Case Law Details
M/s Nektar Therapeutics (India) Pvt Ltd vs Commissioner of Customs, Central Excise & Service Tax (CESTAT Hyderabad)
The short issue, therefore, arising for our consideration is whether the reimbursement of salary paid to the ‘secondee’, to the parent company, Nektar USA amounted consideration for provision of manpower recruitment and supply agency services, within the meaning of section 65(68) of the Finance Act, 1994.
Tribunal in the case of Nissin Brake India Pvt. Ltd. (supra) has held that deputed employees working under control, direction and supervision of the assessee cannot be termed as a taxable service, leviable to service tax under the category of “Man Power Recruitment or Supply Agency Service”. The said order of the Tribunal was upheld by the Hon‟ble Supreme Court, reported in 2019 (24) G.S.T.L J171 (SC). Further, we also find that in the case of Bain & Co. India Pvt. Ltd. (supra), this Tribunal has held that just because the social security contribution in respect of the expatriate employees was paid by the holding company, the expatriate employees cannot be treated as the employees of the holding company provided to the Indian company on man power supply or recruitment basis.
The very curx of this decision is that there was no obligation for the Parent Company to pay salary of the sencondee, in which case there cannot be a supply of service but a mere reimbursement.
FULL TEXT OF THE CESTAT JUDGEMENT
1. This appeal is filed by the assessee against Order-in-Appeal No. 248/2012 (H-IV) S.Tax dt.27.09.2012 passed by Commissioner of Customs, Central Excise & Service Tax, (Appeals-II), Hyderabad. The appellant is a 100% Export Oriented Unit (EOU) and is engaged in research and development services of advanced pharmaceutical ingredients and other bio-pharma products, and is a wholly owned subsidiary of Nektar USA. The facts in brief that are relevant for our consideration, interalia, are that during the year 2006, an employee of the parent company, Nektar USA, was sent to India on a secondment to work as a full time Managing Director of the Indian company, i.e., the appellant herein; that during his tenure as the Managing Director of the appellant, the ‘secondee’ was a full time employee of the appellant and that there was a relationship of employer- employee between the appellant and the ‘secondee’. Further, since the ‘secondee’ was a citizen of America, the parent company and the appellant company entered into a ‘salary reimbursement agreement’ for the sake of administrative convenience so that the salary of the ‘secondee’ would be paid in foreign currency outside India by the parent company which would be reimbursed by the appellant to its parent entity. The short issue, therefore, arising for our consideration is whether the reimbursement of salary paid to the ‘secondee’, to the parent company, Nektar USA amounted consideration for provision of manpower recruitment and supply agency services, within the meaning of section 65(68) of the Finance Act, 1994.
2. Heard Shri Sandeep Chilana, learned advocate appearing for the appellant/assessee and Shri Bhanu Kiran, learned departmental representative appearing for the Commissioner/respondent.
3. The facts are not in dispute. We have perused the documents placed on record including the salary reimbursement agreement. Section 65(68) of the Finance Act, 1994 describes manpower recruitment and supply agency services as under:
“Manpower Recruitment or Supply Agency means any person engaged in providing any services, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to a client.”
There is no doubt that this is applicable w.e.f. 01.05.2006. With effect from 16.05.2008, “to a client” has amended and “any person” was inserted. Further, the master circular No. 96/7/2007-ST dt.23.08.2007 has clarified the scope of manpower recruitment and supply agency services, to mean and include such services where the agency agrees for the use of the services of an individual, employed by him, to another person for a consideration.
| 010.02/ 23-8-07 |
Business or industrial organisations engage services of manpower recruitment or supply agencies for temporary supply of manpower which is engaged for a specified period or for completion of particular projects or tasksWhether service tax is liable on such services under manpower recruitment or supply agency’s services [section 65(105)(k)] |
In the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use of the services of an individual, employed by him, to another person for a consideration. Employer- employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual Such cases are covered within the scope of the definition of the taxable service [section 65(105)(k) and, since they act as supply agency, they fall within the definition of “manpower recruitment or supply agency” [section 65 (68)] and are liable to service tax. |
Certain decisions/orders were referred, namely:
(a) M/s Computer Sciences Corpn. India Pvt. Ltd. Vs Commr. of S.T., Noida [2014 (35) STR 94 (Tri-Del)]
(b) M/s Bain & Co. India Pvt. Ltd. Vs Commissioner of Service Tax, Delhi [2014 (35) STR 553 (Tri-Del)]
(c) M/s Volkswagen India Pvt. Ltd. Vs Commissioner of C.Ex., Pune-I [2014 (34) STR 135 (Tri-Mumbai)]
(d) M/s Colt Technology Services India Pvt. Ltd. Vs Commr. of S.T., Delhi [2019 (29) GSTL 333 (Tri-Chan.)]
(e) of Central Excise Vs M/s Computer Sciences Corpn. India P. Ltd. [2015 (37) STR 62 (All.)]
(f) M/s Ivanhoe Cambridge Investment Advisory India (P) Ltd. Vs C.S.T., Delhi [2019 (21) GSTL 553 (Tri-Del.)]
4. On the other hand, learned DR, while supporting the findings of the Commissioner (Appeals), also relied on the order of Chandigarh Bench of CESTAT in the case of M/s Canon India Pvt Ltd [2020 (9) TMI 432 – CESTAT Chandigarh].
5. We find that the above issue is no longer res integra as the Hon’ble Supreme Court has, in the case of M/s Nissin Brake India Pvt Ltd [2019 (24) GSTL 563 (Tri-Del.)], dealt with similar issue. This view has been reiterated by the Chennai Bench of the Tribunal in the case of M/s Komatsu India Pvt. Ltd. Vs Commissioner of Service Tax, and Bangalore Bench of the Tribunal in the case of M/s Goldman Sachs Services Pvt. Ltd. Vs Commissioner of Service Tax, Bangalore. Going by the above ratio decidendi of the Hon’ble Apex Court, we do not find any merit in the demand raised by the revenue. We also note that the revenue is not disputing that the ‘secondee’ is always under the control and supervision of the appellant and that the appellant’s parent company had absolutely no obligation to pay the salary and other charges to the ‘secondee’ but for remitting secondee’s salary in foreign exchange based on the salary reimbursement agreement. In fact, the Chennai Bench of the Tribunal, in the case of Komatsu India Pvt. Ltd. (supra) has very clearly held as follows:
“5. Section 65 (68) of the Finance Act, 1994 defines the taxable service under the category of “Man Power Recruitment or Supply Agency” to mean any person engaged in providing any service for recruitment or supply of man power. Further, „taxable service‟ has been defined under Section 65 (104) (k) ibid to mean any service provided to any person by a man power recruitment or supply agency for recruitment or supply of man power to any other person. On close reading of the said statutory provisions, it transpires that the role of the man power recruitment or supply agency is confined to the area of recruitment or supplying of the man power to cater to the requirements to the service recipient. The man power supplied to the recipient of service is under the control and supervision of the agency, who deploys the same as per the directions of the recipient of service. Further, the agency has no obligation to pay the salary and other charges to the man power deployed by it. Considering the scope and ambit of the definition of “Man Power Recruitment or Supply Agency Service”, the CBEC vide Circular No.B1/6/2005-TRU dt. 27.7.2005 has clarified that in order to be categorized under such taxable service, the relevant aspect for consideration is that the staff are not contractually employed by the recipient, but come under his direction. In this case, the fact is not under dispute that the appellant had not entered into any specific agreement with the overseas group companies, so that the later will perform the role of manpower agency for providing or recruiting the man power to the former. On perusal of the contract entered into between both the sides, we find that there is no existence of service provider-service recipient relationship. Further, the appellant had also separately entered into contract with the employees deputed by the group companies, providing for payment of salary and other benefits. Mere transfer of fund on security reason for the benefit of the family of the employees based in abroad cannot create the tax liability under such category of taxable service. It is not the case of Revenue that over and above the amount paid to the employees or their families, any other additional amounts were charged by the overseas entities or paid by the appellant towards such deployment of the employees. Thus, under such circumstances, it cannot be said that the overseas group companies have provided the service of recruitment or supply of man power and the appellant should be liable to pay service tax as a recipient of such service under the reverse charge mechanism. We find that this Tribunal in the case of Nissin Brake India Pvt. Ltd. (supra) has held that deputed employees working under control, direction and supervision of the assessee cannot be termed as a taxable service, leviable to service tax under the category of “Man Power Recruitment or Supply Agency Service”. The said order of the Tribunal was upheld by the Hon‟ble Supreme Court, reported in 2019 (24) G.S.T.L J171 (SC). Further, we also find that in the case of Bain & Co. India Pvt. Ltd. (supra), this Tribunal has held that just because the social security contribution in respect of the expatriate employees was paid by the holding company, the expatriate employees cannot be treated as the employees of the holding company provided to the Indian company on man power supply or recruitment basis.
6. In view of the above discussions, we do not find any merits in the impugned order passed by the Ld. Adjudicating authority. Accordingly, after setting aside the same, the appeal is allowed in favour of the appellant.”
6. For the above reasons, the impugned order cannot sustain and the same is set aside and the appeal is allowed with consequential benefits, if any as per law.
