Employee Secondment Liable to Service Tax: CESTAT Upholds Airbus Tax Demand, Grants Relief on Limitation and Penalty [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that employee secondment is liable to service tax, but the extended period of limitation and penalties cannot be sustained in the absence of suppression of facts.

Airbus Group India Pvt. Ltd. and its related entities, the appellants, had entered into agreements with their foreign holding company, Airbus SAS France, under which employees were deputed to India. The department treated this arrangement as “Manpower Recruitment or Supply Agency Service” and raised demands of service tax along with interest and penalties for various periods.

The appellant’s counsel argued that although the taxability of such services was no longer in dispute in light of the Supreme Court judgment in Northern Operating Systems Pvt. Ltd., the invocation of the extended period of limitation was not justified since there was no suppression or intent to evadetax.

The revenue counsel argued that the demands were correctly confirmed by the lower authorities and supported the invocation of the extended period and imposition of penalties.

The two-member bench comprising Dr. D.M. Misra (Judicial Member) and Mrs. R. Bhagya Devi (Technical Member) observed that the taxability of employee secondment was settled by the Supreme Court and was not disputed by the appellants. On the issue of limitation, the tribunal observed that the appellant’s conduct did not indicate any wilful suppression or deliberate misstatement.

The tribunal explained that where the issue involves interpretation and the assessee holds a bona fide belief, the extended period cannot be invoked. It pointed out that the Supreme Court in Northern Operating Systems Pvt. Ltd. had also held that extended limitation is not justified in such circumstances.

In view of this, the tribunal confirmed the service tax demand only for the normal period along with interest and set aside the extended period demand and penalties.

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