Supreme Court to Decide Daimler India’s Appeal on Service Tax Liability for Expat Employees under RCM [Read Order]
Supreme Court issues notice on Daimler India’s appeal challenging CESTAT order upholding service tax on expatriate employees under the reverse charge mechanism.
In a recent development, the Supreme Court of India issued notice in an appeal challenging a decision of the Customs, Exciseand Service Tax Appellate Tribunal (CESTAT) which upheld the levy of service tax on salaries and reimbursements made for expatriate employees seconded from Daimler AG, Germany under the reverse charge mechanism.
The case arose from a common order passed by the Commissioner of CGST and Central Excise confirming service tax demands for the period 2008-09 to June 2017. The department argued that Daimler India had received manpower supply services from its overseas parent company and was liable to pay service tax under Section 66A of the Finance Act, 1994.
Daimler India, the appellant’s cousel argued before the Tribunal that the seconded employees were under its control and supervision, were paid salaries taxable in India, and had a valid employer-employee relationship with the company. They explained that payments made to Daimler AG were only reimbursements for part of the salary disbursed abroad, with no element of consideration or profit.
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The two-member bench comprising Mr. Vasa Seshagiri Rao (Technical Member) and Mr. Ajayan T.V. (Judicial Member), observed that the terms of the framework agreements and employment contracts were substantially similar to those examined by the Supreme Court in Northern Operating Systems Pvt. Ltd. v. Commissioner of Central Excise (2022). The tribunal held that the ratio of that judgment squarely applied to Daimler India’s case.
It found that Daimler AG was providing manpower recruitment and supply agency services to Daimler India and that the company was liable to pay service tax under the reverse charge mechanism. The tribunal also observed that the issue was debatable, the company’s view was bona fide, and there was no wilful suppression or misstatement.
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The tribunal modified the demand by limiting it to the normal period of limitation, set aside the penalties, and directed that only the service tax for the normal period, along with applicable interest, be paid.
Aggrieved by this order, Daimler India Commercial Vehicles Pvt. Ltd. has approached the Supreme Court, which has issued notice to the tax authorities, returnable in six weeks.
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