Whether hiring of overseas employees for expansion leviable to service tax under manpower supply?

PJ/Case Law/2014-15/2115

Case:- COMPUTER SCIENCES CORPORATION INDIA PVT LTD Vs COMMISSIONER OF SERVICE TAX, NOIDA

Citation:-2014-TIOL-434-CESTAT-DEL

Brief facts:-The assessee preferred this appeal against the adjudication order No. 37/Commissioner. Noida/2012-13 dated 30.10.2012 passed by the Commissioner of Customs, Central Excise and Service Tax, Noida. The impugned order confirmed the service tax demand of Rs.3,78,49,744/- besides interest under Section 75 and penalty of equivalent amount as the tax liability assessed under Sections 77 and 78 of the Finance Act, 1994 (the Act). The confirmed demand of tax, interest and penalties is predicated on the assumption that the appellant had provided Man-power Recruitment or Supply Agency service enumerated in Section 65(105)(k) of the Act.

Contesting the attribution of having provided the taxable service, the appellant unsuccessfully contended in the adjudication proceedings that in furtherance of its business operations in India, it hired certain overseas employees (expatriate employees) who were either directly employed by the appellant or were transferred from other group companies; that during the tenure of employment in India, the expatriate employees are for all intents and purposes, employees of the appellant and discharge duties and responsibilities as such in India. The appellant also contended that it had incurred the expenditure on the expatriate employees' social security benefits in India by way of Provident Fund etc. and also deducted from their salaries and pays income tax on the basis of the total income earned on behalf of the expatriate employees; and the appellant also issued Form 16 and Form 12 BA of the Income Tax Act, 1961 to the expatriate employees in its status as the employer. In addition to these remittances and deductions of the appropriate tax under the provisions of the 1961 Act, the appellant also remits to its group companies certain social security and other benefits that are payable to the account of the expatriate employees under the laws of the foreign jurisdiction; that no amounts over and above the remittances made to the credit to the seconded employees was ever paid to the overseas group companies.

Rejecting the defence of the appellant, the impugned order clarified the transaction in issue as constituting 'Man-power Recruitment or Supply Agency' service and brought to tax the entire remittances by the appellant to the overseas group companies; remittances by way of reimbursement of the overseas group companies' liabilities in respect of the seconded employees, treating these remittances as the gross consideration paid for receipt of the specified taxable service, under the reverse charge mechanism provided in Section 66A of the Act. Parties are agreed that the issue is squarely covered by the Final Order of this Tribunal in Volkswagen India (Pvt.) Ltd. vide Final Order No. A/2006-2008/13/CSTB/C-I dated 30.9.2013 = (2013-TIOL-1640-CESTAT-MUM).

Appellant’s contention:- The contention of appellant is that in view of furtherance of its business operations in India, it hired certain overseas employees (expatriate employees) who were either directly employed by the appellant or were transferred from other group companies; that during the tenure of employment in India, the expatriate employees are for all intents and purposes, employees of the appellant and discharge duties and responsibilities as such in India. The appellant also contended that it had incurred the expenditure on the expatriate employees' social security benefits in India by way of Provident Fund etc. and also deducted from their salaries and pays income tax on the basis of the total income earned on behalf of the expatriate employees; and the appellant also issued Form 16 and Form 12 BA of the Income Tax Act, 1961 to the expatriate employees in its status as the employer. In addition to these remittances and deductions of the appropriate tax under the provisions of the 1961 Act, the appellant also remits to its group companies certain social security and other benefits that are payable to the account of the expatriate employees under the laws of the foreign jurisdiction; that no amounts over and above the remittances made to the credit to the seconded employees was ever paid to the overseas group companies.

Respondent’s contention:-The respondent reiterated the findings of the lower adjudicating authority and pleaded for upholding the order in original.

Reasoning of judgment:- In the light of the judgment in Volkswagen India (Pvt.) Ltd. (supra), the appeal is allowed and the impugned adjudication order is quashed. The appellant shall be entitled to consequent benefits. Miscellaneous Application No.61437/2013 is filed for a declaration that adjustment of the demand raised consequent on the adjudication order dated 30.12.2012 (subject matter of the substantive appeal) from the amounts payable to the appellant under refund orders passed, vide the orders dated 17.9.2013 and 4.10.2013 be declared void and inoperative and to grant restitutive relief by directing Revenue to refund the amounts sanctioned by way of refunds. During the pendency of the appeal and prior to adjudication of the application for waiver of pre-deposit, certain refund claims presented by the petitioner/appellant (in respect of unutilized credits) were disposed of and refunds ordered on 17.9.2013 and 4.10.2013 and in December 2013. These orders while sanctioning refund had ordered adjustment of the refundable amounts towards the amounts assessed and leviable towards the service tax liability, which were confirmed by the impugned adjudication order, challenged in the substantive appeal. Contending that the assessment of liability to service tax, interest and penalties confirmed by the impugned adjudication order, is unsustainable and that consequently adjustment of such illegal levy from the refunds ordered is arbitrary and illegal, this application is filed.

By the final order, the bench disposed of the substantive appeal and have quashed the adjudication order passed by the Commissioner of Customs, Central Excise and Service Tax, Noida vide Order-in-Original No.37/Commissioner, Noida/ 2012-13 dated 30.10.2012. As the assessed liability of the petitioner under the adjudication order has thus suffered a plenary eclipse, the petitioner would be entitled to refund. The petitioner is at liberty to apply for refund. When made, such application shall be disposed of by the appropriate authority, in accordance with law and expeditiously. This application is accordingly disposed of. Ld. A.R. for Revenue states that no order by way of restitution should be granted in this application since the grievance herein is against an order of Assistant Commissioner (directing adjustment of the refunds sanctioned) and an appeal against such order is provided under the Act to the Commissioner (Appeals). We are not passing any order directing refund but have only declared that the petitioner is entitled to refund ex debito justitia.

Decision:- Appeal allowed.

Comment:- The crux of this case is that when employees are brought from overseas and are given all the benefits of Indian as well as Foreign tax laws in the capacity of an employee, than they cannot be levied to service tax under reverse charge mechanism under manpower supply service. Further, in the present case, there was no consideration flowing to the overseas companies except on account of entitlements towards the employee benefits as per foreign laws to be ultimately paid to employees. As such, there was no provision of manpower supply service by overseas companies to the appellant.

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PJ/Case Law/2014-15/2115

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