/05/2015.
15. We find that a total amount of Rs.41,26,163/- has been confirmed under this category 'Management Consultancy Services' (ST/2429/2011). Also, as submitted on behalf of the appellant an amount of Rs.17,15,138/- pertained to the period prior to 18.04.2006 and covered by the judgement of the Hon'ble High Court of Bombay in the case of Indian National Shipowners Association v. Union of India [2009 (13) S.T.R. 235 (Bom.)] which has been affirmed by the Hon'ble Apex Court, and therefore, the demand is bad in law and cannot be sustained.
From the remaining confirmed amount of Rs.24,11,025/-, Rs.1,48,285/- relates to legal consultancy charges received after 18.04.2006 and Rs.21,63,596/- relates to reimbursable expenses. The Ld. Advocate for the appellant vehemently argued that reimbursable expenses under Rule 5 of the Service Tax (Determination of Value) Rules, 2006, could not be included in the gross tax value prior to 14.05.2015 in view of the decision of the Hon'ble Apex Court in the case of Union of India v. M/s.
Intercontinental Consultants and Technocrats Pvt. Ltd. [2018 (10) G.S.T.L. 401 (S.C.)]. The demand for the period prior to 18.4.2006 cannot be sustained. On the issue of reimbursable expenses, we find that the Ld. Commissioner has not recorded any specific finding about the true nature of the said expenses as claimed by the appellant and hence, the matter needs to be Page 27 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 remanded to the Ld. Commissioner, to verify the said claim of the appellant and decide the issue in the light of the principle laid down by the Hon'ble Apex Court in Intercontinental Consultants and Technocrats Pvt. Ltd. case(supra).
16. On the confirmation of demand relating to Airport Services rendered by the appellant during the relevant period i.e., 2005-06 to 2008-09, an amount of Rs.28,68,873/- has been confirmed by the ld. adjudicating authority, which is in dispute before us. The Ld. Advocate for the appellant has vehemently argued that the said Service Tax amount relates to the amount collected from unsuccessful bidders who participated in the tender process floated by the appellant in connection with various services like cargo handling, aviation fuel facility, ground handling, flight catering, etc., in the course of providing Airport Services; the said deposit amount has been collected from the persons who participated in the tender and is for the purpose of discouraging non-serious participants. The amounts so collected and retained by the appellant are in no way connected to the rendering of Airport Services as there is no relationship of service receiver and service provider between the appellant and the unsuccessful bidders. Therefore, it is argued that the confirmation of demand by the ld. adjudicating authority is incorrect.
17. We find merit in principle in the contention of the Ld. Advocate for the appellant that the Revenue could not establish that the unsuccessful bidders have rendered any services to the Page 28 of 30 ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 appellant and thus, the amount collected as a pre-bid offer from unsuccessful bidders cannot be considered as a "consideration"
for rendering Airport Services and accordingly not leviable to Service Tax. However, we find that the Ld. Commissioner has confirmed the demand on altogether a different ground. He has held that except submitting list of unsuccessful bidders, no documentary evidence has been placed on record to prove that the said amounts relate to unsuccessful bidders and consequently, he has confirmed the demand. Therefore, to ascertain this fact, we are of the view that this issue needs to be remanded to the adjudicating authority.
18. On the issue of availing CENVAT Credit on various input services namely, photography and videography services, asset hiring, landscaping services, office rent, civil and interior work, etc., the appellant has argued that these services are held to be 'input services' and duty paid is admissible to credit by this Tribunal in the case of JSW Steel Ltd. Vs. CCE [2021(121) TMI 381 - CESTAT Bangalore]. We find that all these services have been considered by the Tribunal in the aforesaid judgement and held that the same satisfy the definition of "input service" as prescribed under Rule 2(l) of the CENVAT Credit Rules, 2004, hence, duty paid on these services is admissible to credit. Following the said precedent, we are of the opinion that CENVAT credit of the duty paid on these services is admissible.
19. We also find that the issues involved in the present appeals relate to interpretation of law and no fact has been concealed or suppressed from the knowledge of the Department. Therefore, levy of penalty on the appellants cannot be sustained.
20. Thus, our findings and directions are summarized as below: -
Page 29 of 30ST/2429/2011; ST/248/2012; ST/27281/2013 ST/22511/2014; ST/21132/2016; ST/20568/2018 (1) The demands relating to the period prior to 18.04.2006, for all categories of services received from the overseas company cannot be sustained;
(2) The demands with interest confirmed on 'Manpower Supply Services' received from the overseas company for the period after 18.4.2006, under reverse charge mechanism are sustained for the normal period of limitation only;
(3) The applicability of Service Tax on the amount collected from unsuccessful bidders as pre-bid fees and retained is not liable to service tax under Airport Services. However, the adjudicating authority is directed to verify from the records whether the disputed amount relates to unsuccessful bidders only, as claimed by the Appellant. (4) The CENVAT Credit availed on various input services are admissible and hence demands on this issue are set aside;
(5) The penalty imposed on the Appellant cannot be sustained.
21. Consequently, all these appeals are remanded to the adjudicating authority to recompute the demands with interest in the light of above observation. Appeals are disposed of accordingly.
(Order pronounced in the open court on 09.07.2024) (D.M. MISRA) MEMBER (JUDICIAL) (R BHAGYA DEVI) Raja... MEMBER (TECHNICAL) Page 30 of 30