ST - Appellant employing personnel belonging to Parent Co - 75% salary paid by Group Co in Germany and thereafter debit notes raised on appellant - method of disbursement of salary cannot determine nature of transaction - it is not Manpower Supply - Appeals allowed: CESTAT
By TIOL News Service
MUMBAI, NOV 04, 2013 : THE appellant employed personnel belonging to their group company in Germany for a specific period. During this period, the appellant entered into agreements with the personnel for their employment. Since the personnel employed were foreign nationals, about 25% of the salary was paid in India in Indian currency and the balance 75% was paid by the group company in Germany to the credit of accounts of the personnel employed and thereafter, debit notes were raised on the appellant by the foreign entity towards reimbursement of the salary paid in Germany. For the income earned in India by the personnel, the appellant also discharged the Income Tax liability showing the personnel employed as their own employee.
The Central Excise department was of the view that the transaction involved comes within the purview of ‘Manpower Supply or Recruitment Agency services' and for the amount remitted to the German entity for payment of salary to the personnel employed in India, a show-cause notice was issued demanding Service Tax thereon.
Since the demands were confirmed by the CCE, Pune-I with interest and penalties galore , the appellant filed Stay applications/appeals before the CESTAT. The Service tax amounts in the three demand notices are Rs.7.31 Crores, Rs.4.73 Crores and Rs.4.23 Crores respectively.
Before the Bench, at the time of hearing of the Stay application, the appellant submitted -
+ the personnel employed by them remained their employees during the period of the agreements and, therefore, there is no supply of manpower by the German entity. Since the employees are foreign nationals, part of their salary is paid in Germany through their group company.
+ Merely because the payment has been made through the German entity, the activity does not come under the purview of ‘Manpower Supply or Recruitment Agency Service'.
+ Reliance is placed on the decisions in ITC Ltd. Vs. Commissioner of Central Excise, New Delhi - (2012-TIOL-855-CESTAT-DEL); Paramount Communication Ltd. vs. Commissioner of Central Excise, Jaipur (2013-TIOL-37-CESTAT-DEL) and UTI Asset Management Co. Ltd. Vs. Commissioner of Service Tax, Mumbai (2012-TIOL-1822-CESTAT-MUM).
The Revenue representative fairly admitted that the Tribunal in a number of decisions cited by the appellant had granted interim stay.
The Bench considered the decisions cited by the appellant and viewed that the appellant has a strong case in their favour for grant of stay. Accordingly, the CESTAT granted unconditional waiver from pre-deposit of the dues adjudged against the appellant and stayed the recovery. We reported this as (2013-TIOL-774-CESTAT-MUM).
The appeal was heard on 24/05/2013 and the final order was pronounced on 30/09/2013.
The appellant reiterated their submissions and also mentioned that such global employees worked under the control and supervision of the appellant as its employee; Salary for such work done by the global employees is directly paid by the appellant and such income earned by the global employees is taxable as salary under the provisions of the Income Tax Act, 1961; Further, the appellant deducts Income Tax at source from the salary of such global employee of the appellant as per the provisions of the Income Tax Act;the appellant has also issued the necessary TDS (Form-16A) certificate in the capacity of employer. It was also submitted that the holding/foreign company is not a "manpower recruitment or supply agency service" as required under section 65(105)(k) of the Finance Act, 1994. Reliance is also placed on CBE & C Circular no. 96/7/2007-ST dated 23.8.2007, wherein it has been clarified that in the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency; that the agency agrees for use of the services of an individual, employed by him, to another person, for a consideration; Employer-employee relationship in such cases exists between the agency and the individual and not between the individual and the person who uses the services of the individual.
The Revenue representative submitted that the Indian entity should have paid full salary directly to the employee of the appellant company other than routing a part through the foreign/holding company; that after a period of 3-4 years such global employees go back to the foreign/holding company and even during the intervening period, during the employment in the appellant company, the social security liability has been discharged in their home country. Accordingly, it is submitted that the transaction is one of supply of labour/manpower by the foreign company to the appellant - Indian company and, therefore, the order of the adjudicating authority should be upheld.
The Bench after perusing the company agreements as well as clauses of agreement with the global employees observed -
"5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working as their employees and having employee-employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction.
5.2 Further, in view of the rulings relied upon by the appellant as aforementioned, we find that the facts are covered on all four corners and accordingly, the appeals are allowed and Orders-in-Original are set aside."
In fine, the appeals were allowed with consequential relief.
Das Auto!
(See2013-TIOL-1640-CESTAT-MUM)
