M/s. Northern Operating Systems Pvt Ltd Vs C.C.,C.E.& S.T- Bangalore (adjudication) (CESTAT Bangalore)
Conclusion: No service tax applicable to salary paid to employees under the secondment agreement as persons seconded to assessee working in the capacity of employees and payment of salaries etc was made to such employees by group companies only for disbursement purposes and hence employee-employer relationship exist and the whole arrangement between assessee and its group companies did not fall under the taxable service of manpower recruitment or supply agency service as defined under the Finance Act, 1994.
Held: Assessee-company was registered with the Department for discharging the service tax under the categories of “ Manpower Recruitment Agency Service”, “Business Auxiliary Service”, “Commercial Training and Coaching Service”, etc. Consequent upon the audit of the records conducted by the officers of the Department, proceedings were initiated against assessee for non-payment of service tax in respect of agreements entered into by assessee with its group companies located in the USA, UK, etc. and provide general back office and operational support to such group companies. Department urged that assessee had failed to discharge the service tax under the category of “manpower recruitment or supply agency service” with regard to certain employees who were seconded to assessee by the foreign group companies. On these allegations, the Department issued two show cause notices under the proviso to Section 73(1) read with Section 66A of the Finance Act, 1994 proposing to demand service tax under the category of “manpower recruitment or supply agency service”. It was held that persons seconded to assessee working in the capacity of employees and payment of salaries etc was made to such employees by group companies only for disbursement purposes and hence employee-employer relationship exist and such an activity could not be termed as “manpower recruitment or supply agency” and the whole arrangement between assessee and its group companies did not fall under the taxable service of manpower recruitment or supply agency service as defined under the Finance Act, 1994. Thus, there was no service provider-recipient relationship in the present case, as required by Section 65(105)(k).
