The Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) situated in New Delhi recently dismissed an appeal filed by Power Finance Corporation Limited (PFCL) challenging the rejection of their refund claim on service tax of ₹2,49,16,169 paid by virtue of secondment of employees to their subsidiary PFC Consulting Limited (PFFCL).
PFCL provides services under the category of banking & other financial services, management consultant services, credit rating fees and sponsorship & consulting engineering services.
Read More: CESTAT upholds Penalty Imposed u/s 76 of Finance Act on TASMAC in absence of Payment of Service Tax
The Revenue Department conducted an audit of the Assessee’s records of the period between 2008- 09 to 2010-11 following which an amount of ₹1,46,39,167 along with interest was demanded as service tax under the categories of “Manpower Recruitment and Supply Agency Services” and “Business Support Services” as under the Finance Act, 1994.
Confused About SME IPO? Learn the A-Z of Listing & Compliance Today!, Enroll Now
PFCL proceeded to deposit an amount of ₹2.49 crore but later sought refund on the same after being positive that the activity of secondment of employees was not a taxable service. The Adjudicating Authority rejected the appellant’s claim; the decision was sustained by the Commissioner (Appeals) leading to the institution of the present appeal.
Atul Gupta and Varun Gaba appearing for PFCL submitted before CESTAT that the definition of “Manpower recruitment or supply agency services” requires the service provider providing the said services to be conducting the same in their normal course of business
Averring that PFCL is not primarily engaged in the transfer of employees to PFFCL on regular basis, it was argued that mere solitary transaction of transferring of employees to its subsidiary to support its working, cannot be considered as Manpower recruitment or supply agency services. Additionally, PFCL asserted that the reimbursement of salary and allowances from PFFCL did not constitute “consideration” for a taxable service but was merely a cost-sharing arrangement.
Confused About SME IPO? Learn the A-Z of Listing & Compliance Today!, Enroll Now
Meanwhile, Manoj Kumar representing the Revenue submitted that the PFCL had cited that the disputed amount and interest had been deposited by them not as a tax, but for the sake of peace of mind due to departmental pressure. In the same context, the Counsel stated that once service tax liability has been accepted and voluntarily paid with interest, they cannot challenge the same at a later time.
Relying on the decision of the Supreme Court in Commissioner Of Custom Central Excise & Services Tax- Bangalore (Adjudication) etc Vs M/s Northern Operating Systems Pvt Ltd (2021) where it was affirmed that such secondment arrangements fell within the ambit of manpower supply services.
Read More: Supply of Manpower by Overseas Entities is a Taxable Service: Supreme Court
A two-member bench comprising Judicial Member Rachna Gupta and Technical Member Hemambika R. Priya observed that PFCL had charged salary and allowances from PFFCL along with a markup of 36% charged by the appellant in lieu of other expenses.
Further considering that PFFCL exercised operational control over the seconded employees the Bench concluded that there was manpower supply service implicit in the transfer of the appellant’s employees to PFFCL. Therefore, CESTAT upheld the impugned order passed by the Commissioner (Appeals) and affirmed the rightful levy of service tax on PFCL, vitiating their claims of refund of the same.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
