Whether service tax payable on deputation of personnel by foreign entity to Indian entity?

PJ/Case Law/2012-13/2043

Case:- GEICO PAINT SHOP INDIA P.LTD. VERSUS COMMR. OF C.EX. & S.T., PUNE - III

Citation:-2013(32) S.T.R. 746 (Tri.-Mumbai)

Brief Facts:-The appeal and stay application are directed against Order-in-Original No. 08-09/P-III/ST/Commr/ 2012-2013, dated 30-7-2012 passed by the Commissioner of Central Excise & Service Tax, Pune-III.
The appellant M/s. Geico Paint Shop India Pvt. Ltd. entered into an agreement with their holding-company M/s. Geico Spa, Italy for secondment of personnel to the Indian entity on a temporary basis. During the secondment, the personnel so seconded would remain as the employees of the Indian entity. Part of the salaries of the employees was paid in Indian currency and part of the salary was paid in Italy through their holding-company. The department was of the view that the transaction involved is of supply of labour by the foreign entity to the Indian entity and liable to Service Tax. Accordingly, notices dated 27-4-2011 and 14-10-2011 were issued to the appellant demanding Service Tax of Rs. 97,03,411/- for the period 1-4-2007 to 31-3-2011. The notices were adjudicated and demand was confirmed along with interest and also by imposing penalties. Aggrieved of the same the appellant is before the Tribunal.

Appellant’s Contention:-The learned counsel for the appellant submits that there is no supply of labour by the Italian holding-company to the Indian entity and during the period of their deputation, the personnel seconded by the holding-company remained employees of the Indian company and they were compensated for the services rendered. Since part of the salary had to be remitted abroad, the same was done using the services of the Italian holding-company. It is his contention that apart from salary, they have not paid anything to their Italian counterpart for the transaction. Merely because part of the salary of the employees were paid in Itlay through the holding-company, it cannot be said that the Italian company rendered supply of labour services. He also placed reliance on the decision of the Tribunal in the case of ITC Ltd. v. Commissioner of Service Tax, New Delhi - 2012- TIOL-855-CESTAT-DEL = 2013 (29) S.T.R. 387 (Tribunal); Paramount Communication Ltd. v. Commissioner of Central Excise, Jaipur - 2013-TIOL-37-CESTAT-DEL = 2013 (29) S.T.R. 317 (Tribunal); Order No. S/1216/CSTB/C-I, dated 18-9-2012 in the case of UTI Asset Management Co. Ltd. v. Commissioner of Service Tax, Mumbai-I and Order Nos. S/411-412/13/CSTB/C-I, dated 4-3-2012 in the case of Volkswagen India (Pvt.) Ltd. v. Commissioner of Central Excise, Pune-I. In these decisions, this Tribunal in similar circumstances came to the prima facie conclusion that the transactions did not amount to supply of labour and accordingly stay was granted against the Service Tax demanded. He pleads that the same ratio be followed in the present case also and stay be granted.

Respondent’s Contention:-The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the adjudicating authority. It is his contention that the Indian entity could have paid the salary directly to the account of the employees in Italy rather than routing through the Italian holding-company. It also his contention that after the period of deputation is over, the employees have gone back to the Italian holding company and even during the intervening period in which they work in India, the social security liability is discharged in Italy. Accordingly, he submits that the transaction is one of supply of labour by the foreign entity to the Indian entity. Accordingly, he pleads for putting the appellant to terms.

Reasoning of Judgment:-We have carefully considered the submissions made by both the sides. We have also perused the inter-company secondment agreement entered into between the two parties. As per clause 2.2 of the said agreement:
"The services of the International Assignees shall be at the disposal of the Geico India as their direct employees and the International Assignees shall function as whole time Assignees of Geico India and work solely under the control, direction and supervision of Geico India and in accordance with the policies, rules and guidelines generally applicable to the employees of Geico India during the period of the deputation."
Clause 2.3 envisages payment of salary to the International Assignees to be borne by Geico India. Clause 2.4 provides that Geico, Italy has no obligation to International Assignees of Geico India. Similarly, there are a number of clauses, e.g., 2.5, 2.6, 2.7 2.8, 2.9, etc. which make it amply clear that the Assignees during the period of deputation works under the control of Geico Indiaand salaries to be paid by Geico India. The method of disbursement of salary cannot determine the nature of transaction. This Tribunal in the case of ITC (supra) and Volkswagen lndia (Pvt.) Ltd. (supra) had held that deputation of employees within the group companies would not come within the purview of supply of labour services and accordingly had granted stay against service tax dues adjudged.
Following these decisions, in the present case also, we grant waiver from pre-deposit of the dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal.

Decision:-Stay granted.

Comment:-The essence of this case is that deputation of staff from holding company to the subsidiary company on temporary basis would not be covered by the service of “Supply of Manpower” and consequently would not be leviable to service tax in view of the decision given in the case of ITCand Volkswagen lndia (Pvt.) Ltd.

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PJ/Case Law/2012-13/2043

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