A division bench of the Supreme Court has reversed the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, by holding that service tax is leviable on the amount received on account of services relating to general back office and operational support from foreign entity.
The assessee, M/S Northern Operating Systems Pvt Ltd is a service provider under the categories of “Manpower Recruitment Agency Service”, “Business Auxiliary Service”, “Commercial Training and Coaching Service”, “TTSS”, “Telecommunication and Legal Consultancy Service” etc., under the Finance Act, 1994. Following an audit of the records by the revenue’s officials, proceedings were initiated against the assessee alleging non-payment of service tax concerning agreements entered into by it with its group companies located in USA, UK, Dublin (Ireland), Singapore, etc. to provide general back office and operational support to such group companies.
The assessee contended that apart from it having control over the nature of work of the seconded employees, no consideration was charged by the foreign entities from it for providing the supply of manpower as the revenue alleged.
The CESTAT dropped the demand on appeal by holding that the group companies were not engaged in supply of manpower. The CESTAT also held that those seconded to the assessee working in the capacity of employees and receiving salaries by group companies were only for disbursement purposes. The employee-employer relationship existed and that the activity, therefore, could not be termed as “manpower recruitment and supply agency.”
Overruling the CESTAT order, the bench comprising Justice S. Ravindra Bhat, Justice Uday Umesh Lalit and Justice Pamidighantam Sri Narasimha observed that “while the control (over performance of the seconded employees’ work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment. Secondly, the overseas employer- for whatever reason, pays them their salaries. Their terms of employment – even during the secondment – are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their original places, to await deployment or extension of secondment”
Allowing the department appeal, the Apex Court held that the assessee is liable to pay service tax for the periods spelt out in the SCNs. “However, the invocation of the extended period of limitation, in this court’s opinion, was unjustified and unreasonable. Resultantly, the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands therefore, shall be recovered from the assessee,” the Court said.
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