No Service Tax applicable to Salary paid to employees under Secondment Agreement: CESTAT [Read Order]

No Service Tax applicable to Salary paid to employees under Secondment Agreement: CESTAT [Read Order]

Service Tax - salary paid - employees - secondment agreement - CESTAT - Taxscan

The Customs, Excise, and Service Taxes Appellate Tribunal (CESTAT) held that no  Service Tax applicable to salary paid to employees under the secondment agreement.

The appellant, Northern Operating Systems Pvt Ltd were registered with the Department for discharging the service tax under the categories of “Manpower Recruitment Agency Service”, “Business Auxiliary Service”, “Commercial Training and Coaching Service”, “TTSS”, “Telecommunication and Legal Consultancy Service” etc.

Consequent upon the audit of the records conducted by the officers of the Department, proceedings were initiated against the appellant for non-payment of service tax in respect of agreements entered into by the appellant with its group companies located in the USA, UK, Dublin (Ireland), Singapore etc. and provide general back-office and operational support to such group companies.

The Appellants issued Form 16 to the seconded employees. The employees also file income tax returns in Form 24Q. Apart from this the employees also contribute to the provident fund.

The revenue urded that the Revenue is that the appellant has failed to discharge the service tax under the category of “manpower recruitment or supply agency service” with regard to certain employees who were seconded to the appellant by the foreign group companies.

On these allegations, the Department issued two show cause notices under the proviso to Section 73(1) read with Section 66A of the Finance Act, 1994 proposing to demand service tax under the category of “manpower recruitment or supply agency service”.

The Commissioner passed the impugned Order-in-Original wherein he has disregarded most of the submissions made by the appellant and confirmed the proposals in the notice except the demand for the period from April 2006 to September 2006 and accepting the fact that part of the demand has been raised at the rate of 12.3% instead of 10.30%.

The coram consists of S.S.Garg and P. Anjani Kumar found that the persons seconded to the appellant working in the capacity of employees and payment of salaries etc are made to such employees by group companies only for disbursement purposes and hence employee-employer relationship exist and such an activity cannot be termed as “manpower recruitment or supply agency” and the whole arrangement between the appellant and its group companies does not fall under the taxable service of manpower recruitment or supply agency service as defined under the Finance Act, 1994.

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