The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that no Service Tax is payable on payment made to foreign companies under Manpower Recruitment or Supply Agency Service.
The appellants, M/s Komatsu India (P) Ltd. has been engaged in the manufacture of Dump Trucks and is a wholly-owned subsidiary of Komatsu Asia Pacific Limited (KAP) belonging to the Komatsu Group of companies in Japan. They are registered with the department for payment of service tax under various categories of taxable services. On verification of records of the appellant, it was observed that though the appellant received various services from abroad they had not paid the service tax on such services in terms of Section 66A of the Finance Act, 1994. Show cause notice was issued proposing to demand service tax under the category of ‘Manpower Recruitment or Supply Agency Service’, Online Information and Database Access and Retrieval Service, Consulting Engineering Service, and Maintenance and Repair Services. After due process of law, the original authority confirmed the demand, interest, and imposed penalties.
The issue raised in respect of tax liability under consideration is the demand of service tax on “Manpower Recruitment or Supply Agency Service”. Manpower Recruitment or Supply Agency Service is defined under Section 65 (105) (k) of the Finance Act, 1994.
The coram of Sulekha Beevi C.S. and P. Anjani Kumar ruled that the payment made to the foreign company which has been subjected to service tax under Manpower Recruitment or Supply Agency Service cannot sustain and is required to be set aside.
“We do not find any payment of consideration towards the rendering of Manpower Recruitment or Supply Agency Service. The appellant company and the parent company being of the same group, the secondment employees cannot be said to have been recruited by the parent company to the appellant company. Once the employees are deputed to the appellant, the appellant would enter into an individual contract for employment with such employees. A part of the salary that is to be paid to these employees is paid to the parent company in foreign currency for payment to their families. The said amount is not a consideration for services of manpower recruitment,” the CESTAT said.
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