By TIOL News Service

NEW DELHI, FEB 08, 2018: THE appellant is a project office of M/s. Lea International Ltd. (LIL) and is registered for payment of Service Tax. They entered into various agreements with clients based in India for providing engineering consultancy services and technical assistance in various road related projects.

The dispute relates to -

(a) Certain expenditure shown in the books of the appellant with reference to income and expenditure of projects in India is sought to be taxed as a consideration for consulting engineer service

(b) Tax liability under manpower supply in respect of staff deputed by LIL to India to render the services in terms of the agreement with the Indian clients.

Inasmuch as the Revenue held that the appellant received consultancy service from LIL, Canada in execution of various service contracts in India. Similarly, for the staff and officers deputed by LIL, Canada to render the service in India to the Indian clients, the appellant was sought to be taxed on reverse charge basis under manpower supply service.

The ST demand was confirmed with penalties and, therefore, the appellant is before the Tribunal.

It is submitted that the considerations received from Indian clients in pursuance of various consultancy agreements are fully credited to LIL, Canada directly; that the appellant has no role in execution of the agreement, rendering of service or receipt of consideration for such service; that the full consideration, which is accounted towards the receipt from Indian clients are shown in their accounts in India, which is also captured in the accounts of LIL, Canada; that this accounting is followed mainly to satisfy the local Income tax law for tax liability; that since they have discharged Service Tax as mandated by the agreement between the Indian clients and LIL, Canada, the expenditure shown as consultancy fee which in-fact was incurred by LIL, Canada in the execution of such contract cannot be taxed at the hands of the appellant.

In other words, it is the submission of the appellant that when the whole of the income accruing to the LIL, Canada, though shown in the books of accounts of appellants having suffered Service Tax under the category of consultancy engineering service, the expenditure, if any, for such income cannot be again taxed under the same heading either as a domestic tax or as a reverse charge tax.

On the second issue, it is submitted that it is a settled law that sending on deputation the employees from foreign country by the foreign service provider to the project office to render service to Indian clients will not make supply of manpower to a branch project office located in India.

The AR while reiterating the submissions emphasised that the present taxation is with reference to expenditure shown in their accounts towards the receipt of consultancy service and the same is independent of the tax liability suffered by the appellant.

After considering the submissions, the Bench observed the tax liability cannot be sustained because -

"7.1 Firstly, the whole of the income shown in the books of accounts of the appellant, though the same is accrued to LIL, Canada has suffered tax under the category of consultancy engineering service. An expenditure, which is part of the same accounting for income, cannot be taxed for the same service, even under reverse charge tax. Secondly, the appellant has no agreement or arrangement with LIL, Canada to receive any consultancy service. No such allegation has been made. LIL, Canada apparently, procured such consultancy service from various consultants, which in turn were used for rendering service to Indian clients. In fact, such services were effectively managed and utilized by LIL, Canada. This is expenditure for LIL, Canada, which is also reflected in the appellant's accounts as per the requirement. The full income on consultancy service, as already noted, has suffered Service Tax. This is an admitted fact. The expenditure to provide such service cannot be put to Service Tax even under reverse charge basis. There is no basis either on fact or law to sustain such confirmation.

7.2 Regarding the second issue of Service Tax liability under manpower supply, we note that the same dispute came before the Tribunal as well as High Courts for decision in Computer Science Corporation India Pvt. Ltd. - 2014-TIOL-1896-HC-ALL-ST. The Hon'ble Allahabad High Court held that in such arrangement, the deputation of employee for executing work cannot be considered as a manpower supply. It was held that the employer cannot be considered as a manpower supply agency. The said ratio has been adopted in various other decisions of the Tribunal also. We note, neither the appellant nor LIL, Canada can be considered as a manpower supply agency. In such situation, the tax liability to said category cannot be sustained."

The impugned order was held to be legally unsustainable.

Setting aside the same, the appeal was allowed with consequential benefit.

(See 2018-TIOL-480-CESTAT-DEL)