The Customs, Excises, and Service Taxes Appellate Tribunal (CESTAT), Bangalore Bench ruled that no Service tax is applicable on secondment of employees by group companies as an employer-employee relationship exists.
The appellant, M/s Target Corporation India Pvt. Ltd. is engaged in providing software development and IT-enabled services. The Appellant entered into an agreement with the M/s Target Corporation, the USA for secondment of employees w.e.f. April 1, 2006, and as per the agreement, the Appellant shall pay Target, USA a service charge at the rate of 15 dollars per employee per payroll cycle for processing payroll of the seconded employees.
Target, USA raised debit notes on the Appellant towards salaries paid to the employees seconded from Target, USA and the Appellants have remitted the amount in foreign currency and disclosures were made in their financial statement based on relevant accounting standards and guidance notes issued by the Institute of Chartered Accountants of India.
As per the Appellant, the payments to ex-pats are grouped and included as ‘salaries, wages, and bonus’ under the head ‘expenditure incurred in foreign exchange’ and the same is also shown as ‘reimbursement of expenses’ under related party transactions as they form part of the transactions within the group entities.
The issue raised in this case was whether Service tax is leviable on the amount reimbursed or reimbursable by the Appellant to Target, USA under the terms of the secondment agreement and on the payment to be made towards payroll processing charges.
The coram of S.S.Garg and P.Anjani Kumar following the case of Northern Operating Services Pvt. Ltd. wherein the Division Bench of CESTAT, Bangalore has allowed the appeal of the assessee and set aside the demand raised by the Department under the category of manpower recruitment or supply agency service, the tribunal was of the considered view that the order passed by the Respondent is not sustainable in law and hence set aside the same by allowing the appeal of the Appellant.
The CESTAT noted that the legal position post negative list regime does not make any departure from the settled position of law as existed before 2012 with respect to the Service tax implications on deputation of employees. In fact, the exclusion in the definition of service amplifies the position of law to keep employees providing service to the employer in the course of their employment out of the purview of Service tax.