Case Law Details

Case Name : ITC Ltd Vs. Commissioner of Service Tax (CESTAT Delhi)
Appeal Number : 2012-TIOL-855-CESTAT-DEL
Date of Judgement/Order :
Related Assessment Year :
Courts : All CESTAT (1011) CESTAT Delhi (324)

Whether employees sent on deputation to subsidiary/ associate companies amount to manpower recruitment or supply service before or after 1st July, 2012

Issue:-

Whether employees sent on deputation to subsidiary/ associate companies amount to manpower recruitment or supply service?

Facts of the Case:-

The appellants were sending their manager/ employees to hotels run by the subsidiary/ associate companies on deputation. They were recovering costs on actual basis and were not retaining any amount out of the payment made by the hotels run by the subsidiary/ associate companies.     The contention of the Department is that the appellants were engaged in manpower supply service as they were supplying their manpower to hotels run by associate companies on a cost recovery basis.

Held:-

The appellants were not engaged in manpower recruitment or supply service.

The appellants were deputing their manager/ employees to hotels run by the subsidiary/ associate companies. The subsidiary/ associate companies were reimbursing actual expenses to the applicants. These recovered costs were in the nature of salary and other costs of the employees. Therefore, the contention of the applicants is that they were not providing any taxable service.

The Department was of the view that the applicants supply man-power to other units on cost recovery basis and the employees remain on the payroll of the applicants and they were only sent on deputation to other unit i.e. hotels of subsidiaries/associate companies. As the applicants were supplying their man-power to other hotels which are run by the subsidiaries/associate companies, therefore, the applicants are provider of taxable service of supply of man-power.

On hearing both the sides, the Hon’ble CESTAT held that the applicants were deputing their manager/employees to hotels run by the subsidiaries/associate companies on deputation and the cost is recovered on the basis of actual and ITC is not retaining any amount out of the cost recovered from the hotels run by subsidiary/associate companies. The applicants were not running any manpower recruitment or supply agency. The applicants were managing hotels and some employees were sent to other hotels managed by the subsidiaries/associate companies. In view of the above, it was decided that the applicants were not engaged in the service of supply of manpower.

Contradictory view taken by Department:

Similar question was posed before the Government about the applicability on service tax under Manpower recruitment and Supply services in respect of employees sent on deputation by ONGC to Directorate General of Hydrocarbons (DGHC). The Government through Instruction F. No. 137/35/2011-ST dated 13.7.2011 has clarified that activity of ONGC for providing their staffs on deputation to DGHC for remuneration in the form of reimbursement from DGHC is chargeable to service tax. The Board in its clarification has stated that organisation making available their staff to another entity would be covered under the said definition and the motive for providing such manpower is of no consequence. Further, the Board has stated that the volume of activity undertaken or the presence or absence of profit motive is irrelevant. It can also be reasonably concluded that it is irrelevant that the organisation deputing its staff to the other organisation is engaged in providing supply of manpower or not.

Whether employees sent on deputation to subsidiary/ associate companies amount to manpower recruitment or supply service after 1st July, 2012:-

Now, Service’ has been defined in clause (44) of the new section 65B and means –

> any activity

> for consideration

> carried out by a person for another

>  and includes a declared service.

The said definition further provides that ‘Service’ does not include –

> any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner

> (iii) a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

>a transaction only in (iv) money or (v) actionable claim

> a service provided by an employee to an employer in the course of the employment.

> fees payable to a court or a tribunal set up under a law for the time being in force

There are four explanations appended to the definition of ‘service’. Further, following query are answered in the context of “Provision of service by an employee to the employer is outside the ambit of service” in Education guide issued by TRU while making changes effective from 1st July, 2012.

Query:    Are all services provided by an employer to the employee outside the ambit of services?

Answer: No. Only services that are provided by the employee to the employer in the course of employment are outside the ambit of services. Services provided outside the ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service.

Query:    Would services provided on contract basis by a person to another be treated as services in the course of employment?

Answer: No. Services provided on contract basis i.e. principal-to-principal basis are not services provided in the course of employment.

Query:    Would amounts received by an employee from the employer on premature termination of contract of employment be chargeable to service tax?

Answer: No. Such amounts paid by the employer to the employee for premature termination of a contract of employment are treatable as amounts paid in relation to services provided by the employee to the employer in the course of employment. Hence, amounts so paid would not be chargeable to service tax. However any amount paid for not joining a competing business would be liable to be taxed being paid for providing the service of forbearance to act.

Query:    What is the status of services provided by casual workers or contract labour?

Answer:

Conclusions:-  The nature of transaction determines the leviability of service tax. Each case may be looked into on its merits and decision be taken on case to case basis.

Author :Bimal Jain- FCA, ACS, LLB, B.Com (Hons), E-mail: bimaljain@hotmail.com

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