DECEMBER 01, 2023

By Indravijaysinh Solanki

"IN this world nothing can be said to be certain, except death and taxes."- Benjamin Franklin. The latter, however, is subject to authority of law. Article 265 of the Constitution of India categorically states that no tax shall be levied, except by authority of law.

In the above context, it would be interesting to refer to the judgment of the Hon'ble Supreme Court of India, in the case of M/s Northern Operating System Pvt. Ltd. (NOSPL) [2022-TIOL-48-SC-ST-LB] in which it is held that the services in the matter of secondment to be nothing less than Manpower services.

Is the decision of the Apex Court in the case of M/s Northern operating system Pvt. Ltd., taken in stride?

Delving briefly, M/s NOSPL is a private limited company in India and a subsidiary of foreign company namely Northern Trust Corporation, USA. In the multinational companies, exchange of human resources either for the purpose of capacity building or secondment/ deputation is inherent. Consideration is in the form of salary in case of the latter. Sub-section (1) of Section 17 of the Income Tax Act, 1961 provides an inclusive definition of the term "Salary" that includes fees, commission, perquisites or profits in lieu of or in addition to any salary or wages. So long as the salary is by way of formal arrangement & TDS deducted, it cannot be likened to consideration for services rendered by persons not deputed, in as much as tax avoidance is a ploy resorted to by the assessee to lessen tax liability.

The term manpower is defined by means clause as "supply of manpower", temporarily or otherwise, to another person to work under his superintendence or control. Herein, it would be apposite to refer to the serial number 8 of the notification no. 30/2012-ST dated 20.06.2012 under which a group of services had been notified together viz., supply of manpower service or security services. It should be noted that the manpower service has been grouped with security service, meaning that the term manpower is on a similar footing to that of a security service. Further, the term manpower, in its cognate expression, denotes menial types of work for which agencies exist to supply requisitioned manpower on a fixed per day or hour wage rate.

To further understand the scope of the term manpower, it would also be appropriate to refer to the CBEC's circular No. 190/9/2015-ST dated 15.12.2015. Though it is rendered in the context of garment industry, yet it is useful to understand the scope of manpower services. The essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider's accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. A CBEC Draft Circular in F.No 354/127/2012-TRU, Dated: July 27, 2012 was put for comments from the trade on the scope of the manpower supply that sought to include cases of secondment whereby certain staff belonging to an organization is placed at the disposal of a subsidiary company. The said circular, however, was not issued, but phrases viz "at the disposal" & "quality of manpower" used in the circular are helpful indicators to define the scope of manpower.

The Merriam Webster dictionary defines the meaning of the term disposal as the power or authority to make use of as one chooses and at disposal means "available for someone to use; available for whatever one needs".

In the Service tax regime, the manpower is not merely someone at disposal but under mandate to work under his (service recipient) superintendence. Adverting to the contents of the circular dated 15.12.2015, service provider's accountability is only to the extent and quality of manpower. The term "Quality" is in respect of person engaged to perform skilled or unskilled work and not akin to the term "Qualified" which is applied to one who has taken the steps to prepare himself for an appointment or office, as by taking oath, giving bond, etc.

Prior to the negative list regime, the CBEC vide the circular F.No. B1/6/2005-TRU dated 27th July, 2005 underlined that charging service tax from the recipient when the service is provided by a non-resident is a well accepted international practice. The scope of supply of manpower service was expanded to include cases where staffs are not contractually employed by the recipient and the value for the purpose included recovery of staff costs from the recipient e.g. salary and other contributions. Therefore, authority of law was intra vires the article 265 of the Constitution for levy of service tax for the period prior to 01.07.2012. However, in the negative list regime, the definition of the term service [clause (b) of section 65B(44) of the Finance Act, 1994] excluded services by an employee to the employer in the course of or in relation to his employment. Further, to levy service tax, consideration is sine qua non, which has to be in the nature of quid pro quo and it cannot be equated with salary.

Whether or not the scope of secondment qua manpower is as one laid down by the Apex court is a matter [of contemplation even in the GST regime [section 13(13) of the IGST Act, 2017] that must be imparted clarity through explanation in clause (b) of section 65B(44) of the Finance Act, 1994 in sync with canons of certainty; canons of simplicity as well as canons of productivity - A tax is said to be a productive one, only when it acts as an incentive to production or provision of services.

[The author is Superintendent of Central Tax, Adjudication, Vadodara-II Commissionerate and the views expressed are strictly personal.]