Imasen Manufacturing India Private Limited Vs. Assistant Commissioner (Commissioner Appeals, CGST, Jaipur)
In M/s Imasen Manufacturing India Private Limited vs. Assistant Commissioner, CGST Division-E, Behror [OIA No. 202(SM)ST/JPR/2021 dated June 9, 2021], M/s Imasen Manufacturing India Private Limited (Appellant) is engaged in the manufacture of Car Seat/ Car Seat Adjuster. The Appellant deputed seconded employees from M/s Imasen Electric Industrial Company Ltd., Japan (IEIC) and entered into a contract of employment with each employee and paid for the same to IEIC.
It is to be noted that wherein salary was payable by IEIC to the employees but the Appellant paid some amount to the employees for their well-being.
A show cause notice was issued to the appellant for recovery of service tax on amount paid by the Appellant to the employees for their well-being along with interest and penalty.
Commissioner (Appeals) stated that the services are provided by IEIC, located outside India to the Appellant and was not taxable especially when the Appellant treated the amount paid to the said persons as salary in terms of Income Tax Rules, 1962 and deducted the income tax on the same, which shows that the said persons worked as employees of the Appellant. Therefore, there is no doubt about the employer-employee relationship, thus the Appellant is not liable to pay any service tax and consequently no interest and penalty leviable.
Similar stand was taken by CESTAT, Bangalore in M/s Target Corporation India Pvt Ltd v. C.C.E., Bangalore [Service Tax Appeal No. 20459 of 2016, decided on January 19, 2021] wherein the Court set aside the order passed by the Commissioner for demand of differential service tax amounting to INR 28,37,08,191/-, on secondment of the employees by the companies under agreement and held that such an activity cannot be termed as “manpower recruitment or supply agency” where employee-employer relationship exists.
Under the GST regime services of employee to employer is considered as neither supply of goods nor supply of services as per the Schedule III of the Central Goods and Services Tax Act, 2017 (CGST Act). Further, when an employee is seconded, the receiving company becomes the real and economic employer and supply of services of employee to such company and it can be also be said that the reimbursement of salary by the secondee company to the other company does not amount to supply but such amount is towards the employer-employee relationship and thus shall be covered within the ambit of Schedule III of CGST Act and shall not be liable to GST.
FULL TEXT OF THE ORDER BY COMMISSIONER APPEALS, CGST, JAIPUR
ORDER IN APPEAL NO.202(SM)/ST/JPR/2021
PASSED BY SUGRIVE MEENA, COMMISSIONER (APPEALS),
CENTRAL EXCISE AND CENTRAL GOODS & SERVICES TAX, JAIPUR
This appeal has been filed under Section 85 of the Finance Act, 1994(hereinafter also referred to as “the Act”), by M/s Imasen Manufacturing India Private Limited, 5P-2-18 &19, New Industrial Complex, Japanese Zone, Majrakath, Neemrana, bistt- Alwar(Raj.) (hereinafter also referred to as “the appellant”) against Order-in-Original No. 03/2020-21(Service Tax) dated 12.06.2020(hereinafter referred to as “the impugned order” also), passed by the Assistant Commissioner, CGST Behror (hereinafter referred to as “the adjudicating authority” also).
2.1 Brief facts of the case are that the appellant, holder of Central Excise registration No. AABCI7953GXM001 and Service Tax registration No. AABCI7953G5T001 was engaged in the manufacture of Car Seat/ Car Seat Adjuster falling under sub-heading 94012000 of the First Schedule of the Central Excise Tariff Act, 1985. The appellant got deputed seconded employees from M/s Imasen Electric Industrial Company Ltd. (IEIC) and entered into “contract of employment” with each employee. From the terms and condition enumerated in the agreement, it appeared that the salary to the seconded employees were being paid by the IEIC and not by the appellant and the employees were in all capacity employees of IEIC. Further, IEIC, Japan had supplied manpower to the appellant for which payment was made in Japan on the basis of invoices raised. Though, a part of the amount was paid to the employees in India for their well being. It appeared that the appellant was required to pay Service Tax amounting to Rs. 27,48,551/- during the period from Apri1,2015 to June, 2017, as per provisions of sub-section 2 of Section 68 of the Finance Act, 1994 read with Notification No. 30/2012-ST dated 20.06.2012 and Section 66C of the Act.
2.2 Accordingly, a show cause notice dated 22.03.2018 was issued, proposing therein recovery of the amount of Service Tax along with applicable interest under proviso to Section 73(1) & section 75 of the Finance Act, 1994 respectively. Imposition of penalty under Section 76 and 77 ibid was also proposed. The show cause notice was culminated into the impugned order, vide which demand of service tax was confirmed and interest on the same as applicable rate was also ordered to be recovered.
Penalty of Rs. 2,74,855/- under Section 76 ibid and of Rs.10,000/- under Section 77 ibid was also imposed.
3. Being aggrieved with the impugned order, the appellant has filed the appeal interalia on the following grounds:
(1) It is found a calculation error there in SCN and as per correct calculation of demanded amount of Service Tax comes to Rs.26,81,789/- in place of Rs.27,48,551/-, which may be verified through the chart shown in SCN and Impugned Order-in-Original itself.
(2) Sum of Salaries paid to the referred employees i.e. Taxable Value as per SCN, on which Service Tax is demanded, were paid directly to the referred employees and no amount out of abovementioned amount of salaries paid, have been paid neither to Imasen, Japan nor to Imasen, India nor to any entrepreneurs or Directors or Members of the group and so demand of Service Tax raised on salaries paid to the employees is against the Constitution of India and Service Tax Laws both.
(3) The subjected issue for which the appellants have recently been show caused for the period from 1St April, 2015 to 30th June, 2017, has already been settled for earlier periods from 01.09.2008 to 31st March. 2015 vide Orders-in-Appeal Nos. 317(SM) ST/JPR/2017 dated 06.09.2017 & 338-339(5M) ST/JPR/2017 dated 25.09.2017 and one copy each of both the Orders-in-Appeal are attached herewith as Annexure Nos. ‘F’& T for your instant reference with a request to kindly drop all proceedings initiated by recent SCN Show C. No. V(94)41/Dem/Imasen-MFG/Behror/16/393 dated 22.03.2018 and the impugned Order-in-Original may kindly be set aside on this ground alone without discussing further into this matter.
(4) That the Adjudication Authority has grossly erred in holding that “as per Section 66A of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of Service Tax Rules, 1994 the noticee company in India (appellants) had received the services of seconded employee assisting in establishment and smooth running of their factory situated at Neemrana in India. Based on these services, they had manufactured and sold their goods and thus benefit of services accrued to them. Thus, it is simple case of providing manpower by a person located outside India (IEIC) and received by IMI in India”. The appellants submit that the employees of Imasen Electrical Industrial Company Limited, in short (IEIC), Japan (Home Company) have been deputed in Imasen Manufacturing India, in short (IMI) Pvt. Ltd., India (Host Company), a company of the same group for a term of five years to work under supervision of the host company. After completion of the term, the employees would go back to Japan in their parent Company or any unit of the group company of Japan. Therefore, their remains relationship of employer and employee between the deputed staff and the IEIC (Japan). Both the companies are of the same group of companies. There is no activity of service provided by the Home Company (Japan) to Host Company (India). An employee deputed from one company to another company of the same group of companies cannot be described either a recruited person or person supplied by any agency so as to come within the ambit of taxable service under Manpower Recruitment or Supply Agency Service’. Unless critical requirements of clause (K) of Section 65(105) of Finance Act, 1994 are fulfilled, element of taxability would not arise. Hon’ble High Court/Tribunal have been holding in catena of cases that deputation of personnel from one global company to another company in the India of same group of Companies, is not an activity covered under service – ‘Manpower Recruitment or Supply Agency”. Reliance is made on the following decisions :-
(i) CCE Versus Computer Science Corporation India Private Limited (All) [2015 (370 str-62 (All)]
(ii) Volkswagen India Private Limited Versus CCE, Pune – I [2014 (34) 5TR-135 (Tri – Mumbai)]
(iii) Taisei Corporation Versus CCE, Delhi 2013 (30) 5TR-547 (Tri-Delhi)
(5) As per Rule 4A of the Service Tax Rules, 1994, every person providing taxable service or receipt of any payment towards the value of such taxable service, shall issue an invoice, a bill or challan signed by such person containing particulars viz. (i) The name, address and the Registration Number of such person (ii) Name and address of the person receiving the taxable service (iii) description, classification and value of taxable service and (iv) service tax payable thereon. In appellants case no monetary consideration is involved. The IEIC, Japan had not issued any invoice to IMIPL, Neemrana, India and IMIPL (India) had not paid any amount to the IEIC (Japan) in connection with deployment of the staff on deputation to the group of company concern in India. Unless any payment towards value of taxable service to the IEIC (Japan) by the appellants company is proved, liability of payment of service tax under Section 66A of the Finance Act, 1994 does not arise.
a. That the Adjudicating Authority has further erred in, holding that as per CBEC Circular No. 86/7/2007-ST dated 23.08.2007, there is no ambiguity in treating IEIC (Japan) a Service Provider of ‘Manpower Recruitment or Supply Agency Service” from abroad to IMI in India as per contractual relationship between IEIC and IMI in India. The appellants submit that in the above Circular, it has been clarified that if individuals are contractually employed by Manpower Recruitment or Supply Agency to another person for a consideration any 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 will fall under the above taxable service. The appellants plead that in their case, this is not the case of any individual employee contractually employed by any manpower agency to another person for completion of any particular project or task but it relates to deputation of member of staff by foreign company to its group company in India for working of staff by foreign company to its group company in India for working under the Company for period of 5 years and during the deputation period, the member of staff would remain employee of the home company i.e. IEIC Ltd. (Japan) as per terms of contract of employment. In view of this, there would be relationship of employer and employee between them. It is simply a transfer of the employees on deputation from their unit of Japan to the unit in India. As the “Home Company (Japan)” is not an agency acting as supply of manpower, they would not a termed as provider of service- Manpower Recruitment or Supply Agency to the Host Company (India) as contended by the Adjudicating Authority.
b. That as per contract, out of the remunerations paid in India, basic salary equivalent to Japanese Yen id deducted and reimbursed to him by the Home Company. No other payments paid in India are remitted to the Home Company (Japan). In view of aforesaid submissions, since the home company have not rendered “Supply of Manpower” to the appellants, the method of disbursement of salary cannot decide the nature of transaction as held by Hon’ble Tribunal New Delhi cited in the preceding paras.
c. The appellants have been demanded Service Tax purely on the sum of salaries paid to the employees only, which is not good as per great Constitution of India and it is purely against the Laws of Service Tax also, exists in India since introduction of Service Tax to till date in India because there is no provision to demand Service Tax on Salaries of Employees of both Private Sector and Government Sector.
d. That without prejudice to the above submissions and assuming without admitting if the demand is confirmed, the appellants submit that with effect from -1.07.2012, Section 66A of the Finance Act, 1994 has been made ineffective and the Notification No. 11/2006-ST dated 19.04.2006. Taxation of Service (Provided from outside India are received in India) Rules, 2006 rescinded w.e.f. 01.07.2012, the taxability of services rendered by the persons located outside table territory and received by person in taxable territory is to be decided as per the Place of Provisions of Rules, 2012. Notification No. 30/2012-ST dated 20.06.2012 as amended notifies taxable services and the extent of service tax payable thereon as under
e. It is inferred that if the Manpower Supply Service is provided by other than individual, HUF or Business Firm i.e.. Company or Body Corporate, the Service Tax, will be payable by the Service Provider i.e. by the IEIC (Home Company and not by the Recipient of Service. The reverse charge is applicable for service under Manpower Supply Service when the Service is provided by Individual, HUF, Proprietary Firm and Service Recipient is Business Entity registered as Body Corporate located in Taxable Territory. In appellant’s case, the service provider is Imasen Electric Industrial Company (Japan). Thus in view of amended provisions with effect from 01.07.2012, the appellants (home Company) are not liable to pay service tax of Rs.27,48,551/- as recipient of service under “Manpower Supply”, the demand confirmed outrightly deserves to be set aside to the extent of Rs.27,48,551/-.
f. Entrepreneurs of both Companies (TEIC & IMI) are same and both Companies are of same group companies which itself clarifies that there is neither any service provider nor service recipient because service provider and service recipient are the same and no external person is involved therewith and so question of providing taxable service to any person by any other person does not arise.
g. Paragraph of CBEC’s Circular No. 332/35/2006-TRU dated 01.08.2006 states that if there is no Service Provider and where there is no Service Recipient Relationship, question of providing taxable service to any person by any other person does not arise.
h. Notification No. 24/97-ST dated 02.07.1997 states that Service Provider of Man Power Supply Service must raise a Bill to his Service Recipient on account of his services provided and some consideration must be there for the service whatsoever he has rendered to his service recipient. On going through said Notification it is also established that if the expenses incurred by anyone and are reimbursed to him, does not fall under the category of the Services provided.
i. Primarily, a Taxable Service means any service provided or to be provided to any person i.e. an external person for a consideration must be there and if there is nothing so, no relation of Service Provider and Service Recipient establishes.
(6) In Japan normally transfer of any employee from one unit to another unit and from one place to another is called transfer on deputation because the transferred employees have not been relieved from their services and are still on the rolls of the enterprise and later on at any moment they may be transferred back to the same unit or to any other unit of group companies, meaning that it is simply a transfer of the employees from their Japan unit to Indian Unit and nothing else.
(7) No monetary consideration is being involved and so nothing has been charged by IEIC from IMI.
(8) TDS is being deducted in India by IMI and deposited with the Income Tax Department on full salary whatever is being paid to these employees, the employees those have been transferred from their Japan Company to Indian Company are being paid salaries only and no part of their salaries have been paid to IEIC neither by IMI nor by these transferred employees. Further stated that mentioned four employees of the Company, those have been transferred to India from Japan, are being paid their salaries partly in India and rest in Japan in Yen. But, Income Tax is being paid in India on their total salaries paid. In this regard their Form No. 16 with complete details of payments made to them, was also attached herewith separately for all four mentioned employees. The Assessee further stated that on going through Forms 16, you will find that submission made through point No. 7, confirms and so no Service Tax attracts on the salaries paid to them.
(9) Further, assessee has attached therewith Annual Return filed in Schedule V – Part-II under The Companies Act, 1956 and stated that on going through the same you will find that Company has issued total 633400 shares and out of total shares, 633395 shares have been issued to M/s. Imasen Electric Industrial Company Limited, Japan and rest 5 shares to M/s. Imasen Engineering Corporation, Japan. From the same you will find that It is 100% subsidiary company of Imasen Group Companies and so from the same it also confirms that mentioned four employees are, employees of Imasen Group Companies and are transferred from Japan to India and so no services have been provided by Imasen, Japan to Imasen, India and so it attracts no Service Tax provisions also.
(10) Further assessee has referred the minutes of the meeting of the Regional Advisory Committee of Central Excise (Jaipur Zone), Jaipur held on 7th May, 2014 which provides in Point No.1 the “Employee-Employer relation is established from the fact that under which Section of the Income Tax Act, 1961, the MS is being deducted by the Company on payments made to their Employees. The MS on Income under the Head of “Salaries” is deducted under Section 192 of the Income Tax Act, 1961. If the MS on payments made to their Employees by a Company has been deducted under Section 192 of the Income Tax Act, 1961, than the said payment made by the Company to their Employees are not chargeable to Service Tax as the same establishes “Employer-Employees Relationship” and thus no Service Tax is applicable under Finance Act, 1994.
(11)Demand time-barred for the period 01.07.2012 to 18.12.2013. That the Show Cause Notice for the period from 01.07.2012 to 31.03.2014 was issued on 19.03.2015, under the proviso to Section 73(1) of the Finance Act, 1994 alleging deliberate suppression of facts from the facts from the department with intent to evade payment of service tax under ‘Manpower Recruitment of SupplyAgency Service’. The appellants plead that the show cause notice was issued on the scrutiny of records by audit team as per para 3 of the show cause notice. Hon’ble Tribunalin many7 decisions have held that the extended period is not invokable when the show cause notice has been issued based on audit objection.
(i) Company Organics Private Limited Versus CCE [2007 (217) ELT-586 (Tribunal – Ahmedabad)]
(ii) Aditya College of Competition Examination Versus CCE [2009 (16) STR-154 (Tribunal – Bangalore)]
The appellants further plead that they have been filing ST-3 Returns regularly in time. The suppression of facts arises only when facts which are required to be disclosed according to the provisions of the statue, are not disclosed or there in deliberate withholding of information by them. There is no such lapse on the part of the appellants. When there was no statutory requirement to provide the information, the charge of suppression does not arise as held by Hon’ble Tribunal, Ahmedabad in the case of M/S. GSPL Vs. CCE 8-2013 (32) STR-510 (Tri. Ahmed.). Hon’ble Supreme Court in many decisions has held that mere non-disclosure is not sufficient to invoke larger period unless it was done wilfully with intent to evade payment of duty. Reliance is placed on the following decisions :-
(a) Cosmic Dye & Chemicals Vs. CCE, Bombay [1995(75)ELT-721-SC]
(b) CCE Vs. Champhar Drugs & Linements [1989(40)ELT-276-SC]
(c) CCE Vs. HMM Ltd.[1995(76) ELT-497-SC]
(d) CCE Vs. Karnataka Agro Chemical [2008 (227) ELT-12-SC]
In view of the above submissions, there was no suppression of facts by the appellants and therefore, the demand beyond 18 months is time-barred.
(12) That with regard to imposition of penalties under Section 78, 77(1)(a) and 77(2) of Finance Act, 1994, the appellants submit that when the demand is not sustainable, imposition of penalties and interest are not warranted as held by Hon’ble Supreme Court in the case of MIS. HMM Ltd. Vs. CCE 1995 (76) ELT-497 (SC).
4. Personal hearing in the matter was held on 06.05.2021. Mr Anil Kumar Saxena, Advocate & Authorised Representative appeared on behalf of the appellant and explained the case and reiterated the grounds of appeal.
5. I have gone through the facts of the case and submissions made by the appellant in their appeal memo and at the time of personal hearing. I observe that the appellant had utilised services f the seconded employees of other firm under contract of employment. Demand has been confirmed alleging that the service is classifiable under ‘Manpower recruitment and supply service’ and the appellant did not pay Service Tax under reverse charge mechanism. The appellant has contested the case on the ground that the only employees working in foreign group company were deputed to its group company in India, hence is not covered under service provided from outside India. I, therefore find that the issue to be decided in the appeal is whether the appellant is liable for Service Tax on the amount paid to the persons got deputed from other group company situated outside India.
6. I find that on this issue various important judicial pronouncements have been made by the appellate authorities. I find it proper to take note of the gist of these judgments to take decision on the issue. Some of the decisions are mentioned below : –
a. In the case of VOLKSWAGEN INDIA (PVT.) LTD. Versus COMMISSIONER OF EX., PUNE-I [2014 (34) S.T.R. 135 (Tri. – Mumbai)] the Hon’ ble CESTAT has held that :-
Manpower Recruitment or Supply Agency service – Employment of foreign nationals, i.e., Global employees, previously employed with foreign/holding company – Payment of salaries through foreign/holding company – HELD Global employees working as employees and employee-employer relationship present – No supply of manpower service rendered by foreign company – Method of disbursement of salaries not to determine nature of transaction – Orders-in-Original set aside – Sections 65(68) and 65(105)(k) of Finance Act, 1994.
b. In the case of AIRBUS GROUP INDIA PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, DELHI [2016 (45) S.T.R. 120 (Tri. – Del.)] the Hon’ ble CESTAT has held that :-
Manpower recruitment and supply agency – Demand under Reverse Charge Mechanism – Other parties of the agreement located abroad, hence, not falling under category of ‘manpower recruitment and supply agency’ – Impugned order nowhere established that foreign entities involved in such business of manpower supply – All statutory obligations as an employer, like payment of provident fund, MS, etc., fulfilled by appellant – No consideration being paid for obtaining manpower supply service from foreign companies – Reimbursement amount paid by appellant to foreign companies relates to cost of salaries and wages of employees working under appellant – No tax liability arises – Demand of Service Tax not legally sustainable.
c. In the case of BAIN & INDIA PVT. LTD. Versus COMMISSIONER OF SERVICE TAX, DELHI [2014 (35) S.T.R. 553 (Tri. Del.)] the Hon’ ble CESTAT has held that :-
Demand – Manpower supply service – Holding company in USA deputed some staff to appellant company in India – Payment of salaries of expatriate employees in India and deduction of Income Tax at source in India, fact not disputed – By mere payment of amount towards social security in respect of expatriate employees by holding company in USA and reimbursement of same by appellant to holding company in foreign exchange, expatriate employees cannot be treated as employees of holding company provided to appellant company on manpower supply basis – Demand not sustainable- Section 11A of Central Excise Act, 1944.
d. In the case of COMPUTER SCIENCES CORPN. INDIA PVT. LTD. Versus COMMR. OF 5.T,, NOIDA [2014 (35) S.T.R. 94 (Tri. Del.)] the Hon’ble CESTAT has held that :-
Demand – Manpower Recruitment or Supply Agency Service – Overseas employees were either directly employed or transferred from other group companies – In addition to deductions from salaries towards provident fund and income tax, remittances made to group companies certain social security and other benefits payable under law of foreign jurisdiction – No amount over and above the remittances to seconded employees were paid to overseas group companies – HELD : Issue squarely covered by Volkswagen India Pvt. Ltd. [2014 (34) 5.T.R. 135(Tribunal)1 – Tribunal in said case held that global employees working as employees and employee-employer relationship present – Section 73 of Finance Act, 1994 – Section 65(68) and 65(105)(k) ibid.
The Hon’ble High Court Allahabad have dismissed the appeal filed by the against the above mentioned order the Hon’ ble CESTAT as reported in [2015 (37) S.T.R. 62 (AIL)] and held as under
Manpower recruitment or supply agency – Section 65(105)(k) of Finance Act, 1994 – Service which is provided or to be provided, must be by a manpower recruitment or supply agency – Such a service has to be in relation to supply of manpower – Assessee obtained from its group companies directly or by transfer of employees, the services of expatriate employees – Assessee paid salaries of employees in India, deducted tax and contributed to statutory social security benefits such as provident fund – 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 employees under laws of foreign jurisdiction – 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) ibid are fulfilled, element of taxability would not arise. [paras 8, 9]
7. From the above decisions there is no doubt that the service said to be provided by M/s. Imasen Electric Industrial Company Ltd., Japan to the appellant were not taxable in eyes of law, especially when the appellant treated the amount paid to the said persons as salary in terms of Income tax rules and deducted the income tax on the same, in this regard the appellant produced Form No. 16 issued under Income Tax Act, which shows that the said persons worked as employee of the appellant, therefore, there is no doubt about the employer – employee relationship, thus the appellant is not liable to pay any service tax as confirmed vide the impugned order. As the demand has been held unsustainable, no question of interest and penalty arises.
8. In view of the above, following the judicial discipline, the present appeal filed by the appellant is allowed and the impugned order is set aside.
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