Custom, Excise & Service Tax Tribunal
Renault Nissan Technology And Business ... vs Cst Ch - Iii on 2 September, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Service Tax Appeal No.40528 of 2015
(Arising out of Order-in-Original No.07/2014 (ST) dated 13.11.2014 passed by
the Commissioner of CGST & Central Excise, Chennai - III)
M/s. Renault Nissan Technology
& Business Centre India Pvt. Ltd., .... Appellant
TP2/1, Ascendas IT Park,
Mahindra World City,
Tamil Nadu - 603 002.
VERSUS
Commissioner of CGST & Central Excise ...Respondent
Chennai Outer Commissionerate Newry Towers, No.2054, I Block, II Avenue, 12th Main Road, Anna Nagar, Chennai-600 040.
WITH Service Tax Appeal No.40037 of 2016 (Arising out of Order-in-Original No.06/2015 ST dated 28.08.2015 passed by the Commissioner of CGST & Central Excise, Chennai - III) M/s. Renault Nissan Technology & Business Centre India Pvt. Ltd., .... Appellant TP2/1, Ascendas IT Park, Mahindra World City, Tamil Nadu - 603 002.
VERSUS Commissioner of CGST & Central Excise ...Respondent Chennai Outer Commissionerate Newry Towers, No.2054, I Block, II Avenue, 12th Main Road, Anna Nagar, Chennai-600 040.
AND Service Tax Appeal No.40906 of 2017 (Arising out of Order-in-Original No.08/2016 ST dated 30.12.2016 passed by the Commissioner of CGST & Central Excise, Chennai III) Commissioner of GST & Central Excise ... Appellant Chennai Outer Commissionerate Newry Towers, No.2054, I Block, II Avenue, 12th Main Road, Anna Nagar, Chennai-600 040.
Versus M/s. Renault Nissan Technology 2 & Business Centre India Pvt. Ltd., ...Respondent TP2/1, Ascendas IT Park, Mahindra World City, Tamil Nadu - 603 002.
APPEARANCE :
Shri Shivarajan, Consultant for the Appellant Shri. Anoop Singh, Authorized Representative for the Respondent CORAM :
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL) FINAL ORDER Nos.40988-40990/2025 DATE OF HEARING: 30.05.2025 DATE OF DECISION:02.09.2025 Per: AJAYAN T.V., These three appeals, the details of which are given below, have similar issues. Hence, they were heard together and are disposed of by this common order.
Appeal ST/40528/2015 ST/40037/2016 ST/40906/2017 No. Status of Appellant Appellant Respondent RNTBCI Period 2008-09 to 2012- 2013-14 2014-15 13 OIO No. 07/2014 (ST) 06/2015 (ST) 08/2016(ST) dated 13.11.2014 dated 28.08.2015 dated 30.12.2016 service Manpower Manpower Manpower involved Recruitment or Recruitment or Recruitment or Supply Agency Supply Agency Supply Agency Services and for Services and Services and only the FY 2012- Renumeration Renumeration 13, the paid to Directors paid to Directors renumeration paid to Directors also Service Rs.8,88,22,838/- Rs.7,02,70,161/- Rs.5,69,07,212/- Tax along with along with along with demand applicable interest applicable interest applicable interest and and equivalent and applicable and penalty under penalties penalty under penalty under Section 76 under Section 78, as Section 76 proposed in dispute well as applicable statement of penalty under demand Section 77 No.13/2016 dated 04.04.2016 stood dropped 3
2. The facts germane to the dispute, as discernible from the appeal records, are that Renault Nissan Technology Business Center India Private Limited, the appellant herein (RNTBCI), is an SEZ Unit engaged in Research and Development activities for M/s. Renault Global Management SA, Geneva and M/s. Nissan Motor Ltd, Japan.
RNTBCI is primarily a support center for its group entities outside India, providing engineering, IT, IT-enabled, back office and business process outsourcing services. RNTBCI is registered with the service tax department under categories of Management or Business Consultant Service, Market Research Agency Service, Business Support Service, Information Technology Software Service and Technical Testing and Analysis Service.
3. During audit conducted by the Department, it was noticed that RNTBCI incurred expenditure in foreign currency towards social security charges, relocation reimbursements etc by way of remittances to parent company viz., M/s. Renault Global Management, SA, Geneva (referred to as M/s. Renault) and M/s. Nissan Motor Co. Ltd., Japan (referred to as M/s. Nissan) during the financial years from 2008-09 to 2012-13. The payments are reflected in the profit and loss account and the balance sheets of RNTBCI for the respective years.
4. Scrutiny of records revealed that RNTBCI, while providing services to the parent companies, also entered into contract with them for importing services from abroad. Pursuant to such contracts, the employees of both M/s. Renault and M/s. Nissan were sent to India on international transfer basis for specified durations. RNTBCI, apart from salaries of these employees, made periodical payments to the parent companies under the head reimbursement of expenses of the social security charges, relocation, administrative fees, STA utility expenses, training etc. On scrutiny of the international transfer agreement dated 01.10.2008, entered into between M/s. Nissan and M/s. Renault with RNTBCI, it was noticed that the employees continued to be in the payroll of the parent company and the employers contribution for the social security charges are made by the parent companies to the Government of France and Japan, which were subsequently reimbursed by RNTBCI. The services of the 4 employees of both M/s Renault and M/s. Nissan sent to India are used in the research activities of RNTBCI.
5. The Department was of the view that the above said services received by the appellant from its group companies would be covered under the definition of manpower services / 'Services' and the appellant is liable to pay service tax on these foreign currency payments made to the parent companies by RNTBCI, towards supply of manpower under reverse charge mechanism in terms of provisions of the Finance Act 1994 read with Service tax Rules, 1994 and notification No.30/2012-ST dated 20-06-2012. The Department also observed that during the year 2012-13, RNTBCI had paid renumeration to Directors and took a view that in terms of Rule 2(1)(d)(i)(EE) of Service Tax Rules inserted w.e.f 07-08-2012 read with para 1(A)(iva) of Notification No.30/2012-ST dated 20-06-2012 as amended by Notfn. No.45/2012-ST dated 07-08-2012, RNTBCI is required to pay service tax for services of Directors received by RNTBCI.
6. The Department therefore issued a show cause notice No.01/2014 dated 17-01-2014 for the period 2008-09 to 2012-13 invoking extended period of limitation, a Statement of Demand (SOD) No. 04/2015 dated 17-04-2015 for the period 2013-14 and another SOD No.13/2016-ST dated 04.04.2016 for the period 2014-15, calling upon RNTBCI to pay service tax for the import of supply of manpower services from its group companies located abroad as well as the renumeration paid to the Directors as more particularly specified therein. RNTBCI filed replies refuting the allegations and contesting the demands, pursuant to which, after due process of law, the respective adjudicating authorities issued orders in original. In two orders in original, for the period of 2008-09 to 2012-13 and for the period 2013-14, the adjudicating authority confirmed the demands alongwith applicable interest and also imposed penalties as specified therein. However, the adjudicating authority who adjudicated the SOD for the period 2014-15, dropped the proceedings initiated. Aggrieved, by the impugned orders in original, RNTBCI as well as the Department, having preferred appeals as detailed above, are before this Tribunal.
57. Shri. Sivarajan, Ld. Consultant, appearing for the appellant made elaborate arguments which were encapsulated as written submissions in which, as regards the demand confirmed under manpower recruitment or supply agency services, it was contended as below.
7.1 The adjudicating authority confirmed the demand without appreciating the three agreements that are relevant, in the proper perspective.
7.2 The contract of mandate dated 01-10-2008 entered into between RNTBCI and M/s. Renault had pertinent clauses to note, namely, the preamble which stipulated that RNTBCI is the employer of the expats and shall be responsible for continuing contributing to the social security and other benefits of the expats; Article 2.1, which stipulated that M/s. Renault shall pay the Home Country contributions (mandatory and non-vested) on behalf of RNTBCI and get it reimbursed by the latter and Article 3, which stipulated that M/s. Renault shall recover by raising monthly debit notes all contributions paid on behalf of RNTBCI and operating fees at 2.5% on the previously mentioned payments.
7.3 The contract between M/s. Renault/M/s. Nissan and the seconded expats, namely the International Transfer Agreement (ITA), typically outlines the assignment period with RNTBCI, scope of duty to be carried out, compensation details including perquisites etc. 7.4 The employment contract between RNTBCI and the seconded expats typically outlines the period of employment, details of workplace, scope of duty to be carried out, compensation details including perquisites, governing rules and regulations (that of India), etc., 7.5 That the terms of these contracts makes it amply clear that the employment of the expats with M/s. Renault/M/s. Nissan ceases and the expats become the employees of RNTBCI during the transfer period in India and they work under the control of RNTBCI as their employees.
7.6 The OIO has erred in the conclusion that the employees continue to be employees of the parent company based on the employees being automatically reinstated into the parent company at the end of the international transfer and RNTBCI agreeing to abide by the terms of the employment contract as agreed by the group company and that the employees are paid daily allowance all of which in fact 6 demonstrates that these employees are not employees of the Group company during the period of employment in India. 7.7 That the observations made by the commissioner that the payments made towards social security and other charges is the obligation of the Foreign Company and not of RNTBCI is completely baseless as these are actually paid on behalf of RNTBCI. RNTBCI relies on article 4 and article 6.1 of ITA and clause 4 of the employment agreement between RNTBCI and the expats in this regard.
7.8 That the payment made by RNTBCI to the group companies represent only reimbursement of expenses on actual basis and hence not includable in the value of taxable services under section 67 of the Finance Act, 1994.
7.9 Reliance is placed on the decisions in UOI v Intercontinental Consultants &Technocrats (P) Ltd, [2018] 91 taxmann.com 67 (SC), Hindustan Construction Company Ltd v CCE & ST, Navi Mumbai, (2025) 27 Centax 299 (Tri-Mum), CGST v Hindustan Construction Company, (2025) 27 Centax 300 (SC), Chaque Jour Outsourcing Solutions Pvt Ltd, (2025) 26 Centax 391 (Tri-Del), Dependable Security Bureau, 2024 (12)TMI 13-CESTAT Chennai, Rane Holdings Limited, 2025 (5) TMI 407- CESTAT Chennai, Sundaram Asset Management Co. Ltd, 2024 (9) TMI 842-CESTAT Chennai, and Bangalore International Airport, 2024 (7) TMI 1600- CESTAT Bangalore.
7.10 That the transaction of employer-employee is outside the purview of service tax. Reliance is placed on the decisions in Volkswagen India Pvt Ltd v. CCE, 2014 (34) S.T.R. 135 (Tri. - Mumbai), Commissioner v. Volkswagen India Pvt Ltd, 2016 (42) S.T.R. J145 (S.C.),Nissin Brake India Pvt. Ltd. v. CCE , 2019 (24) G.S.T.L. 563 (Tri. - Del., Commissioner v. Nissin Brake India Pvt. Ltd., 2019 (24) GSTL J171 (S.C.),CCE v. Computer Sciences Corporation India Pvt. Ltd, 2014 (35) S.T.R. 94 (Tri. - Del.),,CCE v. Computer Sciences Corporation India Pvt. Ltd, 2015 (37) S.T.R. 62 (All), CST v Arvind Mills Ltd, 2014 (35)STR 496 (Guj), Krohne Marshal Pvt Ltd v CCE, Pune I, 2015 (10) TMI 2459-CESTAT Mumbai, affirmed by Hon'ble SC in 2016(44) STR J 153 (SC), and Spirax Marshal P Ltd v CCE, Pune-I, 2016 (44) STR 310 (Tri-Mumbai), affirmed by Hon'ble SC in 2016 (44)STR J153(SC).
7.11 That the decision of the Hon'ble Supreme Court in the case of Northern Operating Systems is distinguishable from the present facts 7 in that on transfer the seconded employee becomes the employee of RNTBCI to whom the salary is paid in Indian Rupees and further the social security charges and other expenses paid by the overseas entity were reimbursed by RNTBCI.
8. The Ld. Consultant further submitted that the renumeration paid to Directors has been confirmed in the impugned OIOs overlooking the existence of employer-employee relationship between the Director and RNTBCI pursuant to their employment contract. That these directors were key managerial personnel as defined in Section 2(51) of the Companies Act, 2013 and were also disclosed as key managerial persons in the financial statements. That their renumeration was nothing but salary as evidenced by their Form 16 and TDS under Section 192 of the IT Act. Reliance was placed on the decisions in Ram Prashad v. CIT ,1972 (4) TMI 1 - SUPREME COURT, CIT v. BP. Dalmia, 1993 (1) TMI 2 - CALCUTTA HIGH COURT, Dixcy Textiles Pvt Ltd v. CCE & ST, 2025 (5) TMI 316 - CESTAT CHENNAI, Sulphur Mills Limited v. CCE & ST, 2024 (9) TMI 1549 - CESTAT AHMEDABAD, Bengal Beverages Pvt. Ltd. v. CGST & CE, 2020 (11) TMI 622 - CESTAT KOLKATA, and Ratnamani Metals and Tubes Ltd. v. CCE & ST , 2024 (3) TMI 10 - CESTAT AHMEDABAD.
9. The Ld. Consultant submitted, without prejudice to the other grounds taken, that RNTBCI carries on business from premises registered as SEZ Unit and are carrying out authorised operations from such premises. That the impugned manpower supply service allegedly received by RNTBCI were utilized only and exclusively for the purpose of authorised operations of the SEZ units. The seconded employees or Expats worked only for the assignments or projects which are part of authorised operations of the SEZ unit especially in R & D and engineering activities and which fact is undisputed in the appeal. Therefore RNTBCI is eligible for the exemption from the payment of service tax by application of SEZ law and the relevant exemption notifications issued under Finance Act, 1994.
9.1 That the adjudicating authority in Para 23 and 24 of OIO 06/2015 dt 28 Aug 2015, relating to Appeal ST/40037/2016 for FY 2013-14, agrees to the fact that RNTBCI would be eligible for exemption from service tax under the respective notifications issued u/s 93 of the 8 Finance Act 1994, when the services are used exclusively for authorized operations. The difference in views only comes from the fact that the adjudicating authority considers only the export turnover of the SEZ as authorized operation which is not tenable under the law. Ld. Consultant submits that from the definition of Authorised operations under Section 2(c), Section 4(2), and Section 15(9) of the SEZ Act and from the copies of LOA attached, it can be seen that the authorized operations are not restricted to services rendered outside India or income of the SEZ Unit generated from outside India. There are no differences between export of services or services rendered to Indian customers to qualify as "authorized operations." From the combined reading of Section 30 of SEZ Act and Rule 47 of SEZ Rules, it can be appreciated that the SEZ unit are allowed to sell their services to DTA subject to certain conditions. That when RNTBCI transacted with the customers in DTA within the parameters allowed by SEZ law and compliance with the conditions specified in such rules for DTA transactions is neither contested nor subject matter of the appeal, then it can be concluded that the SEZ law and the LOA of RNTBCI allows RNTBCI to render their services to the DTA units as part of the authorised operations and such activities are not restricted for exemption. Reliance is placed on the decision in Viram Solar P Ltd v Commissioner of CGST & Central Excise, Kolkata North, 2019 (6) TMI 517- CESTAT Kolkata wherein para 6.6 and 6.7 clearly brings out that the turnover of the SEZ unit including its sales in DTA units are part of authorised operations and concluded in para 6.14 that sales to DTA customers also form part of turnover of SEZ unit and hence qualify for exemption.
9.2 That in the OIO 08/2016 in favour of the appellant the adjudicating authority has found that the development commissioner has approved a list of services for RNTBCI to receive under exemption which included the impugned service of manpower supply and furthermore there is no allegation in the SCN regarding on usage of the impugned service for authorised operations. Hence RNTBCI is eligible for the exemption through notification No.12/2013-ST. 9.3 That without prejudice to the above submissions, Ld. Consultant further submits that RNTBCI is eligible for upfront and complete exemption from service tax for the services received for the authorised operations of the SEZ unit even without any reference 9 to the above mentioned notifications issued under section 93 of the Finance Act, 1994 and irrespective of the conditions of the notifications issued under Section 93 of the Finance Act, 1994. 9.4 It is submitted that being a SEZ unit, the services received by RNTBCI is exempt as per Section 26(1) of the SEZ Act subject to the conditions prescribed under Section 26(2) of the SEZ Act. Conditions as referred to in Section 26(2) of the SEZ Act is limited only to the conditions spelt out in SEZ law and nothing else, as can be seen from Section 2(w) of the SEZ Act which defines the word "prescribed" means to the prescriptions in the rules made by the Central Government under the SEZ Act. The conditions prescribed for such exemptions are handled in Rule 22 and 31 of the SEZ Rules which do not contain any restrictions regarding the turnover of the SEZ Unit to DTA customers. The Ld. Consultant submits that Rule 22 of the SEZ Rules only specifies about execution and maintenance of Bond cum letter of undertaking, proper accounting of the goods or services received by the SEZ unit, submission of quarterly and annual statements regarding the operations and usage of inward goods and services etc. Compliance with such conditions is not in dispute here. Further, Rule 31 of the SEZ Rules also gives exemption from service tax, for the services received by a SEZ unit for the authorised operations in a SEZ without any other condition attached to it. Thus, the conditions specified under the above mentioned notifications issued u/s 93 of the Finance Act, 1994 do not find any support from the conditions specified under the SEZ law, except for the proper accounting and usage of the services for the authorised operations of the SEZ unit, which are satisfied by RNTBCI. If any other conditions emanating from the notifications issued under Section 93 of the Finance Act 1994 are inconsistent with the conditions specified under the SEZ law especially Section 26 of SEZ Act and Rule 22 and 31 of SEZ Rules. In that respect, Section 51 of the SEZ allows SEZ law to have overriding effect over all other laws to the extent of inconsistencies of the other law when compared with the SEZ laws. Ld. Consultant further submits that the exemption allowed under SEZ law being a special law and the SEZ Act and rules being the law later in point of time, prevails over the exemption allowed under Section 93 of the Finance Act, 1994, being the generic law.
109.5 Ld. Consultant has further submitted that the notifications dated 01 March 2011, 20th June 2012, and 01 July 2013 issued under the Finance Act, 1994 in so far as they relate to Special Economic Zone, are set aside in the case of GMR Aerospace Engineering Ltd v UOI, by Hon'ble High Court of Telengana and Andhra Pradesh as such notifications are inconsistent with the SEZ law and such decision has been upheld by the Hon'ble Supreme Court. Similar view has also been taken by the Hon'ble tribunal in various decisions subsequently relying on the aforecited High Court decision. Reliance is placed on the decisions in Tata Consultancy Services Ltd - 2013 (29) STR 393, GMR Aerospace Engineering Limited v. UOI, 2019- VIL-489-TEL as affirmed in UOI v. GMR Aerospace Engineering Limited & Ors.,2019-VIL-231-SC-ST, Eclerx Services Ltd. v. Commissioner (2023) 4 Centax 89 (Tri. - Mum.) as Affirmed by Hon'ble Apex court in (2023) 4 Centax 96 (S.C.), ATC Tyres P Ltd v. CCGST & CE, 2021-VIL-106-CESTAT-CHE-ST, Cognizant Technology Solutions India P Ltd v. CCE & ST, 2021-VIL-533- CESTAT-CHE-ST, M/s. TVS Logistics Services Ltd Vs The Principal Commissioner of Service Tax, Chennai South Commissionerate, Chennai - 2021-VIL-186-CESTAT-CHE-ST, and M/s Wabco India Ltd Vs Commissioner of GST & CE, Chennai - 2021-VIL-263-CESTAT- CHE-ST
10. Ld. Consultant further submitted that for the period 2008-09 to 2012-13, in respect of the issue relating to manpower supply services, the extended period of limitation could not have been invoked as the issue was debatable involving multiple and complex interpretation of provisions, contracts etc and with many rulings in favour of the taxpayer holding that the secondment of employees from foreign entities to Indi are not taxable including the decision of the Tribunal in the case of northern operating systems and therefore due to the bonafide belief of the appellant that there was no liability to tax, the extended period of limitation was not invokable. That even in the appellant's own case the adjudicating authority has held in the appellant's favour in the OIO 08/2016 dated 30-12-2016 and thus the issue is clearly an interpretative one. That the Department is aware about the activities of RNTBCI because the Central Excise officers of the same Commissionerate, (Chennai) had already conducted an Excise and Service Tax audit for the period up to March 11 2011 and had scrutinized all the import transactions undertaken by the Appellant and did not make any observation in this regard in the letter C. No. III/10/271/2011-IA dated 20 December 2011.Reliance was placed on the decisions in CCE v. Northern Operating Systems, 2022 (5) TMI 967 - SUPREME COURT, International Seaport Dredging Ltd v. CCGST & CE, (2024) 21 Centax 469 (Tri.-Mad), Nirlon Limited v. CCE, 2015 (320) ELT 22 (SC), Hyundai Motor India P Ltd. v. CCE & ST, 2019 (6) TMI 856 - CESTAT Chennai as affirmed in 2020 (3) TMI 1101 - SC, British Airways v. Commissioner (Adjn), Central Excise, Delhi, 2014 (6) TMI 626 -CESTAT NEW DELHI (LB), CCT v. ABB Limited, 2022 (6) TMI 1212 - Karnataka High Court, Larsen & Toubro Limited v. Assistant Commissioner, 2022-VIL-800- CAL-ST, Mahindra & Mahindra Ltd. Versus Commissioner of C. Ex., Mumbai - 2018 (364) E.L.T. 1006, CCE & CC v. Reliance Industries Ltd. and CCE & ST v. Reliance Industries Ltd, (2023 (7) TMI 196 - Supreme Court), Mahanagar Telephone Nigam Ltd. v. UOI, (2023 (4) TMI 216 - Delhi High Court, GD Goenka Pvt. Ltd. Versus Commissioner of Central Goods and Service Tax, (2023) 11 Centax 2 (Tri.-Del) and M/s. Faiveley Transport Rail Technologies India P Ltd
- 2024 (8) TMI 1143 - CESTAT Chennai in this regard.
11. Ld. Consultant also submitted that there was no evidence of any wilful suppression or misstatement of facts with intent to evade tax and that benefit of section 80 ought to be extended placing reliance on the decisions in CST v Motor World, 2012 (27) STR 225 (Kar) and CST v Shreenath Motors Pvt Ltd, 2018 (9) TMI 1731 (Bombay High Court). It was also submitted that demand of interest and penalty are not sustainable and reliance was placed on the decisions in Jai Balaji Industries Ltd v CCE, (2024) 20 Centax 146 (Tri-Kol), CCE v Jai Balaji Industries, )2024_ 20 Centax 147 (Cal), Jain Irrigation Systems Ltd v CCE, Nashik, 2015 (40 )STR 752 (Tri-Mumbai) and Commercial Engineers & Body Builders v CCE, Bhopal, 2017 (1) TMI 298- CESTAT NEW DELHI.
12. Learned Authorised Representative, Shri. Anoop Singh appeared for the Respondent and made elaborate arguments contending as below:
12.1 That on a perusal of the contracts it is clear that what is paid is towards the cost incurred for making available the manpower 12 service which RNTBCI has received. Reliance is placed on the decisions of the Apex Court in M/s. International Merchandising Company LLC and M/s. Northern Operating Systems Pvt Ltd, paragraphs 42,44, 48,50, 53, 57, 59, 61, and from the clauses of the contract in the case at hand the terms and conditions and scope of the contract is more or less similar to that of the assessee before the Hon'ble Apex Court in the case of M/s. Northern Operating Systems Ltd and the ratio will apply to RNTBCI.
12.2 That articles 1,2,4 and 5, 8, 9 of the Employment contracts and the appendix thereto indicate that the contract is signed by the expat with M/s. Renault and not with RNTBCI and the issue of salary/other renumeration/power of selection/dismissal is dictated by the overseas company.
12.3 That the fact remains that the overseas employer in relation to its business deploys them to RNTBCI, their terms of employment even during the period of secondment are in accordance with the policy of the overseas employer who is their employer; that upon the end of the period of secondment, they return to their original places to await deployment or extension of secondment, the quid pro for such agreement, where RNTBCI has the benefit of experts for limited period is implicit in the overall scheme of things. 12.4 It is submitted that 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 conjoint 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 13 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 in the Northern Operating System be followed, more so, in the case of overseas Manpower Supply Service.
12.5 Ld. AR submitted that the factual position in the present case is that all payments made towards the contract are composite in nature and are part of the contractual payments and form the consideration for the service provided. Any attempt to vivisect the part related to amenities etc would make the contract unworkable. They have a nexus with the services provided. Without these allowances the contract would fail to materialize and no secondee would be willing to work. Once a lump sum or gross amount has been charged for the service by the supplier of service, it has to form the assessable value for the purpose of service tax. 12.6 Ld. Authorised Representative also submitted that the Letter of Approval only provides for supply of services in the Domestic Tariff Area in terms of the provisions of the SEZ Act and rules and orders made thereunder and is not dealing with procurement of service from abroad and in the absence of any endorsement by the proper officer, it cannot be construed as permission for import of services from abroad.
13. We have heard both sides, perused the appeal records and the case laws submitted as relied upon.
14. The issues that arise for determination are:
A) Whether the overseas entities are providing supply of manpower services to RNTBCI?
B) Whether extended period of limitation can be invoked in the facts and circumstances of the case?
C) Whether the renumeration paid to Directors of RNTBCI are exigible to service tax?
D) In case answer to A is in the affirmative, whether consequent to the supply of manpower services to RNTBCI by the overseas entities, RNTBCI is liable to pay service tax under the relevant provisions of the Finance Act ibid read with applicable provisions 14 of Service Tax Rules and Place of Provision Rules or whether RNTBCI is eligible for upfront and complete exemption from service tax for the services received for the authorised operations of the SEZ unit?
15. We find that the issue whether the overseas group company or companies, with whom the Indian Company has entered into agreements, provide manpower services to the Indian Company for the discharge of its functions through seconded employees, has come up for analysis by the Honourable Supreme Court in its decision in C.C, CE & S.T., Bangalore (Adjudication) v. Northern Operating Systems Pvt Ltd, 2022 (61) G.S.T.L 129 (SC), wherein the Apex Court has after noticing the relevant provisions of the Finance Act, 1994 with amendments as they were prior to 01-07-2012 and post the amendments in 2012, with effect from 01-07-2012, upon extensive deliberations, concluded, for the reasons given therein that the respondent therein, i.e., the Indian Company, was the service recipient of manpower recruitment and supply services provided by the overseas entity, in regard to the employees it seconded to the Indian Company, for the duration of their deputation or secondment. Furthermore, the Apex Court also held that the invocation of the extended period of limitation in both cases, by the revenue is not tenable.
16. In the instant case, RNTBCI has contended that the aforesaid decision of the Apex Court would not apply to the facts and circumstances of its case, whereas the Revenue has contended that the RNTBCI's case would be covered by the ratio of the decision of the Apex Court in Northern Operating Systems (NOS Judgement) and thus the demand is sustainable. The contentions of both sides have been extensively reproduced above.
17. At this juncture, it would be relevant to note the terms of agreement and the contentions of the parties raised in the NOS Judgement as noted by the Apex Court.
"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 :15
" 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.
(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.'"
18. In NOS Judgement, the contentions of the Revenue, inter-alia were as under:
16"14. The revenue contended that looking at an overall reading of the agreement, i.e. services agreement dated 1-9-2006 and its attachment, the master service agreement dated 12-2-2009 (with its annexures), the secondment agreement dated 1-4-2007, and the secondment assignment letter or agreement with the concerned employee clearly showed that the overseas employer provided the services of its employees to the assessee for the performance of agreed tasks. These tasks were handed over to the assessee by the overseas group company. It was not as if the assessee was free in regard to the manner of performance of the jobs assigned to it. The consideration provided to it was fixed (15% markup over the actual costs incurred); the costs included the remuneration nominally paid by the assessee to the seconded employee. Further, those were reimbursed. For a temporary period, the seconded employee was only operationally under the control of the assessee. It was submitted that this arrangement was essential because without such control, it would not have been practicable for the assessee to have ensured performance of the tasks, it was expected to, through the seconded employees concerned. Yet, the fact remained that upon the cessation of the assignment, the employees reverted back to their original position in the overseas companies to work there or to be deployed elsewhere in terms of the global policy.
15. Learned Counsel submitted that a combined reading of the materials on record clearly establish that the arrangement between the assessee and its overseas group companies - apparent through the various conditions spelt out in different documents - was one of a contract for service. In other words, what was provided to the assessee by the overseas counterpart or group companies were services through its employees. These services directly pertained to the discharge of functions of the assessee.
16. It was argued that CESTAT's reasoning that the contract between the parties was not one in which the overseas group company supplied services, was erroneous. In this context, it was urged that the mere fact that the temporary control over the manner of performance of duties of the employees seconded did not take away or diminish the fact that their real employer was none other than the overseas company. The scale of payments made to such seconded employees was of such magnitude that they were regarded as highly skilled for the performance of specific tasks by the assessee.17
17. It was argued that the real reason or purpose for the secondment by the overseas companies to the assessee was to ensure that their expertise was utilized for the performance of tasks by the assessee in terms of the service agreement and the master services agreement. Such secondment, it was contended, used their skill sets and expertise, to ensure the quality required by the overseas employer.
18. The Learned ASG relied upon the decision of the Supreme Court in Commissioner of Income Tax v. M/s. Eli Lilly & Company India Pvt. Ltd. [(2009) 15 SCC 1]. Reliance was also placed on Klaus Vogel's Treatise on Double Taxation [Klaus Vogel on Double Tax Conventions, Den Haag : Wolters Kluwer, Law and Business (2015)]. He also placed reliance on the judgment of this Court in Smt. Savita Garg v. Director, National Heart Institute [(2004) 8 SCC 56]; Workmen of Nilgiri Cooperative Marketing Limited v.
State of Tamil Nadu & Ors. [(2004) 3 SCC 514]; Silver Jubilee Tailoring House v. Chief Inspector of Shops [(1974) 3 SCC 498]; Hussain Bhai Calicut v. Alath Factory Thozhilali [(1978) 4 SCC 257] and Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. [(2021) 7 SCC 151].
19. It was submitted that whether a particular contract is one for providing services or not is to be decided on the facts of an individual case. Further, the fact of control over the manner of performance of duties or any one such singular factor cannot be decisive. It was submitted that the facts of the present case clearly establish that the overseas company entered into specific secondment agreements by which its employees were deputed to work in the assessee's establishment. The tasks performed by them were in aid of the assessee's work which was undertaken by it in the service agreement with the overseas company. The salary, allowances the duration of the secondment, were all determined by the overseas employer and not by the assessee. Upon completion of the assignment, the seconded employees were to return to their original positions and in the overseas company. The control if any, which was with the assessee was for a limited duration - it was not enabled to impose sanctions, such as cut in salary, etc. In case it was dissatisfied, it could only ask for return of the employee to her or his original position with the foreign employer. Upon an overview of all these circumstances, it was clear that the contract between the parties was essential for the supply of services by the concerned overseas company to the assessee. Therefore, it was a 18 taxable service and not excluded by virtue of amended Section 65 of the Finance Act, 1994."
19. The contentions of the assessee in the NOS Judgement were inter-
alia, as under:
"20. Mr. V. Sridharan, Learned Senior Counsel appearing for the assessee urged that a conjoint reading of Section 65(68) with Section 65(105)(k) of the Finance Act, 1994 makes it clear that the 'manpower recruitment and supply agency service' seeks to bring under its ambit two types of activities i.e. recruitment of manpower and supply of manpower. Further the service becomes a taxable service only if provided by a manpower recruitment or supply agency. In the present case, the dispute pertains to whether the secondment of employees by the group companies to the Respondent will be regarded as supply of manpower.
21. It was argued that Circular F. No. B1/6/2005-TRU, dated 27-7-2005 clarified the scope of 'Manpower Recruitment or Supply Agency' service to include staff who are not contractually employed by the recipient but come under his direction. This view is further strengthened by Master Circular No. 96/7/2007-S.T., dated 23-8- 2007. It was contended that post July, 2012, under the Negative List Regime, by Section 65(44) of the Finance Act, 1994, the services provided by an employee to the employer in the course of employment are kept beyond the ambit of the definition of 'service'. Thus, the position of law both prior to as well as post July, 2012 is same. Employee-employer relationship is outside the scope of the said service. The category of supply of manpower by an agency covers those cases where the manpower so supplied, comes under the direction and control of the recipient without contractual employment.
22. Learned Counsel argued that, ever since the introduction of service tax in India, service by an employee to an employer was never subject to service tax. There is no country in the world which levies VAT/GST on employment service, or any services rendered by an employee to the employer.
23. Counsel urged that the agreements entered by the assessee with its group companies were to provide certain specialized services. The seconded personnel are contractually hired as the assessee's employees. Control over them is exercised by the assessee. Such employees devote all their time and efforts under the direction of 19 the assessee; their remuneration is also fixed by it. The employees seconded to India are required to report to the assessee's designated offices. They are accountable for their performance to the assessee; the process of dispersal of the salaries and allowances is solely for the sake of convenience and continual of the social security benefits in the expats home county.
24. It was urged that in Collector of Central Excise & Service Tax v.
Nissin Brake India (P) Ltd. [Civil Appeal Diary No(s). 45344/2018 (C.A. No. 2408/2019)] [2019 (24) G.S.T.L. J171 (S.C.)], this Court while considering similar set of facts dismissed the revenue's appeal, which had challenged the CESTAT's ruling that expenses reimbursed by the Indian companies to the foreign group companies in relation to seconded employees cannot be subject to service tax under Manpower Recruitment or Supply Agency Service.
25. It was also urged that the group companies are not in the business of supplying manpower. The foreign group companies are engaged in providing Personal Financial Services (PFS) and Corporate and Institutional services along with investment products. The foreign group companies cannot be considered as "Manpower Supply Agency".
26. It was next urged that service tax is leviable only on the gross amount charged for the provision of service. It was argued that assuming but not admitting that service is provided by the group companies to the assessee, it cannot be said that the value of consideration for that service is the amount of salaries paid to the expats. To determine value of taxable services for charging Service Tax, gross amount charged for providing the services is to be determined. Reliance is placed on the judgment of the Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India [2013 (29) S.T.R. 9 (Del.)], which held that Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 goes beyond the mandate of Section 67 of the Finance Act, 1994 as quantification of the value of the service can never exceed the gross amount charged by the service provider for the service provided by him. This position was upheld by this Court in Intercontinental Consultants and Technocrats Pvt. Ltd. [(2018) 4 SCC 669 = 2018 (10) G.S.T.L. 401 (S.C.)]. In the present case, the demand of the service tax is being computed on the salaries and allowances paid to the employees. The salaries cannot be said 20 to be consideration paid to group companies for provision of service and thus such demand (of service tax in lieu of salaries), is untenable. Therefore, any cost or expense reimbursed does not represent the gross value of taxable service and cannot be a consideration for charging service tax.
27. Counsel argued that debit notes raised by the overseas entity upon the assessee show that amounts paid were towards reimbursement of salaries and other allowances to employees. There was no mark- up charged by the foreign company.
28. It was next submitted that the demand to the extent of ` 8,12,62,382/- for the period October, 2006 to September, 2010, should be set aside. The assessee was under the bona fide belief that the seconded employees were its employees and therefore, not covered under the ambit of manpower supply services. Further, in any case, the assessee is entitled to avail refund of the service tax paid on input services under Rule 5 of the Cenvat Rules read with Rule 6A of the Service Tax Rules, 1994. Therefore, there can be no intention to evade tax. Counsel also urged that the bona fide belief was further strengthened by the fact that for the subsequent period (April, 2012 to September, 2014), the Adjudicating Authority itself dropped the demand by recording favourable findings.
29. It was lastly urged that services received by the assessee from foreign group companies would qualify as input services and that it is eligible to avail credit of service tax paid on such input services. Therefore, even if the said demand of service tax is paid, the entire amount is available as input credit and is refunded to the Respondent in cash by virtue of Rule 5 of the Cenvat Rules read with Rule 6A of the Service Tax Rules, 1994 ("1994 Rules"). The assessee relied on detailed facts in this regard through affidavit on record by its affidavit dated 17-8-2021 before this Court. It is also on record that all the refund claims filed by the assessee had largely been granted barring small amounts which were paid against input services such as Clearing and Forwarding Agent Services, Courier Services, Information Technology Software Services. In this regard, reliance is placed on SRF Ltd. v. Commissioner [2016 (331) E.L.T. A138 (S.C.)] and Commissioner of Central Excise v. Coca- Cola India Pvt. Ltd. [2007 (213) E.L.T. 490 (S.C)]."
20. Bearing the issues framed in this case, the issues that arose in the NOS Judgement, the contentions of the revenue therein as well as 21 the contentions of the assessee in the said Judgement as noted supra, in our minds, we now examine the agreements that have been made available in the appeal records of this case. The preamble and articles of the Contract of Mandate dated 01 October 2008, entered into by M/s. Renault((RGM) with RNTBCI, are as under:
Preamble Particulars and Articles of Contract of Mandate Preamble RNTBCI is the employer of various expatriates /
personnel who are on International Transfer and to whom continuation of social security and other benefits have been assured under the relevant employment contract.
Article The aim of this Contract is to formally set out the 1:Object terms and conditions between RNTBCI and RGM for the reimbursement specified in article 2 (hereinafter designated the "MANDATE) ARTICLE 2: SCOPE AND MANDATE 2.1 Scope RGM undertakes to make Home country contributions (mandatory & non vested) payments on behalf of RNTBCI and for the designated employees of RNTBCI. RNTBCI will specifically indicate to RGM the employees involved in this service.
2.2 Every month the employees concerned will receive a Description of monthly payment slip summarizing the contribution the mandate done. By the 7th of each month RNTBCI will notify RGM of:
- New employees affected by RGM's undertaking
- Employees leaving RGM's undertaking,
- Changes to salary amounts, ARTICLE 3: RGM will recover the payments from RNTBCI, PAYMENTS according to the rules listed below:
• All contributions paid by RGM on behalf of RNTBCI by raising a monthly debit note, • 2.5% of above payments as operating fee by drawing up a summary invoice at the end of the year The above invoices will in principle be in euros excluding VAT.
ARTICLE 4: This contract comes into force on 1 January 2008 and INCEPTION ends on 31 December 2008. AND DURATION OF It will be tacitly renewed for one year and thereafter THE year on year, unless it is terminated by either of the CONTRACT parties in a recorded letter at least six months before its expiry. ARTICLE 5: Swiss law only applies to the present contract, with APPLICABLE the exclusion of all references to any other legislation. LAW AND JURISDICTION Any dispute arising from this contract or from any
associated agreement, particularly with regard to their, validity, interpretation, execution or non- execution, before or after this contract is executed 22 will be referred to the relevant authority with jurisdiction in Geneva.
21. In an Employment Contract between M/s. Renault (RGM) and Mr. Stephane HOBLINGRE, a French National, the preliminary recital indicate that in this contract, unless otherwise stated or the contrary intention appears, 'Employer' means either, RGM or the Host Company, as the context may require, but not both. It is further stated that "Host Company" means the company to whom the employers are sent on International Transfer. The articles of this employment contract, are as under:
Articles of Particulars
employment
contract
ARTICLE 1- Mr. Stephane HOBLINGRE is to be taken in
OBJECT OF employment as of January 1st, 2008, as Technical
THE Manager subject to the results of the recruitment
CONTRACT medical check-up.
The employment contract between Mr. Stephane
HOBLINGRE and RGM exclusively applies in this
context and for the duration of an International transfer activity.
The conditions for this international transfer are defined in an appendix to this contract and will also apply to Host Company when it is an Employer. The Host Company defined in Attachment A of the appendix may change without modifying anything of this contract, in which case, a new attachment will be executed between both parties.
ARTICLE 2- Mr. Stephane HOBLINGRE will be eligible for REMUNERAT remuneration as stated in Article 2 of the Appendix. ION The salary payable (including social security contributions) will be calculated on the basis of a gross annual notional basic salary, which for Mr. Stephane HOBLINGRE is set at 50753 Euros per annum.
In consideration of the execution of this position, this gross annual notional basic salary represents global remuneration for all activities carried out in view of service requirements. This amount will represent the basis for the calculation of remuneration, as defined in the enclosed appendix, relating to this and any subsequent foreign employment with any Host Company (any Renault Group Entity Outside France).
From the Gross Annual Notional Salary, a net annual notional basic salary will be arrived at after deducting the following:
Home Social Contribution: 11402 Euros 23 Home Hypothetical Taxes: 2034 Euros Net annual notional basic salary: 37719 Euros This gross annual notional basic salary at the end of international transfer will act as the new gross annual salary for the reintegration ARTICLE 3- This employment contract includes further VALIDITY employment to any other Host country during which OF THE period the RGM employment will come to an end, EMPLOYMEN subject to what is stated in this employment contract, T CONTRACT and the Host Company will be the Employer abiding by the terms and conditions of this contract. The Host Company will abide by the terms of this contract by signing the appendix to this Contract as an Employer.
This contract is only valid for the duration of the International transfer and is subject to obtaining employment and residential permits in the Host Country.
This contract will automatically cease to take effect at completion of the duration of the International transfer, and the employment contract with RENAULT SAS (Home Company) will automatically restart and take effect at that date.
ARTICLE 4- See appendix enclosed. SOCIAL PROTECTION ARTICLE 5- See appendix enclosed. RETIREMEN T ARTICLE 6- Mr. Stephane HOBLINGRE will comply with the rules RULES - of procedure and the duration of the working week DURATION established by RGM or the Host Company if any. OF THE WORKING WEEK ARTICLE 7- Mr. Stephane HOBLINGRE will not communicate any CONFIDENT information of any type obtained in the execution of IALITY his/her function and concerning the organization of CLAUSE RENAULT Group, its commercial relations its markets
and its working methods, to third parties, both during the application of this contract and after its termination.
Any documentation and correspondence transmitted to Mr. Stephane HOBLINGRE will remain the property of RENAULT Group and must be returned to the latter at the termination of this contract, independently to the reasons of the termination.
ARTICLE 8 - Either party may notify in writing the termination of FORMALITI this contract to the other party, with notice of three ES FOR THE months, from the end of the month. This notice may TERMINATI not be applicable in case of a transfer within the ON OF THIS RENAULT Group or within companies controlled as CONTRACT 24 defined in article I.233-16 of the French code of commerce and its Alliance companies.
This contract may come to an end by the Employer with immediate effect and without notice if the passport or the residential permit expires or is withdrawn by the immigration service of the country to which the employee is assigned for any reason based on the direct liability of the employee.
ARTICLE 9- This employment contract is established on the basis COMPETENT of, and is governed by Swiss law. Any disputes JURISDICTI concerning or relating to this contract and its ON appendices will be settled by the competent court for the canton of Geneva, Switzerland. The parties expressly accept the exclusive jurisdiction of the competent court in the canton of Geneva. Appeals may be submitted to the Swiss federal court.
RECRUITME Two copies, Geneva, Switzerland, on December 17,
NT VENUE 2007
Signature proceeded by the handwritten mention Read and approved. Each page is also initiated.
22. The appendix to the aforesaid employment contract, after stipulating that the parties agree to and conclude to the following, has the following articles and particulars.
Articles of Particulars
Appendix to
the
employment
contract
Article 1- This appendix to the employment contract of January
Object 1st, 2008 is implemented in the context of Mr.
Stephane HOBLINGRE employment with RGM or the
Renault Nissan Technology & Business Centre India Pvt. Ltd. (hereinafter referred to as RNTBCI) in INDIA as Technical Manager, for execution in CHENNAI, as of January 1st, 2008, for a provisional duration of 3 years once RNTBCI signs the Attachment A mentioned below.
Both RGM and RNTBCI may mutually agree to increase or decrease the duration of the aforementioned international transfer on the basis of the requirements of the service or activities, after notification to Mr. Stephane HOBLINGRE. Should no written response be received from Mr. Stephane HOBLINGRE within one month of the said notification, Mr. Stephane HOBLINGRE will be considered to have accepted the extension to the duration of the International transfer.
During his employment with RNTBCI, Mr. Stephane HOBLINGRE will be subject to the sole supervision and control of India IS Development Center Director being personnel of RNTBCI and will exclusively report to the latter.
It is expressly clarified that while the employment with RGM comes to an end during the employment 25 with RNTBCL, except subject to what is expressly stated in this employment contract and its appendix.
In the interest of the Renault Group, RGM may, with the consent and under an authority of the RNTBCI, modify or terminate this appendix.
In addition to this contract, Mr. Stephane HOBLINGRE will also be obliged to comply with all laws, regulations and, more generally speaking, all applicable legal standards in INDIA, with respect to his employer i.e. the RNTBCI, particularly with regards local labour regulations and any specific regulations applicable to international transfers.
Article 2- During the period of this contract, "Mr. Stephane Remuneratio HOBLINGRE will receive remuneration from the n employer i.e. RGM or RNTBCI as under:
At the date of the international transfer, the amounts and percentages will be arrived at as follows:
• Net Annual Notional Basic Salary: 37719 € (Refer "Article 2 Remuneration" of the Employment Contract) • Net Foreign Service Premium of 85% of the above Net Annual Notional Basis Salary: 32061 € • Cost-of-living Allowance (70% of the above Net Annual Notional Basic salary) of 0.92 Total Net Salary of Rupees 3826093 per annum Complementary elements, i.e. Foreign Service premium and Cost-of-living Allowance are exclusively related to the international transfer. Consequently, they are excluded from the gross annual notional basic salary taken into consideration by RENAULT SAS in France when returning, among other considerations. For technical reasons, these elements may however be mentioned on the pay slip.
The Foreign Service premium and Cost-of-living Allowance may be increased or decreased according to the applicable indexes for RGM procedures.
Special Allowance as mutually discussed and agreed, will be paid to you on monthly basis.
In addition to the above, you will be eligible for the following:
1) Housing which will be provided for by the Employer.
ii) Schooling of children if any, which will be paid for by the Employer.
iii) Your passage to and from France, subject to a maximum of once in a year in economy class would be paid for by the Employer for self and family.
iv) You will also be entitled to four vacations anywhere in Host Country for self and family, the cost of which would be paid for by the Employer.26
v) You will be provided with a car for your official use and another car, if you have a family. The cars will be fully maintained by the Employer.
The above elements represent a set remuneration for the time invested by Mr. Stephane HOBLINGRE in the exercise of his function.
Article 3 - All payments made hereunder by RGM or the RNTBCI Taxation to you shall be made subject to applicable statutory deductions and withholdings towards applicable taxes. Further, you will be liable to pay all taxes and the RGM or the RNTBCI is not liable for non-payment of any such taxes by Mr. Stéphane HOBLINGRE.
ROM or the RNTBCI may at is option, decide to pay Indian income taxes on the non-monetary perquisites provided to Mr. Stéphane HOBLINGRE.
Article 4- In view of the international transfer of Mr. Stephane Social HOBLINGRE, the former is no longer entitled to protection coverage by the mandatory regimes applicable in the home company.
Consequently, RGM has subscribed insurance provisions for Mr. Stephane HOBLINGRE covering against following risks:
-Sickness, maternity for assignee and for his/her family
-Work accident (including the reimbursement of costs and an invalidity pension)
-Unemployment Insurance When employed by RNTBCI, such payments will be made directly by the RNTBCI or by RGM on their behalf and recovered separately in compliance with local foreign exchange regulations.
Article 5- Mr. Stephane HOBLINGRE will continue to be covered Death & against Death & Disability, provided by the home Disability company during the international transfer. He will be covered also by two additional policies for non- occupational accidents" and "family insurance" as subscribed by RGM.
When employed by RNTBCI, such payments will be made directly by the RNTBCI or by RGM on their behalf and recovered separately in compliance with local foreign exchange regulations.
Article 6- 6.1 Basic retirement Retirement RGM will continue to pay the retirement contributions guaranteeing the pension rights of
Mr. Stephane HOBLINGRE to the CFE (administration processing the contributions of French citizens living abroad) in France and when employed by the RNTBCI, such payments will be made either directly or by RGM on their behalf and recovered separately from the RNTBCL 6.2 Complementary retirement 27 During the international transfer period, RGM will continue to pay complementary retirement contributions, calculated on the basis of the gross annual notional basic salary and when employed by RNTBCI, such payments will be either directly or by RGM on their behalf and recovered separately from the RNTBCL Article 7 - Should "RNTBCI" or RGM wish to terminate the Early planned international transfer at an early date, termination "Assignee's name" will be notified in writing of the of the date of termination of the international transfer, with internationa notice of 3 (three) months.
l transfer Article 8 - At the end of the international transfer, the Reintegratio employment contract and this appendix will n automatically cease to apply. Mr. Stephane HOBLINGRE will be automatically re-instated by RENAULT SAS to an equivalent position. This reintegration will be done on the basis of the gross annual notional basic salary for the home company at the date of return.
Article 9- This appendix is subject to Swiss law, as is the case
Applicable for the employment contract of which it is an integral
legislation part.
and
jurisdiction
23. Employment Contract and appendix pertaining to Mr. Anash HAIME, of French nationality available on record is on similar terms and the employment contract and appendix thereto in respect of Mr. Florian GEORGESCU, a Romanian national employed by M/s. Renault as Process Design Engineer, with similar terms is also seen on record which indicated payment in Romanian currency with some variation in emoluments.
24. It is also seen from an Employment Contract dated 9th June 2009 on record, in respect of Mr. Yasuo Nakajima, an employee of M/s. Nissan, Japan entered into with RNTBCI, that it states inter-alia that the transferee is reporting to the Manager Product Development, the contract is initially for the period starting from 04/07/2009 to 31/01/2011, the annual salary will be paid in India of 1,474,55.927 INR and in Japan, 4,942,428 JPY, the transferee will receive a monthly salary after deduction of applicable taxes; that he is entitled to Housing, schooling of school age accompanying children paid for by the company, passage to and from home location maximum once a year in economy class for self and family, annual leaves twice per year for 5 days per each to anywhere in India or 28 nearshore destination for self and family, Company car for official use etc.
25. RNTBCI had on the basis of the above contended as under:
25.1 From the undisputed facts and clauses of the agreement, it is evident that there exists employer-employee relationship between RNTBCI and the expats. Further, the employment of expats with RNTBCI is made inactive during the period of secondment. 25.2 that M/s. Renault makes payment of a portion of salary only on behalf of RNTBCI. Further, the expats are employed for the purpose of RNTBCI business in India.
25.3 that there exists operational and administrative control over the employees by RNTBCI. Further, RNTBCI also possesses economic control over the expat employees as the salaries are paid by the Appellant RNTBCI as set out by the separate Employment Contract;
that there is no supply of manpower services between M/s. Renault or M/s. Nissan and RNTBCI.
26. It was also contended that the facts in the present case are different from the facts involved in the Judgment of the Hon'ble Supreme Court in Northern Operating Systems and therefore the contention of the Department that the decision of the Hon'ble Supreme Court in Northern Operating Systems Private Limited is squarely applicable to the facts of the present case, is incorrect. The said decision is not applicable to the present case for the reasons that on transfer the seconded employee becomes the employee of RNTBCI to whom the salary is paid in Indian Rupees and further the social security charges and other expenses paid by the overseas entity were reimbursed by RNTBCI.
27. Learned Authorised Representative, Shri. Anoop Singh has argued that during the secondment term, the expats deployed to RNTBCI remain the employees of M/s. Renault or M/s.Nissan and that the expats are supplied by the home companies to RNTBCI under certain terms and conditions. In other words, expats are on regular rolls of the parent company and are deputed on international assignments to the appellant and are returned to the parent company on completion of the job/project. It is also contended that the Employment Contract and appendix entered into between M/s.
29Renault and the seconded employee would clearly indicate that RNTBCI was not a party to the agreement and the terms are evidently as dictated by the Home Company and the home company exercises complete control over the expats. It is contended that the part of remuneration paid to the expats in their home country by M/s. Renault and M/s. Nissan, which is ultimately borne by RNTBCI is nothing but compensation paid to the Home companies towards transfer of these expats as experts for the business of RNTBCI and this cash flow is to be construed as consideration for the services received. Reliance is placed on the judgement of the Hon'ble Supreme Court in the case of Northern Operating Systems P Ltd, wherein it was held that the service provided by the foreign company to the appellant based on secondment agreement comes under the category of Manpower Supply service and the appellant is liable to pay service tax, as well as the decisions in M/s. Renault Nissan automotive India Pvt. Ltd, 2023 (7) TMI 635 - CESTAT CHENNAI. Reliance is placed on the judgement in the case of Great Eastern Shipping Company Ltd. Vs State of Karnataka [2020 (32) G.S.T.L. 3 (S.C.)] where it was noted that "it is a settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualize. It comprises the joint intent of the parties. Every such contract expresses the autonomy of the contractual parties' private will. It creates reasonable, legally protected expectations between the parties and reliance on its results. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both the parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation."
28. We find that the aforesaid quoted portion on how a contract is to be interpreted was a reproduction of para 13 of the Honourable Apex court decision in DLF Universal Ltd. & Anr. v. Director, Town and Country Planning Department, Haryana & Ors., (2010) 14 SCC 1, in the aforecited decision of the Apex court in Great Eastern Shipping Company Ltd. Vs State of Karnataka, 2020 (32) G.S.T.L. 30 3 (S.C.) and one can hardly have any difference with the aforesaid proposition.
29. The Adjudicating Authority in the impugned Order in Original No.07/2014 ST dated 13.11.2014, after considering the contract terms, has rendering findings against RNTBCI, holding as under:
"29. From the above reading, it is clear that the noticee (RNTBCI) had not engaged the staff deputed on international transfer, on their own terms. I find that the terms and conditions imposed by the parent company of the employee, would also be the terms applicable both for the employee as well as for the noticee company. The noticee does not have its own terms on fixing of salaries to the employees, coming on international transfer. It is also clear that during the employment with the noticee, the employee is paid daily allowance of 373 Ron by (RGM) the parent company, during the assignment in the host country. I find that the terms and conditions are the same in respect of other employees, i.e. Mr. Louis Renou, Mr. Stephene HOBLINGRE etc. who are deputed on international transfer, except the variations in fixing the quantum of emoluments.
30. From the above discussions it could be concluded that the employees claimed to have been sent on international transfer by the parent company, were not under the total control of the noticee and the employees were continued to be the employees of the parent company. This is further proved by the point that the employees would be automatically re-instated into the parent company, at the end of the international transfer i.e. on completion of assignment with the noticee. Hence their claim that there is no supply of manpower and it was only engagement of employee on international transfer, does not have any basis."
30. Likewise, in the impugned Order in Original No.06/2015-ST dated 28.08.2015, the adjudicating authority, after analyzing the terms of the employments contracts, held against RNTBCI, finding as under:
"16. From the above reading, it is clear that the noticee (RNTBCI) had not engaged the staff deputed on international transfer, on their own terms. I find that the terms and conditions imposed by the parent company of the employee, would also be the terms applicable both for the employee as well as for the noticee company. The noticee does not have its own terms on fixing of salaries to the employees, coming on international transfer. I find that the terms and conditions are the same in respect of other employees, i.e. Mr. M. Anash Haime etc. who are 31 deputed on international transfer, except the variations in fixing the quantum of emoluments.
17. From the above discussions the following conclusions can be drawn:
(i) the employees claimed to have been sent on international transfer by the parent company, were under the control of the noticee, namely M/s. RNTBCI for the purpose of extraction of work and payment of salary and other perks (including the payment of social security charges); (ii) despite the contractual employment with M/s. RNTBCI, the employees continued to be associated with the parent company, for two reasons:
(a) their salary and perks were paid in terms of the contract between the parents (NISSAN and RENAULT) and the Indian company RNTBCI;
(b) the employee would be automatically re-instated into the parents, at the end of their international transfer i.e. on completion of assignment with the noticee, namely RNTBCI. Thus supply of manpower from parents located in the non-taxable territory (namely, Fance and Japan) to RNTBCI located in the taxable territory (India, here chapter V of the Finance Act, 1994 applies) is confirmed.
18. In respect of their claim that only 12 were engaged under ITA (International Transfer Agreement) and the balance 125 were directly engaged by the noticee under employment contract, I find that the compensation for these employees (on direct employment contract) are paid partly in EUROS/foreign currency by their foreign principals directly into the bank accounts of the expats and the same are collected from the noticee company in foreign currency. For example one employment contract dated 1.3.2013 related to Mr. M. Jean-Marc LE GUILLY indicates that the said expat is offered annual basic salary of Rs.34,69,657.61 in INR apart from Net Net Foreign Service Premium of 75% of the Net Annual Basic Salary. It is also given in the contract that apart from the Indian salary paid herein, the amount of EURO paid into his bank account on behalf of RNTBCI (the noticee) would be reckoned for tax as per Indian Income Tax Act. Here it should be noted that the amount remitted to the bank account of the expats are the amounts which are in addition to the ones given as salary by the Indian company. Hence their claim that what is remitted to their foreign principals is only salary is not correct. More over I find that the question of employee-employer relationship does not arise in this case, as the demand is made only on the remittances made to the foreign companies and not on the salary from the employees who are supplied to the Indian company. Further, the noticee, namely RNTBCI, had not remitted directly for the social security charges and these charges are remitted through the foreign parents as the concerned expats still continue to associate with the foreign parents. Further as revealed in the direct employment contract, 32 the amounts remitted in foreign currency are in addition to the Indian salary amounts mentioned in the contract. Hence the notice's claim that the remittances made to the foreign companies are nothing but part of the salary of the expats is not sustainable. In view of this position I hold that the social security and other charges remitted in foreign currency to the parents being in the nature of consideration, in respect of supply of expats for M/s. RNTBCI as well as the expats who are employed under the direct contract, are liable to service tax."
31. We find that the Contract of Mandate between M/s. Renault and RNTBCI while indicating that RNTBCI is the employer of the various expatriates/personnel who are on International Transfer, nevertheless, indicate that under the relevant employment contract these employees have been assured a continuation of social security and other benefits. The Contract of mandate also indicates that its object is to formally set out the terms and conditions between the parties for the reimbursement specified and that M/s. Renault will recover the payments from RNTBCI as per the rules set out therein. These rules include not only all contributions that M/s. Renault pays on behalf of RNTBCI by raising a monthly debit note, but also 2.5% of the above payments as operating fee. For such payments, the invoicing is to be in Euros excluding VAT. That apart, it is also seen that the employment contract and the appendix thereto is entered into only between M/s. Renault and the expat who is being so transferred by M/s. Renault to RNTBCI, which clearly indicates that the expat is primarily the employee of M/s Renault at first instance. Further, in order to facilitate the statutory and other mandated commitments of the employer, i.e. M/s. Renault, in the expat's home country (including but not limited to insurance, social security, retirement contributions, etc.), the expat would be paid such amounts in his home country. The salary of the expat, no doubt is subjected to Indian Income Tax Act, nevertheless, to our mind, it appears that the contracts, while structured in a manner that the costs of transfer of the expats shall be the liability of, and paid by, RNTBCI, however, it appears to be so done only as an attempt to establish that there is no permanent service establishment of the overseas company in India. In any event, when pertinently, the scope of the contract as stipulated in Article 2 inter-alia states "RNTBCI will specifically indicate to RGM 33 the employees involved in this service.", it is evident that both parties are ad idem that it is a contract for manpower supply.
32. We find that in the instant case the expat while under employment with RNTBCI would function under the control, and supervision of RNTBCI. The remuneration to be paid by RNTBCI is however decided by M/s. Renault. Thus, although the employment contract between M/s. Renault and the expat stipulates in Article 3 that the RGM employment (employment with M/s. Renault) will come to an end subject to what is stated therein, yet the paying of the said amounts relating to the expat's social protection by way of insurance, death and disability and added insurance covers in this regard, pension contribution etc, by the Home Company is nothing but the continuance of the obligations of the Home Company to the expat being fulfilled, evidently to be in compliance of the local laws of the Home Company, which is thereafter being recouped by RNTBCI. In other words, it is the actual liability of the Home Company to pay these amounts in compliance with the local laws and it is not that of RNTBCI. Therefore, unlike a reimbursement where the actual liability to pay is of the person who reimburses the money to the actual payer, here the actual liability is not of RNTBCI but that of the Home Company. Thus, when the liability itself being that of the Home Company as the actual payer is being so discharged by the Home Company, the said amount being paid by RNTBCI is only in fulfilment of its liability to pay the COSTS of such transfer of the expat and is clearly not a reimbursement, but a recoupment of the said payment. We are of the view that it is a recoupment and not a reimbursement since the liability to pay these amounts as per the local laws governing such social security contributions or pension contributions being made by the Home Company in its relationship with the expat as per the relevant employment contract and appendix which the Home Company has entered into with the expat was, is, and has always been with the Home Company only, and it was never on RNTBCI in the first place. Further, Article 1 of the Employment Contract makes it clear in no uncertain terms that the employment contract between the expat and RGM ( M/s. Renault) exclusively applies in this contract for the duration of an International transfer activity. For the aforesaid reasons, we are also unable to subscribe to RNTBCI's contention 34 that such payments of social security amounts by the Home Company was on behalf of RNTBCI, as it is evident that the Home Company was not acting as an agent of RNTBCI, but was acting in its capacity as the primary employer of the expat.
33. We also note that under the employment contract the expat, i.e. the seconded employee, for the duration of her or his secondment, is under the control of RNTBCI, and works under the appellant's directions. Yet, the fact remains that they are being loaned on a temporary basis by the Home company to the appellant. As per article 3 of the employment contract, the contract will automatically cease to take effect at completion of the duration of the international transfer, and the employment contract with the Home company will automatically restart and take effect at that date. This is also emphasized in the appendix to the contract at article 8 titled reintegration, which again stipulates that at the end of the international transfer, the employment contract and this appendix will automatically cease to apply and the expat will be automatically reinstated by the Home Company to an equivalent position and such reintegration is being done on the basis of the gross annual notional basic salary for the home company at the date of return. Thus, the expat's employment with the home company can, at best, be stated to have been made temporarily inactive. In other words, it is not terminated, and the expat continues to retain his lien on his employment with the home company, even while it is inactive/suspended. Thus, the conspectus of the entire contracts when read conjointly appears to indicate that even though there is a dual employer-employee relationship, one between the Home Company and the expat, and the other between the Host Company and the expat, the employer-employee relationship between the Home company and the expat overwhelmingly overshadows and looms large over the employer-employee relationship between the Host Company and the expat, as the predominant relationship between the two simultaneously existing dual employer-employee relationship. We say so, for the reason that while the contracts are structured to reflect operational control of the expat with the Host Company while on secondment, the liability to pay the amounts as per the local laws governing social security contributions or pension contributions being made by the Home Company in its relationship 35 with the expat as the Home Company's employee, coupled with the fact that the expat apparently continues to retain his lien on his employment with the home company, even while it is inactive/suspended and further the fact that on the cessation of the secondment period, they have to be repatriated in accordance with the employment contract that has been entered into between the Home Company and the Expat and exclusively applies for the duration of the International transfer activity; clinches the truth that the ultimate legal liability and responsibilities of an employer, towards the expat as an employee, is always with the Home Company in so far as the expat is concerned.
34. At this juncture, it would be relevant to reproduce the relevant paragraphs of the analysis and conclusions of the Honourable Apex Court in the Northern Operating Systems Pvt Ltd, 2022 (61) G.S.T.L. 129 (SC), which are as under:
"33. The issue which this Court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, provide it manpower services, for the discharge of its functions through seconded employees.
34. The contemporary global economy has witnessed rapid crossborder 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 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."
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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.
43. A plain reading of the definition of "manpower recruitment agency"
(per Section 65(68) of the unamended Act) requires that to fall within that description,
(a) a person (the expression is not defined; however, by Section 3(42) of the General Clauses Act, the term includes "any company or association or body of individuals whether incorporated or not");
(b) provides service
(c) directly or indirectly,
(d) in any manner for recruitment or supply of manpower,
(e) temporarily or otherwise
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 a change. Except listed categories of activities excluded from, or kept out of the fold of the definition, every activity virtually is "service". Now, by Section 65(44), "service" means
(a) any activity
(b) carried out by a person for another
(c) for consideration, and
(d) includes a declared service (the term "declared service" is defined in Section 66E).
45. Section 65(44), however, excludes from its sweep [by clause (b)], "a provision of service by an employee to the employer in the course of or in relation to his employment." The assessee contends that the secondment agreement has the effect of placing the overseas employees under its control, so to say, and enables it to require them to perform the tasks for its purposes. It emphasizes that the real nature of the relationship between it and the seconded employees is of employer and employee, and outside the purview of the service tax regime.
46. From the above discussion, it is evident, that prior to July, 2012, what had to be seen was whether a (a) person provided service (b) directly or indirectly, (c) in any manner for recruitment or supply of manpower (d) temporarily or otherwise. After the amendment, all activities carried out by one person for another, for a consideration, are deemed services, except certain specified excluded categories. One of the excluded categories is the provision of service by an employee to the employer in relation to his employment.
3747. One of the cardinal principles of interpretation of documents, is that the nomenclature of any contract, or document, is not decisive of its nature. An overall reading of the document, and its effect, is to be seen by the Courts. Thus, in State of Orissa v. Titaghar Paper Mills Co. Ltd. [1985 Supp SCC 280] it was held as follows :
"120. It is true that the nomenclature and description given to a contract is not determinative of the real nature of the document or of the transaction thereunder. These, however, have to be determined from all the terms and clauses of the document and all the rights and results flowing therefrom and not by picking and choosing certain clauses and the ultimate effect or result as the Court did in the Orient Paper Mills case (1977) 2 SCR 149)".
This principle was reiterated in Prakash Roadlines (P.) Ltd. v. Oriental Fire & General Insurance Co. Ltd. [(2000) 10 SCC 64].
48. The task of this Court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true 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 markup 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 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);
38(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 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 39 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 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 40 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."
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, 41 merely affirmed the rulings of the CESTAT, without any independent reasoning. Their precedential value is of a limited nature. This Court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. That a particular rate of tax - or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount.
60. This Court is also of the view, for 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)."
35. RNTBCI has attempted to distinguish the aforesaid judgement.
However, the distinctions sought to be highlighted are not of much import when the Apex Court itself has stated in the aforesaid Judgement in paragraph 52 that "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."
36. We also find that the employment contract and the appendix thereto or the employment contract of RNTBCI with the expat employee of M/s. Nissan, Japan, are silent whether RNTBCI shall have the sole right, or even the right to take punitive steps against misconduct, negligence, fraud or unsatisfactory performance of work by the transferred employee while performing the tasks under RNTBCI. It is only the length of the contract provided and the duration of working week, apart from renumeration and benefits that have been spelt out. It is also relevant that unlike an employer- employee contract where the employer can terminate the employment of the employee in case of contumacious conduct, uninfluenced by any other entity, in the RNTBCI's case, it does not 42 have any control on whether or not the Home Company should terminate the employment of the expat for such conduct. In fact the appendix also has a caveat that the notice may not be applicable in case of a transfer within the RENAULT Group or within companies controlled as defined in article L233-I6 of the French code of commerce and its Alliance companies, all of which clearly indicate that the expat/transferee is under the real control of the Home Company who is transferring them on a temporary basis and RNTBCI has next to nil discretion in suo motu altering the terms of employment contract of the transferee, thereby also negating RNTBCI's contention of an independent or standalone employer- employee relationship. In fact, RNTBCI does not appear to have any leeway to act on its own accord to transfer the transferee to suitable other duties, or even to transfer to any other duty station, which indicates the hold of the Home Company. The employment contract between the Home Company and the expat which states that it exclusively governs during the international transfer activity, makes it clear that the sway of the Home Company as to where the transferee would work and what duties the transferee would undertake, are not insignificant. Thus, while the fragmented control structure obfuscates the limits of disciplinary control and enforceability for violation of contractual obligations that can be exercised by the Host Company while the expat is with the Host Company, nevertheless, the silence on certain aspects in the employment contract of the expat, as well as the limitations on termination of employment, as observed supra along with the exclusivity of the employment contract during the duration of the international transfer activity, adds heft to our view that the true and real control over the expat is always with the Home Company.
37. We also find the existence of the mark up in the contract of mandate is indicative of a directly relatable financial benefit and evidences that the contract has been understood as contract for supply of manpower by both M/s. Renault and RNTBCI . Further, the indirect benefits that the Host Company derives from the skill sets and expertise of the expats resulting in improved and efficient performances through the transfer or application of the unique knowledge/skills/expertise that the expats have developed while being with the Home Company, is not something that can be 43 ignored. It is precisely the securing of such benefits that motivates RNTBCI to seek secondment of employees from the Home Company and for the said purpose take on the liability including recoupment of the social security benefits, retirement contributions etc. In such circumstances the recoupment of the employee's expenses by the RNTBCI, which expenses were otherwise being borne by the Home Company, also becomes the consideration for such supply of transferees to perform the duties in relation to the Host company's business. The conclusions of the Apex Court that "it would be unnatural to expect the overseas employer to not seek reimbursement of the employees' salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business" as well as the observation that "It is doubtful whether without the comfort of this assurance, they would agree to the secondment" , is worth bearing in mind in this context.
38. The Hon'ble Supreme Court in its Judgement in Northern Operating Systems, has observed that there is no single determinative factor for deciding whether a contract is for service or a contract of service. Distinctiveness of each case demands an evidence based examination and it no doubt appears attractive to strike out a different path based on factual aspects disregarding precedents. Yet, three factors that evidently has weighed with the Apex Court in the NOS Judgement to hold that the assessee therein was, for the relevant period, service recipient of the overseas group company concerned, which can be said to have provided manpower supply service are, (1) the lien on employment, i.e., the transferees/expats continuing to be in the employment of the overseas employer as is evident from their return to the Host Company's employment after completion of the secondment tenure, (2) the service rules of the overseas entity governing the transferee's terms of employment, even during the secondment, which are in accord with the policy of the overseas entity and (3) the salary package offered being based on what the expat was earning while he was with the Home Company or as fixed by the Home Company. This has led to the Honourable Apex Court holding that the overseas entity remains the employer and thus, concluding that there is a provision of manpower supply services from the overseas entity to the Indian entity, taxable under erstwhile service 44 tax law. To our mind, when these three factors exist in a case, no lower court or authority can then take a different stand contrary to the NOS Judgement. These three factors are evidently in existence even in the appellant's case herein as analysed in our discussions supra. Further, not every factor elucidated by the Supreme Court holds equal relevance or would weigh equally when considering individual agreements/contracts in different cases. Yet, when there are factors that have weighed with the Apex Court to pigeonhole secondment by the overseas company as provision of manpower supply service, thereafter, as a Tribunal, we are hardly at liberty to distinguish the same as inconsequential factors, or accord less weightage, and then to depart from the Judgement of the Honourable Apex Court.
39. Therefore, we respectfully defer to the wisdom of the Honourable Apex Court that has consciously chosen to apply the substance over form test mandating a close look at the terms of the contract, or the agreements while interpreting such contracts of transfer/ employment. Thus, on a careful scrutiny of the relevant documents on record, as elucidated supra, we do not find that the facts of the instant case is substantially different from the facts stated in the judgement of the Honourable Supreme Court in the case of Northern Operating Systems Pvt Ltd. We therefore, as answer to the first issue framed as to whether the overseas entities are providing supply of manpower services to RNTBCI?, hold that the overseas entities are to be treated as the employer of the expats, and the transfer of expats to RNTBCI pursuant to the contracts, would be treated as providing service of manpower supply by the overseas entity to RNTBCI.
40. We find that the decisions relied upon by the appellant in this context also turn on the peculiar facts and circumstances therein which are different from that of Northern Operating Systems as well as that of the appellant's facts and circumstances and have been rendered before the Apex Court decision laid down the law or without noticing or distinguishing the Judgement of the Apex Court in Northern Operating Systems. Therefore, all these decisions are thus distinguishable as inapplicable in the instant case. In the interest of avoiding prolixity, we deem it unnecessary to separately 45 elaborately address each cited case law to distinguish the same on the peculiar factual paradigm thereof.
41. We find that the appellant's pleas as in this instance, regarding applicability of the decision of the Apex Court in Intercontinental Consultants case, was also made by the assessee in Northern Operating Systems, which though reproduced in para 50 of this order supra, nevertheless for sake of clarity, is reproduced yet again as under:
"26. It was next urged that service tax is leviable only on the gross amount charged for the provision of service. It was argued that assuming but not admitting that service is provided by the group companies to the assessee, it cannot be said that the value of consideration for that service is the amount of salaries paid to the expats. To determine value of taxable services for charging Service Tax, gross amount charged for providing the services is to be determined. Reliance is placed on the judgment of the Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India [2013 (29) S.T.R. 9 (Del.)], which held that Rule 5(1) of Service Tax (Determination of Value) Rules, 2006 goes beyond the mandate of Section 67 of the Finance Act, 1994 as quantification of the value of the service can never exceed the gross amount charged by the service provider for the service provided by him. This position was upheld by this Court in Intercontinental Consultants and Technocrats Pvt. Ltd. [(2018) 4 SCC 669 = 2018 (10) G.S.T.L. 401 (S.C.)]. In the present case, the demand of the service tax is being computed on the salaries and allowances paid to the employees. The salaries cannot be said to be consideration paid to group companies for provision of service and thus such demand (of service tax in lieu of salaries), is untenable. Therefore, any cost or expense reimbursed does not represent the gross value of taxable service and cannot be a consideration for charging service tax."
42. These contentions are seen addressed by the Honourable Supreme Court in its Judgement in Northern Operating Systems as under:
"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.46
This Court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. That a particular rate of tax - or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount.
60. This Court is also of the view, for 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)." (emphasis supplied).
43. It is pertinent that the Honourable Apex Court, has gone on to not only state in para 59 that "a particular rate of tax - or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail", but thereafter to hold in the next paragraph 60 that "for similar reasons, that the orders of the CESTAT, affirmed by this Court, in Volkswagen and Computer Sciences Corporation, are unreasoned and of no precedential value" and then again in para 61 that "it is held that the assessee was, for the relevant period, service recipient of the overseas group company concerned, which can be said to have provided manpower supply service, or a taxable service, for the two different periods in question."
44. Importantly, it is to be noted that the Apex Court in the Northern Operating Systems Judgement has not stated that the matter is being remitted back to adjudge the liabilities. Instead, the Lordships of the Honourable Supreme Court in the NOS Judgement had taken cognizance of the said pleas premised on the 47 intercontinental case as well as the plea of revenue neutrality and has, after discussions, stated their Lordships' conclusions as under:
"Conclusions
65. It is held, for the foregoing reasons, that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the revenue is not tenable.
66. In light of the above, the revenue's appeals succeed in part; the assessee is liable to pay service tax for the periods spelt out in the SCNs. However, the invocation of the extended period of limitation, in this Court's opinion, was unjustified and unreasonable. Resultantly, the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands therefore, shall be recovered from the assessee.
67. The impugned common order of the CESTAT is accordingly set aside. The Commissioner's orders-in-original are accordingly restored, except to the extent they seek to recover amounts for the extended period of limitation. The demand against the assessee, for the two separate periods, shall now be modified, excluding any liability for the extended period of limitation.
68. The appeals are partly allowed, to the above extent, with no order on costs." (emphasis supplied)
45. To our mind, evidently, the Honourable Apex Court has considered the plea of revenue neutrality and found it to be irrelevant in the context of determining not only whether the liability has arisen, but also whether it has to be discharged, when it has, in no uncertain terms, not only held that such liability has to be necessarily discharged, but also held that consequential demands therefore, shall be recovered from the assessee, as can be seen from para 66 of the Judgement reproduced supra. Thus, when the entitlement to availment of credit or entitlement to refund etc., would arise only subsequent to the discharge of such revenue liability in the first instance; such availment of cenvat credit or entitlement to refund also being subjected to further checks and balances in terms of the statutory requirements that has to be fulfilled to qualify for the 48 same, the Honourable Apex Court, has decided not to entertain the plea of revenue neutrality when holding that the liability has to be necessarily discharged. RNTBCI has also placed reliance on a number of decisions to contend that the entitlement to cenvat credit results in a revenue neutral situation and thus the demand need not be sustained. The crucial distinction that we note is that in all these decisions, the fact situation was not pertaining to the liability that arises consequent to the levy under the Finance Act, 1994 for import of service of manpower supply attracting Section 66A of the Act ibid. To countenance the plea of RNTBCI would be to render the discharge of liability consequent to import of service which attracts application of Section 66A, completely otiose, as no person who is liable thus need to pay service tax on service received from abroad for the reason that the tax so paid will be available as credit to them. As we have observed supra, the entitlement to availment of credit or entitlement to refund etc., would arise only subsequent to the discharge of such revenue liability in the first instance; such availment of cenvat credit or entitlement to refund also being subjected to further checks and balances in terms of the statutory requirements that has to be fulfilled to qualify for the same. Hence, the liability to pay the service tax consequent to the levy under the Finance Act ibid by virtue of application of Section 66A cannot be extinguished on the plea of revenue neutrality. We are fortified in our view on this aspect by the coordinate bench decision of this Tribunal in M/s. Prithvi information Solutions v Commissioner of Central Tax Rangareddy-GST, 2025 (2) TMI 901-CESTAT Hyderabad.
46. In any event, when the Hon'ble Apex Court has held in the Northern Operating Systems that the Appellant therein 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, and has confirmed the demand for the normal period, after discussions on the contentions advanced relying in intercontinental consultants case as well on revenue neutrality, it is not for this Tribunal to hold that the aspect of revenue neutrality has not been considered by the Honourable Apex Court, and to then deviate therefrom.
4947. We thus find that when the plea based on the Intercontinental Consultant Judgement as well as the plea on revenue neutrality advanced by RNTBCI had also been advanced by the assessee in the Northern Operating Systems case and the contentions were negated by the Honourable Apex Court as elaborated in the reproduction of the relevant paragraphs supra, the very same finding of the Honourable Apex Court would also inexorably apply in the instant case. Therefore, we hold that the contentions of RNTBCI on these counts are wholly untenable.
48. However, while the plea based on the Intercontinental Consultant Judgement as well as the plea on revenue neutrality considering the entitlement to avail cenvat credit, though considered by the Honourable Supreme Court, has clearly not found favour with the Honourable Supreme Court; nevertheless, on the issue of invocation of the extended period of limitation, we find that the Honourable Supreme Court had decided the issue in favour of the assessee in the NOS Judgement.
49. In the light of our analysis and discussions above, inasmuch as we have found that the inferential and logical links that flow from the various clauses of the contracts available on record, when read conjointly, clearly indicate that the instant case is substantially similar to the fact circumstances of Northern Operating Systems, and since we have held that the said Judgement is squarely applicable to the facts and circumstances of these appeals; we also hold that the view held by RNTBCI about its liability was debatable and was so held by RNTBCI without any mala fide. We do not find the existence of "wilful suppression" of facts, or deliberate misstatement in these instances. For these reasons, in answer to the second issue framed by us stated supra, we hold that the Revenue was not justified in invoking the extended period of limitation to fasten liability on RNTBCI.
50. The third issue is whether the renumeration paid to Directors of RNTBCI are exigible to service tax. The contested finding of the adjudicating authority upholding the liability of RNTBCI on this count in the impugned order in original No.07/2014 (ST) dated 50 13.11.2014, is at paragraphs 34 and 35 and pari materia findings have been made in the subsequent impugned order in original No.06/2015 dated 28-08-2015 at paragraphs 21 and 22. For reference, the findings in the impugned order in original No.07/2014 (ST) dated 13.11.2014, as at paragraphs 34 and 35, are as under:
"34. Coming to the next issue of payment of service tax on Directors Remuneration, I find that the noticee has mainly pointed out that the two Directors engaged by the company are Whole Time Directors and that they were only employees of the company during the relevant period. In their support they have furnished the copies of employment contracts in respect of Shri. Hiroshi NAGAOKA and Shri. M. Karim MIKKICHE.
35. To decide whether the remuneration paid to the two Directors is liable to service tax levy, the relevant legal provisions need to be looked into. I find that in the notification 30/2012-ST dated 20.06.2012 (as amended by notification 45/2012 dated 7.8.2012) the services provided or agreed to be provided by a Director of a company to the said company under Sl.No.IA(iva) has been included as taxable service and in the same notification under Sl.No.II(5A) the quantum of service tax payable by the person receiving the service from the Director has been fixed at 100% of the tax amount. I also find that nowhere in the said notification, any distinction has been made out between Part Time Directors and Whole Time Directors. Hence I find that the employer- employee relationship could not be equated to the Director-Company relationship. In view of the discussion, I hold that the noticee is liable to pay service tax on the renumeration paid to the Directors in terms of the notification 30/2012 read with section 68(2) of Finance Act, 1994. On both the issues I find that there exist relationships of service providers and service recipients."
51. Whereas, in the impugned Order in Original No8/2016-ST dated 30.12.2016 by which the Revenue is aggrieved, the adjudicating authority had held in favour of RNTBCI on this issue of Director's renumeration, finding that the Directors were engaged by the noticee as employees and are kept out of the definition of services in terms of Section 65(B) 44 of Finance Act, 1994, and inter-alia following the Tribunal decision in Rent Works India P Ltd v. CCE, Mumbai V. The contention of the Revenue in its appeal on this count is that the employment contract of these employees are similar to other Expats and hence the grounds put forth in respect 51 of the other expats holds good and are equally applicable. We do not find any substance in this ground for the simple reason, that the proposal in the show cause notice that the appellant was put to notice was only on the ground that in terms of the relevant notification it was incumbent on the company to pay service tax on the remuneration paid to the Directors of the company. The similarity or otherwise of the employment contract with that of the other expats was never an allegation raised in the SCN to demand service tax on the renumeration paid to the Directors of the company. Hence the present contentions in appeal tantamount to making out a new case against the appellant on this count which it was never required to meet. Such a proposition is opposed to the settled position in law that the Department cannot travel beyond the ground raised in the show cause notice. The decision in CC Mumbai v Toyo Engineering India Ltd, 2006 (201) ELT 513 (SC) and CCE, Bhubaneswar-I v Champdany Industries Ltd,2009 (241) ELT 481 (SC) refer for this proposition.
52. That apart, we find that the issue of demand of service tax on Director's renumeration when made by the Revenue, has been consistently negatived and held in favour of the assessee in a string of Tribunal decisions. This bench of the Tribunal had an occasion to deal with the issue earlier as reported in M/s. Dixcey Textiles Pvt Ltd v. The Commissioner of Central Excise and ST, Salem Commissionerate, 2025 (5) TMI 316 -CESTAT CHENNAI, and the relevant portion is reproduced below:
"6) The singular issue that arises for determination is whether the demand made on the appellant on the remuneration paid to its directors is tenable.
7)We note that the adjudicating authority has chosen to ignore the appellant's contention that there is an employer employee relation on the grounds that no appointment order has been produced. It is also seen that the adjudicating authority has noted the definition of salary as defined under Section 17(1) of the Income Tax Act, 1961 yet has chosen to hold that the directors are not employees as in his view, the term salary does not include remuneration, sitting fee etc., paid to the directors and thereby the exclusive clause of Section 65B(44) is inapplicable. Strangely, he has chosen to do so, without controverting the evidence adduced by the appellant along with its reply, by way of resolutions passed by the Board of Directors in accordance with the 52 Companies Act which stated inter-alia that the directors concerned in the notice have been appointed as whole time directors and will be entitled to a salary as may be fixed from time to time. He has also ignored the Form 16 issued as a Certificate under Section 203 of the Income Tax Act, 1961 for tax deducted at source on salary in respect of these directors that was adduced in evidence.
8)We find that this Tribunal in Maithan Alloys Ltd v. Commissioner of C.Ex & ST, Bolpur, 2020 (33) GST 228 (Tri-Kolkata) has held as under:
"6. In the instant case, it is not in dispute that service tax has been duly paid on remuneration paid to directors who are not whole-time employee directors. The only dispute herein is for payment of remuneration to whole time directors, which is a fact on record. The provisions of Companies Act, 2013, contained in Section 2(94), duly defines 'whole-time director' to include a director in the whole-time employment of the company. A whole-time director refers to a director who has been in employment of the company on a full-time basis and is also entitled to receive remuneration. We further find that the position of a whole-time director is a position of significance under the Companies Act. Moreover, a whole-time director is considered and recognized as a 'key managerial personnel' under Section 2(51) of the Companies Act. Further, he is an officer in default [as defined in clause (60) of Section 2] for any violation or non-compliance of the provisions of Companies Act. Thus, in our view, the whole-time director is essentially an employee of the Company and accordingly, whatever remuneration is being paid in conformity with the provisions of the Companies Act, is pursuant to employer-employee relationship and the mere fact that the whole- time director is compensated by way of variable pay will not in any manner alter or dilute the position of employer-employee status between the company assessee and the whole-time director. We are thoroughly convinced that when the very provisions of the Companies Act make whole-time director (as also in capacity of key managerial personnel) responsible for any default/offences, it leads to the conclusion that those directors are employees of the assessee company.
7. Further, in the present case, the appellant has duly deducted tax under Section 192 of the Income-tax Act which is the applicable provisions for TDS on payments to employees. This factual and legal position also fortifies the submission made by the appellant that the whole-time directors who are entitled to variable pay in the form of commission are 'employees' and payments actually made to them 53 are in the nature of salaries. This factual position cannot be faulted in absence of any evidence to the contrary. The submission of Ld. DR as well as the finding made by the Commissioner in the impugned order that since the whole-time directors are compensated by way of variable pay and hence not employees, does not have any legal basis and is completely misplaced, and the same cannot be sustained. The decision of the Tribunal in Rent Works India (supra) has clearly set the legal position that when the Income Tax Department considers payment in the nomenclature 'consultancy fee' as salaries, on which TDS is also made, the said payments cannot be said towards rendition of taxable service for levy of service tax. The decision in case of PCM Cement Concrete Pvt. Ltd. (supra) has set the legal proposition that consideration paid to whole-time directors would be treated as payment of salaries inasmuch as there would be employer-employee relationships and in such case the levy of service tax cannot be sustained.
8. In view of the above discussions and the settled legal judicial precedence and provisions contained in statutes referred to above, demand of service tax on remuneration paid to whole-time directors cannot be sustained and hence set aside. Since demand of service tax is set aside, penalty and interest are also not sustainable."
Similar view is seen taken in the decision of this Tribunal in Amar Raja Batteries v Commr of Central Tax, Tirupathi-GST, (2024) 21 Centax 216 (Tri-Hyd), and Allied Blenders & Distillers Pvt Ltd v CCE & ST, Aurangabad, 2019 (24) GSTL, 207 (Tri-Mumbai).
9) We also note that the appellant has enclosed the very same evidence of Board Resolutions as well as Form 16 of the concerned Directors, along with the appeal records, which in our view, given the earlier decisions of this Tribunal cited supra, evidence the employer employee relationship between the appellant and the directors involved in this notice. There is no contrary evidence let in that the Directors mentioned in the notice are rendering any other services to the appellant. We are therefore of the view that the adjudicating authority has grossly erred in his finding that these directors were not employees of the appellant and in confirming the demand made along with applicable interest on the appellant and imposing penalty on the appellant. We hold that the impugned Order in Original is wholly unsustainable and set aside the impugned Order in Original."
53. We find that in the instant case too, the appellant has in its reply at the first instance stated that they have enclosed the extracts of the resolution of the Board of Directors of RNTBCI in this regard.
54They have also contested the demand enclosing the Form 16 with respect to the Directors, employment contracts and relevant extracts of financial statements. They have also placed reliance on similar decisions of the Tribunal holding to the effect that the demand of service tax on this count unsustainable. Therefore, in line with the decisions of coordinate benches of this Tribunal in this regard, we hold that the renumeration paid to Directors of RNTBCI are not exigible to service tax and is liable to be set aside. The third issue is thus answered in favour of RNTBCI.
54. Ld. Consultant had submitted that being a SEZ unit, the services received by RNTBCI is exempt as per Section 26(1) of the SEZ Act subject to the conditions prescribed under Section 26(2) of the SEZ Act. Conditions as referred to in Section 26(2) of the SEZ Act is limited only to the conditions spelt out in SEZ law and nothing else, as can be seen from Section 2(w) of the SEZ Act which defines the word "prescribed" means to the prescriptions in the rules made by the Central Government under the SEZ Act. It has also been submitted that RNTBCI is eligible for upfront and complete exemption from service tax for the services received for the authorised operations of the SEZ unit even without any reference to the notifications issued under section 93 of the Finance Act, 1994 and irrespective of the conditions of the notifications issued under Section 93 of the Finance Act, 1994. It has further been submitted that the notifications dated 01 March 2011, 20th June 2012, and 01 July 2013 issued under the Finance Act, 1994 in so far as they relate to Special Economic Zone, are set aside in the case of GMR Aerospace Engineering Ltd v UOI, by Hon'ble High Court of Telengana and Andhrapradesh as such notifications are inconsistent with the SEZ law and such decision has been upheld by the Hon'ble Supreme Court.
55. Ld. Authorised Representative has submitted that the Letter of Approval (LOA) only provides for supply of services in the Domestic Tariff Area in terms of the provisions of the SEZ Act and rules and orders made thereunder and is not dealing with procurement of service from abroad and in the absence of any endorsement by the proper officer, it cannot be construed as permission for import of services from abroad.
5556. We note that the appeal records reveal that indisputably, right from its reply to the first show cause notice RNTBCI has contested the demand of service tax made on it, staking claim to its status as an SEZ unit and the prevailing service tax exemption notifications provided to SEZ units. There is nothing on record indicating that the Development Commissioner has found RNTBCI in violation of the LOA in any manner.
57. We notice that in GMR Aerospace Engineering Ltd v. Union of India, 2019 (31) GSTL 596 (A.P), the Honourable High Court for the State of Telangana and the State of Andhra Pradesh, after framing the issue to be decided as "the only question that arises for consideration is as to whether the availability of exemptions under Section 26 of the SEZ Act would depend not only upon the terms and conditions prescribed under Section 26(2), but also upon the terms and conditions prescribed in the notifications issued under various enactments such as Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1944, Central Excise Tariff Act, 1985, Finance Act, 1994 and Central Sales Tax Act, 1956 etc., enlisted in clauses (a) to (g) of sub-section (1) of Section 26 of the Act", proceeded to analyse the statutory provisions and the relevant portions of the discussions are reproduced below:
"19. The only argument of Smt. Sundari R. Pisupati, Learned Senior Standing Counsel for the Department is that since SEZ Act, 2005 and the Rules framed thereunder do not constitute a self-contained Code, the availability of exemptions under Section 26 of the Act would certainly depend upon the terms and conditions stipulated in the notifications issued under the respective enactments indicated in clauses (a) to (g) of sub-section (1) of Section 26. But, the contention of Mr. S. Niranjan Reddy, Learned Senior Counsel appearing for the petitioners, is that there is no scope for restricting Section 26, especially when the SEZ Act, 2005 which is also a parliamentary enactment of a later date, is given an overriding effect under Section 51 of the Act.
20. In order to find an answer to this question, one must understand in conceptual terms, what a Special Economic Zone is. As pointed out by the Madras High Court in Nokia India Sales, a SEZ (1) is a territory outside the Customs Territory of India for the purpose of undertaking authorized operations and (2) is deemed to be a port, in land container depot, land stations and land customs station under Section 7 of the Customs Act, 1962. This is by virtue of Section 53 of SEZ Act, 2005. Keeping this core concept in mind, let us now go to the provisions of the Act. Section 7 of the Act exempts from payment of taxes, duties or cess, under all enactments specified in the First Schedule, any goods or services exported out of or imported into or procured from Domestic Tariff Area, by a unit in a SEZ or a developer. But Finance Act, 1994 is not one of the enactments specified in the First Schedule. Therefore, Section 7 has no application to the case on hand.56
21. However, Section 26(1) specifically allows exemptions, drawbacks and concessions to every developer and entrepreneur. These exemptions are confined to the enactments listed in clauses (a), (b),
(c), (e), (f) and (g). Section 26 in its entirety reads as follows :
"26. Exemptions, drawbacks and concessions to every Developer and entrepreneur. -
(1) Subject to the provisions of sub-section (2), every Developer and the entrepreneur shall be entitled to the following exemptions, drawbacks and concessions, namely :-
(a) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods imported into, or service provided in, a Special Economic Zone or a Unit, to carry on the authorised operations by the Developer or entrepreneur :
(b) exemption from any duty of customs, under the Customs Act, 1962 (52 of 1962) or the Customs Tariff Act, 1975 (51 of 1975) or any other law for the time being in force, on goods exported from, or services provided, from a Special Economic Zone or from a Unit, to any place outside Indict;
(c) exemption from any duty of excise, under the Central Excise Act, 1944 (1 of 1944) or the Central Excise Tariff Act, 1985 (5 of 1986) or any other law for the time being in force, on goods brought from Domestic Tariff Area to a Special Economic Zone or Unit, to carry on the authorised operations by the Developer or entrepreneur;
(d) drawback or such other benefits as may be admissible from time to time on goods brought or services provided from the Domestic Tariff Area into a Special Economic Zone or Unit or services provided in a Special Economic Zone or Unit by the service providers located outside India to carry on the authorised operations by the Developer or entrepreneur;
(e) exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1994) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone;
(f) exemption from the securities transaction tax leviable under section 98 of the Finance (No. 2) Act, 2004 (23 of 2004) in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre;
(g) exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 (74 of 1956) if such goods are meant to carry on the authorised operations by the Developer or entrepreneur.
(2) The Central Government may prescribe the manner in which, and the terms and conditions subject to which, the exemptions, concessions, drawback or other benefits shall be granted to the Developer or entrepreneur under sub-section (1)."
22. It may be noted that sub-section (1) of Section 26 begins with the words "subject to the provisions of sub-section (2)". Sub-section (2) authorizes the Central Government to prescribe the manner in which and the terms and conditions subject to which exemptions shall be granted to the Developer or entrepreneur under sub-section (1).
5723. As rightly pointed out by Sri S. Niranjan Reddy, Learned Senior Counsel appearing for the petitioner, the word "prescribe" appearing in sub-section (2) of Section 26 has to be understood with reference to the definition of the word "prescribed" appearing in Section 2(w) of the SEZ Act, 2005. Section 2(w) of the Act reads as follows :
"prescribed" means prescribed by rules made by the Central Government under this Act."
24. Therefore, the terms and conditions subject to which the exemptions are to be granted under sub-section (1) of Section 26 should be prescribed by the Rules made by the Central Government under the SEZ Act, 2005. Being conscious of this fact, the executive has incorporated Rule 22 in the SEZ Rules, 2006 issued in exercise of the power conferred by Section 55 of the SEZ Act. It is not necessary to extract Rule 22, since there is no dispute about the fact (1) that the petitioners have complied with the prescriptions contained in Rule 22 of the SEZ Rules, 2006 and (2) that Rule 22 of the SEZ Rules, 2006 does not stipulate the filing of forms A1 and A2 as prescribed in the three notifications issued under Section 93 of the Finance Act, 1994. Xxxxxx
26. Having taken note of the provisions of the SEZ Act and Rules, let us have a look at the Finance Act and the relevant notifications. Section 93 of the Finance Act, 1994 reads as follows :
"93. Power to grant exemption from service tax. -
(1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon. (2) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order."
27. A look at Section 93 of the Finance Act, 1994 would show that it has nothing to do with the units located in a SEZ. Section 93 is a general power of exemption available for the benefit of all and sundry. In fact, Section 93 was substituted in its present form by Finance (No.
2) Act, 1998 with effect from 16-10-1998. The notifications issued under Section 93 may cover taxable services of any description. Even the units located outside a SEZ are entitled to the benefit of the notifications issued under Section 93 of the Finance Act, 1994, if the conditions stipulated in those notifications are fulfilled.
28. The SEZ Act, 2005 is also a parliamentary enactment issued later in point of time to the Finance Act, 1994 and Section 51 of the Act declares that the provisions of the SEZ Act, 2005 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. Section 51 reads as follows :
"51. Act to have overriding effect. - The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act."
29. The contention of Smt. Sundari R. Pisupati, Learned Senior Standing Counsel is that there is no inconsistency between (i) the terms and conditions prescribed in the notifications issued under Section 93 of the Finance Act, 1994 and (ii) the terms and conditions prescribed in Rules 22 and 31 of the SEZ Rules, 2006, and that therefore, Section 51 of the SEZ Act, 2005 cannot be pressed into service. But this contention is unacceptable.
30. This is for the reason that Section 26(1) of the SEZ Act made the entitlement to certain exemptions subject to provisions of sub-section (2) of Section 26. Section 26(1) did not make the entitlement of a Developer to certain exemptions, subject to the provisions of 58 something else other than the provisions of sub-section (2). Therefore, the 5th respondent cannot read Section 26(1) to mean that the exemptions listed therein are (1) subject to the provisions of sub- section (2) of Section 26, and (2) also subject to the terms and conditions prescribed in the Customs Act, 1962, the Customs Tariff Act, 1975, the Central Excise Act, 1944, the Central Tariff Act, 1985 and the Finance Act, 1994. This is especially so, since the authority of the Central Government to prescribe the terms and conditions subject to which exemptions may be granted under Section 26(1), flows only out of sub-section (2) of Section 26. The word "prescribe" is verb. Generally no enactment defines the word "prescribe". But the SEZ Act 2005 defines the word "prescribe" under Section 2(w) to mean the rules framed by the Central Government under the SEZ Act, 2005. The space is also not left unoccupied, as the Central Government has issued a set of Rules known as "the Special Economic Zones Rules, 2006", wherein the Central Government has prescribed the terms and conditions for grant of exemptions under Rule 22. Therefore, there is no question of comparing the terms and conditions prescribed in Rule 22 with the terms and conditions prescribed in the notifications issued under any one of five enactments listed in Section 26(1) to find out whether there was any inconsistency.
31. Support can be drawn for the above interpretation, from Section 50 of the SEZ Act, 2005 also. Section 50 of the SEZ Act, 2005 enables State Governments to enact laws for the grant of exemption from state taxes, levies and duties. Since a Central Law cannot provide for exemption from the levy of State taxes, Section 50 merely enables the State Governments to enact laws.
32. A combined reading of Sections 7, 26 and 50 of the SEZ Act, 2005, would show that SEZ Act, 2005 speaks of three different types of exemptions. They are, -
(1) exemption from payment of taxes under the enactments specified in the First Schedule, in respect of goods and services exported out of, or imported into or procured from a DTA by a unit in a Special Economic Zone or a Developer under Section 7, (2) exemption from payment of duties under the Customs Act, 1962, Customs Tariff Act, 1975, Central Excise Act, 1994, Central Excise Tariff Act, 1985, Finance Act, 1994, Finance (No. 2) Act, 2004 and Central Sales Tax Act, 1956, covered by Section 26 (1); and (3) exemption from payment of state taxes, levies and duties covered by Section 50, provided there is a state enactment to the said effect.
33. The word "prescribe" is used in the present tense in Section 26(2) and in the past tense in Section 7. Both will have the same meaning as assigned to the word under Section 2(w). The moment a set of rules is issued either in respect of matters covered by Section 7 or in respect of matters covered by Section 26(1), there is no scope for invoking any other law for imposing any other condition.
34. The benefit of exemptions granted under the notifications issued under Section 93 of the Finance Act, 1994, are available to any one and not necessarily confined to a unit in a special economic zone. Section 93 of the Finance Act, in that sense is a general power of exemption available in respect of all taxable services. But, Section 26(1) is a special power of exemption under a special enactment dealing with a unit in a special economic zone. Therefore, the notifications issued under Section 93 of the Finance Act, 1994 cannot be pressed into service for finding out whether a unit in a SEZ qualifies for exemption or not."
58. Thereafter, the contention of the Learned Senior Standing Counsel for the revenue that SEZ Act, 2005 and the rules framed thereunder do not constitute a complete Code in themselves, made by placing 59 reliance on the decision of the Hon'ble Apex Court in Girnar Traders v. State of Maharashtra - 2011 (3) SCC 1, was repelled by the Honourable High Court, holding as under:
"37. Even if apply the parameters indicated in Girnar Traders, the case on hand would pass the test. Section 26(1) of the SEZ Act indicates (1) persons who are entitled to exemptions; (2) the duties in respect which exemption is available; (3) the circumstances under which exemption is available and (4) the provisions of law subject to which the exemptions are available. To put it in simple terms, Section 26(1) identifying the persons, who are eligible for exemption. They are the Developer and entrepreneur. Section 26(1) identifies the duties from which exemption is available. They are the duties under the Customs Act, Customs Tariff Act etc. Section 26(1) also indicates the circumstances under which the exemptions are available. These circumstances vary from clause to clause under Section 26(1). This can be best understood by providing a tabulation as follows :
Duty exempted Circumstances under which
exempted
(1) Duty under Customs (1) on goods imported into or services Act, 1962 provided in a special economic zone or a unit to carry on the authorised operations by the Developer or entrepreneur (2) Duty under the (2) All goods exported from or Customs Tariff Act, 1975 services provided from a SEZ or from a unit to any place outside India.
(3) Duty of excise under (3) All goods brought from DTA to a the Central Excise Act, SEZ or unit to carry on the authorised 1944 or Central Excise operations by the Developer or Tariff Act, 1985 entrepreneur (4) Service tax (4) on taxable services provided to a developer or unit to carry on the authorised operations in a SEZ (5) Securities transaction (5) If the taxable securities
tax leviable in Finance (No. transactions are entered into by a non-
2) Act, 2004 resident through the international financial service centre.
(6) Taxes under the (6) If such goods are meant to carry Central Sales Tax Act, 1956 on authorised operations by the Developer or entrepreneur.
38. Thus, the SEZ Act clearly indicates the persons who are entitled to the benefit of exemptions. The Act also lists out the duties from which exemption is granted. The Act enlists the operations or activities in respect of which exemption is available.
39. After prescribing all the above three, in Section 26(1) itself, the Act also empowers the Central Government to prescribe in the form of Rules, the manner in which and the terms and conditions subject to which the exemptions are to be granted. Therefore, all the parameters indicated in Girnar Traders are satisfied in Section 26 and the Rules issued thereunder. If the word "prescribe" has not been defined or at 60 least if Section 26 had used the words "prescribed under the relevant statutes" the position would have been different.
40. Inviting our attention to a Circular No. 105/08/2008 in F. No. 137/168/2008-CX.4, dated 16-9-2008, Smt. Sundari R. Pisupati, Learned Senior Standing Counsel contended that there is no exclusion of SEZ in Chapter-V of the Finance Act, 1994 and that the service tax is applicable on taxable services provided by SEZ units, except those that are exempt by Notification No. 4 of 2004. She also drew our attention to the amendment introduced to the SEZ Rules by way of notification in GSR 772(E), dated 5-8-2016. Under this notification, sub-rule (5) was inserted under Rule 47 of the SEZ Rules, 2006. This sub-rule (5) inserted in Rule 47 of the SEZ Rules, 2006 reads as follows :
"(5) Refund, Demand, Adjudication, Review and Appeal with regard to matters relating to unauthorized operations under Special Economic Zones Act, 2005, transactions, and goods and services related thereto, shall be made by the Jurisdictional Customs and Central Excise Authorities in accordance with the relevant provisions contained in the Customs Act, 1962, the Central Excise Act, 1944, and the Finance Act, 1994 and the rules made thereunder or the notifications issued thereunder".
41. On the strength of the aforesaid circular and the amendment to the Rules, it was contended by the Learned Senior Standing Counsel that the machinery provisions for working out refund, drawback etc., are not available either in SEZ Act or the Rules framed thereunder and that therefore, the operation of the Act is subject to the provisions of the other enactments.
42. But, we do not agree. Though the "section title" to Section 26 reads as "exemptions, drawbacks and concessions", clauses (a) to (g) except clause (d) speak only about exemptions. It is only clause (d) of sub- section (1) of Section 26, which speaks about drawbacks and such other benefits. In so far as exemption is concerned, sub-section (1) makes the entitlement of a Developer to exemption, subject only to the provisions of sub-section (2) of Section 26. Sub-section (2) of Section 26 empowers the Central Government to prescribe both the manner in which as well as the conditions subject to which exemptions may be granted. Therefore, the area relating to exemption is completely occupied by the rules.
43. It is only the issues relating to refund, demand, adjudication, review and appeal, which were left unoccupied by the SEZ Act and the Rules framed thereunder. Realising the vacuum in respect of these specific areas, sub-rule (5) was inserted under Rule 47. Sub-rule (5) of Rule 47 makes a reference to the provisions of the three enactments namely Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 and the Rules made thereunder and the notifications issued thereunder. It is by virtue of this sub-rule (5) that the authorities can fall back upon the Rules and notifications issued under those three enactments. The very fact that sub-rule (5) was inserted would show, that but for its insertion, the respondents cannot fall back upon the Rules framed under the Customs Act etc., for dealing with a question of refund, demand, adjudication etc.
44. The issue can be looked at from another angle also. If sub-rule (5) of Rule 47 had also included the procedure for grant of exemption within its purview, then the stand taken by the Department would be perfectly valid. The very fact that sub-rule (5) of Rule 47 made the Rules and notifications issued under certain Acts applicable only to issues of refund, demand etc., would show that Rules 22 and 31 have independent legs to stand.
6145. Therefore, the writ petition is allowed, the Order-in-Original dated 20-2-2018 is set aside and the notifications in question in so far as they relate to Special Economic Zones, are set aside. There shall be no order as to costs."
58. Thus, the Hon'ble High Court after observing that the SEZ Act, 2005 is also a parliamentary enactment issued later in point of time to the Finance Act, 1994 and that Section 51 thereof has an overriding effect, and considering Section 26 in its entirety, has unequivocally held that Section 26(1) is a special power of exemption under a special enactment dealing with a unit in a special economic zone. It was further held that therefore, the notifications issued under Section 93 of the Finance Act, 1994 cannot be pressed into service for finding out whether a unit in a SEZ qualifies for exemption or not. It has also been held that in so far as exemption is concerned, sub-section (1) makes the entitlement of a Developer to exemption, subject only to the provisions of sub-section (2) of Section 26. Sub-section (2) of Section 26 empowers the Central Government to prescribe both the manner in which as well as the conditions subject to which exemptions may be granted. Therefore, the area relating to exemption is completely occupied by the rules. It was further held that the very fact that sub-rule (5) of Rule 47 made the Rules and notifications issued under certain Acts applicable only to issues of refund, demand etc., would show that Rules 22 and 31 have independent legs to stand. It is also seen that the SLP preferred by the Revenue against the said decision was dismissed on 26-07-2019 as reported in Union of India v. GMR Aerospace Engineering Ltd, (2023) 6 Centax 155 (SC)
59. We find that the aforesaid decision in GMR Aerospace Engineering was relied upon in Eclerx Services Ltd v. Commr. of CGST & C.Ex, Navi Mumbai, 2023 (72) G.S.T.L 99 (Tri-Mumbai), wherein the demand of service tax was made on the appellant finding that the appellant had rendered services to SEZ units without discharging its service tax liability and the adjudicating authority had held that the appellant therein ought to have abided by the conditions of the service tax notification and paid the liability at first and claimed refund subsequently adhering to the procedural requirements therein. The Tribunal held that procedural infirmities does not in any way supplant the exemption accorded to the impugned supply of services. It was also found that the findings of 62 the adjudicating authority do not arrive at a conclusion that, but for the said procedural infirmities, the eligibility of the appellant to render such services without payment of service tax was in question. The Tribunal held that in light of the decision cited, the overriding nature of the exemption afforded by Section 26 of the SEZ Act 2005 and the breach of conditions being procedural, the demand pertaining to the rendering of services was set aside. The civil appeal preferred by Revenue against the said decision of the Tribunal was dismissed by the Honourable Apex Court, in Commr. of CGST, Navi Mumbai v. Eclerx Services Ltd, 2023 (72) G.S.T.L 4 (SC), holding as under:
"2. The judgment relied upon in "M/s GMR Aerospace Engineering Limited & Ors. v. Union of India & Anr." (W.P. No.13546 of 2018) decided on 27- 12-2018 [2019 (31) G.S.T.L. 596 (A.P.) = [2019] 111 taxmann.com 103 (Andhra Pradesh & Telangana) by the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh was challenged under Article 136 (in a SLP(C) Dy. No. 22140 of 2019) which was dismissed by this Court on 26-7-2019. Following the said decision, this Court holds that there is no merit in the appeal. It is accordingly dismissed." (emphasis supplied)
60. We also find that the decision in GMR Aerospace Engineering has since been applied and followed by coordinate benches of this Tribunal as can be seen from the decisions in Metlife Global Operations Support Center (P) Ltd v CST, New Delhi, 2021 (46)G.S.T.L 418 (Tri-Del), TVS Logistics Services Ltd v Principal Commr. of S.T., Chennai, 2021 (50) G.S.T.L 530 (Tri-Chennai). Furthermore, we find that the jurisdictional High Court in Salcom Manufacturing India Pvt Ltd v Commr. of CGST and Central Excise, (2024) 18 Centax 162 (Mad), has taken cognizance of the fact that the judgment of the Telangana and Andhra Pradesh High Court in GMR Aerospace Engineering holds the field as on date.
61. We note that Section 2(c) of the SEZ Act, 2005 defines "authorised operations" as "authorised operations" means operations which may be authorised under sub-section (2) of Section 4 and sub- section 9 of Section 15. Further the definition of "import" as given in Section 2(o) of the SEZ Act stipulates, inter-alia, that "import" means bringing goods or receiving services, in a Special Economic 63 Zone, by a Unit or Developer from a place outside India by land, sea or air or by any other mode, whether physical or otherwise". In the instant case, indisputably, RNTBCI is an SEZ unit. The SEZ Development Commissioner has communicated to RNTBCI the list of specified services as approved by the Unit Approval Committee which clearly indicates Manpower requirement and supply agency's services in the annexure thereto. The Letters of Approval for the relevant period state that the Development Commissioner, MEPZ Special Economic Zone is pleased to extend all the facilities and entitlements admissible to a unit in a Special Economic Zone subject to the Special Economic Zones Act, 2005 and the rules and orders made thereunder to RNTBCI for undertaking authorised operations. The specific contention of RNTBCI that the seconded expats worked only for the assignments or projects which are part of authorised operations of the SEZ unit in R & D and engineering activities and thus the impugned manpower supply service received by RNTBCI were utilized exclusively for the purpose of authorised operations, remain uncontroverted in the Orders in Original impugned by RNTBCI. While the Revenue has contended in its appeal that the onus is on RNTBCI to evidence that the services are exclusively used for authorised operations to be extended the benefit of the service tax notification, we find that it has never been the case of the Department that the output services have been used for services other than authorized operations nor any finding to this effect has been recorded in the impugned Orders in Original. In any event, we find that in light of the decision in GMR Aerospace Engineering, the said contention is untenable given the overriding effect of the exemption under Section 26 read with Section 51 of the SEZ Act, 2005. Thus the contention of the Ld. A.R on this count cannot be countenanced.
62. That apart, being a SEZ unit, the services received by RNTBCI is exempt as per Section 26(1)(e) of the SEZ Act subject to the conditions prescribed under Section 26(2) of the SEZ Act. Inasmuch as the Hon'ble High Court in the decision of GMR Aerospace Engineering cited supra has held that the terms and conditions subject to which the exemptions are to be granted under sub- section (1) of Section 26 should be prescribed by the Rules made by the Central Government under the SEZ Act, 2005, evidently the 64 cconditions as referred to in Section 26(2) of the SEZ Act is confined only to the conditions spelt out in SEZ law and nothing more, since Section 2(w) of the SEZ Act which defines the word "prescribed" stipulates that " "prescribed" means prescribed by the rules made by the Central Government under this Act". The conditions prescribed for such exemptions under Section 26(1)(e), are seen stipulated in Rule 22 and 31 of the SEZ Rules. We note that Rule 22 of the SEZ Rules during the relevant period only laid down the terms and conditions pertaining to grant of exemption, drawback and concession to the entrepreneur or Developer, subject to the conditions stipulating execution and maintenance of Bond cum letter of undertaking in Form H for SEZ Units and in Form D for the Developer and Co-Developer, relating to proper accounting of the goods received by the SEZ unit, submission of quarterly and annual statements regarding the operations and usage of inward goods etc. Compliance with such conditions are not the subject matter of the present dispute. Further, Rule 31 of the SEZ Rules during the relevant period also provided for exemption from service tax, for the services received by a SEZ unit for the authorised operations in a SEZ sans any conditions prescribed therefor. The Hon'ble High Court had therefore, in the aforesaid cited decision of GMR Aerospace Engineering, held that the notifications issued under Section 93 of the Finance Act, 1994 cannot be pressed into service for finding out whether a unit in a SEZ qualifies for exemption or not., especially since Section 51 of the SEZ unequivocally stipulates that the provisions of SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
63. As already stated supra, the decision in GMR Aerospace Engineering Ltd v. Union of India, 2019 (31) GSTL 596 (A.P), has not only been affirmed by the Supreme Court, but also has been followed by the Apex Court while dismissing the revenue's appeal in the case of UOI v Eclerx Services P Ltd. That apart, the jurisdictional High Court has also observed that the decision in GMR Aerospace Engineering holds the field. Furthermore, the coordinate bench orders of this Tribunal has also been relying on and applying the decision of the Hon'ble High Court in GMR Aerospace Engineering case. Therefore, in adherence to judicial discipline, we 65 too respectfully follow the same and as answer to the fourth issue framed supra, hold that in light of the overriding effect of the exemption under Section 26 of the SEZ Act read with Section 51 of the Act ibid as well as read with Rule 22 and Rule 31 of the Rules thereunder, as was prevailing for the relevant period, RNTBCI is entitled to upfront and complete exemption from service tax for the services received for their authorised operations as SEZ Unit and thus, there does not arise any liability on RNTBCI to pay service tax under the relevant provisions of the Finance Act for the supply of manpower services received from the overseas companies.
64. For all the reasons set out above, the findings in the impugned orders in original, holding to the contrary, cannot sustain and are liable to be set aside. Ordered accordingly.
65. In light of our discussions above and for the reasons stated supra, we hold that Renault Nissan Technology and Business Centre India Private Limited succeeds in the appeals preferred and the appeals are allowed with consequential relief in law, if any. For the same reasons aforesaid, the Department's appeal against the Order in Original impugned therein is dismissed on the aforesaid terms, with consequential relief in law to Renault Nissan Technology and Business Centre India Private Limited, if any.
(Order pronounced in the open court on02.09.2025) (AJAYAN T.V.) (VASA SESHAGIRI RAO) Member (Judicial) Member (Technical) psd