ST - Joint Employment - If indeed intention of parties would have been otherwise, employer-company which takes trouble of hiring an employee on its own rolls would have insisted on some mark-up or margin being given to it, over and above actual cost - No ST payable under BAS: CESTAT
By TIOL News Service
MUMBAI, APR 15, 2016: THE appellant is a manufacturer of pharmaceutical products and having their own marketing network. They have three related companies (group companies) but being purely engaged in manufacturing of pharmaceutical products, used the network of the appellant for marketing purposes. Appellant for use of such marketing network, recovers the expenses incurred by them from these three group companies in form of percentage of the value of sales made by these three companies and the same is recorded in writing by an agreement dated 8 November, 1982.
It is the case of the department that the recovery of such expenses is in the nature of services rendered under the category of Business Auxiliary Services (clause (i) - promotion or marketing or sale of goods produced or belonging to the client). The period involved is July2003 to March 2005.
The demand of Service Tax was confirmed along with equivalent penalty and interest and the amount paid was appropriated.
Before the CESTAT, the appellant submitted that the infrastructure facility of marketing pharmaceuticals being available with the appellant, they shared the same with their group companies and recovered the cost attributable to salary, wages, bonus, demand and incidental expenses of the employees who were deputed to the work of marketing of the group companies and, therefore, cannot be taxed. Reliance is inter alia placed on the decision in K. Raheja Real Estate Services Pvt. Ltd. - 2013-TIOL-2363-CESTAT-MUM in support.
The AR submitted that the services are covered under "Business Auxiliary Services" and if not under "Business Auxiliary Services", at least under "Manpower Recruitment or Supply Services". The Tribunal decision in the case of Forbes Polymerton Pvt. Ltd. - 2015-TIOL-2595-CESTAT-Mum, holding that such an activity of deputing various individuals to the group companies is covered under the service tax liability under "Business Support Services" or "Management Consultancy Services", is adverted to. And that the same is the view expressed by the bench in the case of Artefact Infrastructure Ltd. - 2016-TIOL-31-CESTAT-Mum, submitted the AR.On the claim of limitation, it is submitted that the appellant had not informed the department regarding the services rendered by them and receipt of consideration from the other three companies.
The Bench, after extracting the definition of Business Auxiliary Services and scrutinizing the agreement, observed - The reading of the contract indicates that appellant is only deputing the employees to the group companies and said employees are called back after the job is completed and utilized in the activity of the appellant or deputed to any other group company.
Noting that a similar issue cropped up in the case of K.Raheja Real Estate Services Pvt. Ltd. - 2013-TIOL-2363-CESTAT-MUM, and where the appellant had classified the services rendered by them under "Business Support Services", the Bench observed that in the case of Glaxo Smithkline Pharmaceuticals Ltd. - 2004-TIOL-786-CESTAT-MUM the demand under the head Management Consultancy Service was set aside. Inasmuch as the impugned order was also unsustainable and hence set aside.
The Bench also added that it is in agreement with the Draft Circular dated 27.07.2012 issued by the Board dealing with the issue of "joint employment" and wherein it is mentioned -
|
"Joint Employment
5. There can also be cases where staff is employed by one or more employers who normally share the cost of such employment. The services provided by such employee will be covered by the exclusion provided in the definition of service. However, if the staff has been engaged by one employer and only made available to other for a consideration, it shall not be a case of joint employment.
6. Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later recouped form the other employers or an agreed basis on actual. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement."
|
The CESTAT concluded -
++ Even otherwise, by its very nature, a situation where employer-companies have a pre-existing agreement to hire employees on joint basis and agree to share the cost of employment on actual by dividing it amongst themselves in such a manner that each employer bears only his part of the cost indicates that there was no intention amongst the employer-companies to render any service to each other. If indeed the intention of the parties would have been otherwise, the employer-company which takes the trouble of hiring an employee in its own rolls would have insisted on some mark-up or margin being given to it, over and above the actual cost. In the absence of such a mark-up/margin, the payments received against debit notes by one employer-company upon the other employer-companies, will not partake the character of consideration for any service, but will merely represent reimbursement of shared costs.
In fine, the impugned order was set aside and the appeal was allowed with consequential relief.
(See 2016-TIOL-885-CESTAT-MUM)
