Case Law Details
India Yamaha Motors Pvt. Ltd. Vs. Commissioner of Customs (CESTAT Delhi)
For the demand relating to the period from 1 April, 2012 to 1 July, 2012 i.e. pre negative list period:
The definition of manpower recruitment and supply agency is relevant for the impugned adjudication. Section 65(68) of the Act defines manpower recruitment and supply agency to mean any person engaged in providing any service, directly or indirectly, in any manner of recruitment or supply of manpower, temporarily or otherwise to a client. Section 65(105)(k) defines “ Taxable service means any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the 4 ST/53046/16 recruitment or supply of manpower, temporarily or otherwise in any manner”.
A bare perusal of provision makes it clear that for any service to be covered within the ambit of manpower supply it should be provided by an agency who is engaged in providing specifically the service of recruitment or supply of manpower though on temporary or permanent basis. From the facts of the present case apparently and admittedly the holding company of M/s Yamaha in Japan is not a manpower supply agency. This particular observation is sufficient for us to hold that the adjudicating authority below has wrongly concluded for the impugned arrangement to be the service of manpower recruitment and supply service.
Also for the reason that the contract of employment between the appellant and the Japanese experts is clear enough to express that same is a contract of employment/appointment letter calling upon the said experts into the employment of the appellant whose reporting officer has to be employee of the appellant itself. Appellant only is disbursing the Provident Fund contributions and is also deducting tax at source. These observations are sufficient to corroborate the above observations of the impugned arrangement between the appellant and the Japanese experts to be that of a service and to not to be of manpower supply service. The circular as relied upon by the department is perused to be a draft circular. There is nothing on record about the same being ever notified. Thus, we are of the opinion that the adjudicating authority below has definitely committed an error while relying upon the draft circular.
For the post negative list period: Section 65B(44) of Finance Act 1944 comes to the rescue of the appellant which reads as follows:
“Section 65B: Interpretations:
(44) “Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include
(b) a provision of service by an employee to the employer in the course of or in relation to his employment.”
The definition makes it clear that when the arrangement is that of relationship of employer and employee that the same is expressly excluded from the ambit of taxability.
Above all the issue is no more res integra enable High Court of Allahabad in the case of CCE Vs. Computer Sciences Corporation India Pvt. Ltd. – 2015 (37) STR 62 (All.), has dealt as follows :
“8. In the present case, the Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise.”
Recently, a Division Bench of the Tribunal in M/s Mikuni India Private Limited vs Commissioner of Central Goods and Service Tax, Customs & Central Excise, Alwar2 allowed the appeal after placing reliance upon the decision of the Tribunal in M/s Yamaha Motors Private Limited.
FULL TEXT OF THE CESTAT JUDGEMENT
This Appeal seeks to assail the order dated 29 January, 2016 passed by the Commissioner of Service Tax by which the demand for payment of Service Tax contained in the two show cause notices dated 04 February, 2015 (for the period April 2013- March, 2014) and 20 October, 2015 (for the period April 2014- March, 2015) has been confirmed. The order also seeks to confirm the demand for payment of interest and also imposes penalty.
2. The Appellant is a subsidiary company of Yamaha Motor Company Ltd, Japan1. During the relevant period, certain expatriates came from the Holding Company to the Appellant and were appointed as employees of the Appellant. The salary to these expatriates was paid in two parts – (a) salary paid by the Appellant in India and (b) salary paid by the Holding Company in Japan. It needs to be stated that in respect of the salary paid by the Holding Company in Japan, no reimbursement was made by the Appellant to the Holding Company.
3. During the period prior to 2011, the Appellant did not deposit any service tax on the salary paid to such expatriates. However, when the Department brought this fact to the notice of the Appellant in 2012, the Appellant started paying Service Tax on that salary disbursed to such expatriates under “Manpower Supply and Recruitment Service” on a reverse charge mechanism.
4. Earlier, two show cause notices dated 27 September, 2012 for the period 2007-08 to 2011-12 and 11 December, 2013 for the period 2012-13 were issued to the Appellant. The demands made under both the show cause notices were confirmed by two separate orders. The appeals filed by the Appellant before the Tribunal to assail both the orders (Appeal No. ST/59115 of 2013 and Appeal No. ST/53046 of 2016) were allowed by orders dated 11 October 2017.
5. The dispute in the present appeal covered by the two show cause notices is for the period 1 April, 2013 to 31 March, 2015. A perusal of the show cause notice dated 20 October, 2015 indicates that the Appellant has been asked to show cause as to why Service Tax should not be paid by them for the following reasons :
“6. On perusal of the chart above, it appears that the party has not paid Service Tax on amount as shown in the above chart by treating it as non taxable amount though the same is related to Japan Salary. The contention of the party that the Service Tax is not payable on these non taxable amount as shown in the above chart does not appear to be acceptable as these expenses are also the actual consideration in lieu of the availability of Japanese experts.
7. Whereas from the aforesaid, it appears that the service provider is engaged in receiving Manpower Supply/ Recruitment Services from the holding company and paying the amount to the holding company as evident from the chart above on account of providing such service but failed to pay Service Tax on the value of taxable services so paid by them as per provisions of Section 66A of the Finance Act, 1944 (hereinafter referred to as the Act) and thus appears to have contravened the provisions of Section 68 of the Act read with Rule 6 of the Service Tax Rules, 1994 (hereinafter referred to as the Rules) by not maintaining proper records and by not paying due Service Tax.”
6. The demand has been confirmed by the Commissioner on the ground that services of expatriates provided by the Holding Company was covered under the head – „Manpower Supply and Recruitment Services‟ and that the expatriates were not employees of the Appellant as expatriates were deputed by the Holding Company which was also paying a part of the total salary of the expatriates.
7. The submission of the Appellant is that the expatriates are employees of the Appellant and there exists an employer-employee relationship between the Appellant and the expatriates. It is for this reason that the appellant is not only required to deduct TDS on the salaries paid to them, but also contributes to Provident Fund. In this regard, reference has been made to the certain documents in the appeal, which evidence the existence of employer-employee relationship between the Appellant and expatriates.
8. The demand was made under “Manpower Supply Services”, which upto 30 June 2012 was a taxable service as provided for in Section 65 (68) of the Finance Act, 1994 (hereinafter referred to as the Act) read with Section 65(105)(k). The said Sections are reproduced below:-
“65 (68) “manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any person
65 (105)(k) – taxable services means any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner.
Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, reimbursement or supply of manpower includes services in relation to pre-recruitment screening, verification of the credentials and antecedents of the candidate and authenticity of documents submitted by the candidate”.
9. Even after 1 July, 2012, Service Tax could be levied on the salaries paid by the Appellant to its Japanese employees in India as the definition of „Service‟ under Section 65B (44) of the Act excluded provision of service by an employee to the employer in the course of or in relation to his employment. Section 65B (44) of the Act is reproduced below:
65B (44) “Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;”
10. It transpires that this dispute was also raised by the Department for the earlier period in the two show cause notices dated 27 September, 2012 and 11 December, 2013 that were issued for the period 2007-08 to 2011-12 and 2012-13 respectively. The demands made under both the show cause notices were confirmed by two separate orders. Two appeals were, therefore, filed by the Appellant to assail these two orders and they were numbered as ST/59115/2013 and ST/53046/2016. The first appeal bearing no. ST/59115/2013 related to the period 2007-08 to 2011-12, while other appeal bearing no. ST/53046/2016 related to the period 2012-13. These two appeals were allowed by a Division Bench of the Tribunal by orders dated 11 October, 2017 and 28 June, 2019 respectively.
11. The relevant portion of the order dated 11 October, 2017 in ST No. 59115 of 2013 is reproduced below :
“15. Having considered the rival contentions and on perusal of record, we find that expatriates working under the appellant are their employees and there is an employer – employee relationship and thus, there is no supply of Manpower Service which is rendered to the appellant by the foreign/Holding Company. Further, no payment was made by the appellant to the Holding Company. As the issue involved in the present matter is covered by the order of the Hon‟ble Allahabad High Court in CCE vs Computer Sciences Corporation India Private Limited, 2015 (37) STR 62 (All.), hence the service tax could not be levied on the impugned amount.”
12. The relevant portion of the order dated 28 June, 2019 passed in ST No. 53046 of 2016 is reproduced below :
“5. After hearing both the parties and considering the entire record, we are of the opinion as:
For the demand relating to the period from 1 April, 2012 to 1 July, 2012 i.e. pre negative list period:
The definition of manpower recruitment and supply agency is relevant for the impugned adjudication. Section 65(68) of the Act defines manpower recruitment and supply agency to mean any person engaged in providing any service, directly or indirectly, in any manner of recruitment or supply of manpower, temporarily or otherwise to a client. Section 65(105)(k) defines “ Taxable service means any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the 4 ST/53046/16 recruitment or supply of manpower, temporarily or otherwise in any manner”.
A bare perusal of provision makes it clear that for any service to be covered within the ambit of manpower supply it should be provided by an agency who is engaged in providing specifically the service of recruitment or supply of manpower though on temporary or permanent basis. From the facts of the present case apparently and admittedly the holding company of M/s Yamaha in Japan is not a manpower supply agency. This particular observation is sufficient for us to hold that the adjudicating authority below has wrongly concluded for the impugned arrangement to be the service of manpower recruitment and supply service.
6. Also for the reason that the contract of employment between the appellant and the Japanese experts is clear enough to express that same is a contract of employment/appointment letter calling upon the said experts into the employment of the appellant whose reporting officer has to be employee of the appellant itself. Appellant only is disbursing the Provident Fund contributions and is also deducting tax at source. These observations are sufficient to corroborate the above observations of the impugned arrangement between the appellant and the Japanese experts to be that of a service and to not to be of manpower supply service. The circular as relied upon by the department is perused to be a draft circular. There is nothing on record about the same being ever notified. Thus, we are of the opinion that the adjudicating authority below has definitely committed an error while relying upon the draft circular.
7. For the post negative list period: Section 65B(44) of Finance Act 1944 comes to the rescue of the appellant which reads as follows:
“Section 65B: Interpretations:
(44) “Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include
(b) a provision of service by an employee to the employer in the course of or in relation to his employment.”
The definition makes it clear that when the arrangement is that of relationship of employer and employee that the same is expressly excluded from the ambit of taxability.
8. Above all the issue is no more res integra enable High Court of Allahabad in the case of CCE Vs. Computer Sciences Corporation India Pvt. Ltd. – 2015 (37) STR 62 (All.), has dealt as follows :
“8. In the present case, the Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise.”
13. Recently, a Division Bench of the Tribunal in M/s Mikuni India Private Limited vs Commissioner of Central Goods and Service Tax, Customs & Central Excise , Alwar2 allowed the appeal after placing reliance upon the decision of the Tribunal in M/s Yamaha Motors Private Limited.
14. Thus, for the reasons stated in the aforesaid orders of the Tribunal, it is not possible to sustain the order dated 29 January, 2016 passed by the Commissioner. It is, accordingly, set aside and the appeal is allowed.
