Service Tax on Secondment of Employees: CESTAT Limits Demand to Normal Period Citing Absence of Wilful Suppression [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that service tax demands on the secondment of employees must be confined to the normal limitation period, as the case did not involve wilful suppression of facts.

Halliburton Technology India Pvt Ltd, an Indian affiliate of the global Halliburton group, had availed services from overseas group entities such as Halliburton Energy Services Inc. (USA), Halliburton Far East Pte Ltd. (Singapore), and Halliburton Management Ltd. (Scotland).

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The department claimed that these cross-border arrangements, especially the secondment of employees, amounted to the import of services and were taxable under Section 66A of the Finance Act, 1994. The company partially discharged service tax and was later hit with a show cause notice invoking the extended period of limitation and proposing an equal penalty under Section 78.

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The appellant’s counsel argued that the issue of taxability of secondment was long unsettled and was finally clarified only in 2022 by the Supreme Court in Commissioner v. Northern Operating Systems Pvt. Ltd.

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The appellant’s counsel argued that the absence of intent to evade tax, coupled with voluntary disclosure in financial reports, rendered the invocation of extended limitation and penalty unjustified. They also argued that the nature of its business, export of services, made it eligible for a full refund of any tax paid, leaving no motive for deliberate evasion.

The revenue counsel argued that the company failed to register on time, misdeclared taxable value, and began paying taxes only after an inquiry was initiated. The department relied on language in the show cause notice indicating suppression of facts and belated compliance.

The two-member bench comprising Member (Technical) C.J. Mathew and Member (Judicial) Ajay Sharma, found that the issue of taxability of seconded employees had been legally contentious and could not attract allegations of suppression. Referring to the Supreme Court’s ruling in Northern Operating Systems, the tribunal held that where legal interpretation is involved and no malafide intent is evident, the extended period of limitation under Section 73(1) and penalty under Section 78 cannot apply.

The tribunal observed that the company had not challenged the taxability on merit post the Supreme Court ruling and had already paid dues for part of the services. The tribunal limited the demand to the normal one-year period and directed the jurisdictional authorities to recalculate the demand and applicable penalty under Section 76. All other extended period demands and associated penalties were set aside. The appeal was allowed to this extent.

To Read the full text of the Order CLICK HERE

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