Failure to pay Service Tax under “Manpower Recruitment of Supply Agency Services" due to Bonafide Employer-Employee Relationship Belief: CESTAT sets aside Demand [Read Order]

The New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the demand for service tax as it was found that failure to pay Service Tax under “manpower recruitment of supply agency services" on bonafide belief of having employer-employee relationship.

M/s Halcrow Consulting India Private Limited, the appellant challenged the Order-in-Original passed by the Commissioner of Service Tax, Delhi, wherein service tax demand of Rs. 2,69,51,716/- was confirmed for wrong availment of CENVAT credit on input services ( accommodation of staff, meal vouchers, tour and travel service ) and inadmissible documents ( invoice not having serial numbers ),  for non-reversal of CENVAT credit under rule 6(3)(i) of CENAVT Credit Rules, 2004 for provision of both taxable and exempt services, and non-payment of service tax on manpower service received from their overseas entity

The appellant, the Indian subsidiary of M/s Halcrow International Limited, United Kingdom is engaged in the provision of 'Consulting Engineering Services' for various projects and is registered with the Service tax department. The appellant also provides services in different parts of India including Jammu & Kashmir. Services provided in the state of Jammu and Kashmir are exempt from service tax and therefore the Appellant is not paying any service tax on the provision of such services., and reversed the CENVAT credit as per rule 6(3)(ii) read with rule 6(3)(A) of Credit Rules.

During the period 2008-09 to 2013-14, the appellant also hired foreign employees for provision of services related to the domestic projects. These foreign employees were working on the payroll of the appellant and all the statutory requirements were fulfilled by the Appellant in this regard. During the audit of the records of the appellant, the department expressed reservations on the issue of availment of CENVAT credit on J&K services, and the appellant reversed the CENVAT credit pertaining to J&K services treating it as exempt services. Thereafter, SCN was issued. Pursuant to the said Show Cause Notices, the Commissioner has confirmed the demand alongwith interest and penalties vide the impugned order.

Consequently, the Accommodation services provided to staff of Rs. 1,61,209/-, the counsel submitted that the service of accommodation used by the employees of the Appellant, was in their official capacity, and was not used in relation to personal use of the employees. The service of accommodation was necessary for the purposes of providing the service of Consulting Engineer Services and is integrally connected with the same. This input service was being used by foreign delegates/ employees of other companies/consultants who visited India in connection with the requirement of the Appellant's projects. Accordingly, these were essential for providing the output services.

The issue of taxability of services under “manpower recruitment of supply agency services”.  The demand has been confirmed under reverse charge on Manpower services which the appellant has received from their holding company. During the period 2008-09 to 2012-14, the appellant hired foreign employees for the provision of services related to domestic projects. These foreign employees were working on the payroll of the appellant and all the statutory requirements were being fulfilled by the appellant in the regard.

It has been pleaded before us that there was a bonafide belief that there stood and employer-employee relationship and no service tax was payable. It has been conceded by the learned counsel that such secondment arrangements are liable to service tax. However, he has also submitted that until the Supreme Court’s decision in the case of CCE vs. Northern Operating System [2022], most Tribunal decisions in the regard were in favour of the appellant. Therefore, no malafide intention/ suppression could be attributed to the appellant.

A two-member bench of Dr Rachna Gupta, Member (Judicial) and Ms Hemambika R Priya, Member (Technical) held that the department has not been able to establish the ingredient of malafide intention to evade payment of service tax and set aside penalties imposed under Sections 76,77, & 78 of the Act.

Ms. Priyanka Rathi & Ms. Shubangi Gupta appeared for the Appellant. Shri S. K. Meena, Authorized Representative appeared for the Respondent.

To Read the full text of the Order CLICK HERE

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