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Judgment
Dilip Gupta, J
M/s. Mitsui Prime Advanced Composites India Pvt. Ltd., Mitsui India has filed this appeal to assail the order dated 09.11.2016 passed by the Commissioner confirming the demand of service tax with interest and penalty.
Mitsui India is engaged in the manufacture of PP Compounds. Mitsui Chemicals Inc. Japan, Mitsui Japan deputed their employees for providing service in the factory premises of Mitsui India situated at Neemrana under an Agreement concerning the treatment of seconded employees between Mitsui Japan and the Mitsui India. The Agreement contained specific terms and conditions regarding the remuneration and other perks of the ‘Japanese Seconded Employees’. The relevant portions of the Agreement are reproduced below:
“Agreement Concerning the Treatment of Seconded Employees
This Agreement is made and entered into by and between:
Mitsui Prime Advanced Composites India Pvt. Ltd., New Delhi, India (ACI), on the one part xxxxxxx and Mitsui Chemicals, Inc, Tokyo, Japan (MCI) on the other part. xxxxxxxxxx.
concerning the treatment of the employees of MCI seconded to ACI (hereinafter collectively referred to as “Seconded Employees” and individually referred to as “Seconded Employee”).
Article 1: Form of Secondment
MCI shall assign certain of their employees to ACI as officers or employees of ACI, and ACI shall accept such employees who shall continue to be employed by MCI.
Article 2: Handling of Personnel Matters
ACI shall in principle be responsible for the personnel management of the Seconded Employees, but the decision on important personnel matters of the Seconded Employees, such as the appointment/dismissal, reassignment, reinstatement or reward/punishment shall be made by consultation between the parties hereto on a case by case basis.
Article 3: Service
Rules of ACI shall in principle apply to matters relating to the service of the Seconded Employees, such as their duties, working hours, holidays, vacation, etc.
Article 4: Annual Paid Leave
The Seconded Employees shall be entitled to use their remaining days of annual paid leave granted to them by MCI as of the date of their secondment to ACI. Provided, from the first day of April immediately following the date of their secondment, ACI shall grant annual paid leave to the Seconded Employees based on the total number of years of service with MCI and ACI in accordance with the Rules of MCI.
Article 5: Salary and Bonuses
5.1 The salary and bonuses made payable to the Seconded Employees during the period of their secondment to ACI shall be paid by MCI to the Seconded Employees in accordance with the Rules of MCI.
5.2 ACI shall bear the full amount of the salary and bonuses paid by MCI to the Seconded Employees.
5.3 The bearing of the salary and bonuses pursuant to the previous Paragraph for the month in which any Seconded Employee is seconded to ACI or returned to MCI shall be follows:
(1) Salary
a. The bearing of the salary shall not be on a per diem basis, but instead the company at which any Seconded Employee is positioned on the first day of a month shall bear the full amount of such salary for the months in which the secondment to ACI and the return to MCI occur.
b. In the previous subparagraph a., the effective date of the appointment shall be the controlling.
c. Any overtime work allowance, flexible working day allowance, etc. shall be handled on an actual payment basis and shall be borne by the company that bears the salary for the applicable month.
(2) Bonuses
The bonus shall be handled on an accrual basis and shall be borne by MCI and ACI in proportion to the number of the months for which the salary for the Seconded Employees was borne by MCI or ACI in the period for which such bonus is paid.
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“Article 20 Invoicing and Payment of Expenses
MCI shall send to ACI an invoice for the amount of the expenses incurred by MCI in a month under this Agreement by the last date of the month, and ACI shall pay the invoiced amount into the following account designated by MCI by the end of the month following the month in which the invoice is received.”
Article 3 and Article 20 of the aforesaid Agreement were amended w.e.f. 01.10.2007, and the amended Memorandum is reproduced below:
Memorandum
“Mitsui Prime Advanced Composites India Pvt. Ltd. (“ACI”) and Mitsui Chemicals, Inc. (“MCI”) hereby agree to revise and amend the Agreement Concerning the Treatment of Seconded Employees effective date on October 1st, 2007 between MCI and ACI (“Agreement”) in accordance with the following terms and conditions:
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Article 3 shall be deleted in its entirety and replaced by the following:
“3.1 Unless otherwise stipulated herein, ACI’s rules of employment (work rules, working time, rest period, holidays, absence, etc.) shall in principle apply to the service of Seconded Employees.
3.2 MCI’s rules of the employment shall be applied to those matters relating to the service of Seconded Employee, which are not provided for in ACI’s rules of employment.”
The first sentence of Article 20 shall be deleted in its entirely and replaced by the following:
“MCI shall send to ACI an invoice for the amount of the expenses incurred by MCI in a calendar quarter by the end of such calendar quarter, and ACI shall pay the invoiced amount by the end of the next month of the month in which the invoice is received.”
A sample employment contract entered into between Mitsui India and one of its employee is reproduced below:
Employment Contract
This employment contract is made on the day of 1, April 2008 between Mitsui Prime Advanced Composites India Private Limited hereinafter known as the “COMPANY” and Mr. Shinichi SUSUKI hereinafter known as the “EMPLOYEE”.
The “COMPANY” desires to appoint the “EMPLOYEE” as a position of General Manager of Finance & Accounts Dept. and the “EMPLOYEE” accepts the said written position of the “COMPANY”, and effective on the date first above written.
STARTED DATE: 1, April 2008
CONTRACT PERIOD: The term of this contract shall be for three years. The said term may be extended thereafter by mutual agreement for any period of time that may be agreed.
ANNUAL SALARY: Effective as of the date hereof, the “EMPLOYEE's” annual salary will be Rs. 3,300,000-(in Indian Rupee). The “COMPANY” will be responsible to pay the income tax based on the specified salary rate, as well as Social Security according to the law for the “EMPLOYEE”.
WORKING HOURS: Normal working days are 6 days per week. Normal working time is 8 hours per day excluding 1 hour rest time per day. However “EMPLOYEE” is required to work overtime or on the day-off as ordered by the superiors, due to necessity or demand urgently by the “COMPANY”.
SHIFT DUTY & OTHER JOB ASSIGNMENTS: “EMPLOYEE” shall perform shift or split shift duty if such duties are standard requirements of “EMPLOYEE's” position. “EMPLOYEE” shall also undertake such other positions or assignments as and when required by the “COMPANY”.
ANNUALVACATIONANDCUSTOMARY HOLIDAYS: “EMPLOYEE” who has completed one year service will be entitled of 10 vacation days. “EMPLOYEE” is entitled to have customary public holiday minimum of 10 days per year.
UNUSED BENEFIT: NO “in kind” or cash payment will be made in lieu of benefit not utilized.
MEDICAL BENEFIT: Free medical attention, excluding dental and ophthalmic treatment, will be provided by the “COMPANY” at the “COMPANY’s” appointed clinics or at government medical establishments. All medical and hospitalization entitlement shall be subject to the provisions of the “COMPANY” rules and policies.
SICK LEAVE: “EMPLOYEE” shall be eligible for an actual of 20 working days' paid sick leave in each calendar year. Sick leave from 3 consecutive days must be accompanied with doctor's certificate.
OBLIGATION: 1. The “EMPLOYEE” agrees to perform his assigned duties completely, conscientiously, efficiently, honestly and in accordance with the laeful orders of the “COMPANY” and to the expectation and high standard. II. The “EMPLOYEE” can not engage in any other activities with or without remuneration without the knowledge and prior consent in writing of the “COMPANY”. III. The “EMPLOYEE” will comply with all employment rules and regulations and other lawful regulations and directives designated by the “COMPANY” from time to time, except, in the case of where this employment contract provides otherwise. IV. The “COMPANY” reserves the right to transfer or change the status and/or position of the “EMPLOYEE” but not to a lower category without any effect on remuneration and/or benefits as specified in this employment contract.
TERMINATION OF EMPLOYMENT CONTRACT: The “COMPANY” has the right to terminate this employment contract forthwith without any further liability or responsibility for the continuation of salary or other salary payments or benefits for the “EMPLOYEE” in the event of. I. Dishonesty II. Violation on any terms of employment or work regulation III. Violation of law of India IV. Actions that may be determined to the “COMPANY”.
The department believed that under the Agreement between Mitsui India and Mitsui Japan, Mitsui Japan deputed its employees to Mitsui India and the reimbursements of salary costs of the expats by Mitsui India to Mitsui Japan is the consideration for receipt of manpower supply services. Mitsui India would, therefore, be liable to pay service tax under the reverse charge mechanism for the manpower services imported from Mitsui Japan.
Accordingly, a show cause notice dated 25.01.2016 was issued to the Mitsui India alleging that:
“3. And whereas, from the terms and conditions enumerated in the Agreement, it becomes clear that the Salary to the ‘Seconded Employees’ is being paid by MCI not by ACI and also employees seconded by MCI to ACI are in all capacities employees of MCI. Further, MCI Japan has sent/supplied their Manpower to ACI, Neemrana for which they have received payment in Japan on the basis of Invoice raised by them, although a part of the amount has been paid to the employees in India for their well being. Therefore, it appears that MCI has supplied manpower from abroad to the ACI in India under Taxable service of “Man Power Recruitment and Supply Agency Services” as defined under Section 65B(44) read with Explanation (3) of the Act.”
A detailed reply dated 29.02.2016 was filed by Mitsui India making reference to the Agreement and stating that it was executed between Mitsui India and Mitsui Japan for the transfer of certain employees of Mitsui Japan having expertise in particular areas of management to work with Mitsui India. After reproducing the salient features of the Agreement, the reply to the show cause notice makes reference to the subsequent employment contract which Mitsui India entered into with individuals and in this connection the following facts were stated:
“7. The Employment Contract envisages the terms and conditions of the employment such as designation of the transferred employee, salary to which he is entitled to, employment period etc. The Employment Contract executed with expats has similar covenants as mentioned in a regular employment contract between Mitsui India and its Indian employees.
The Employment Contract envisages the usual and customary clauses present in any contractual arrangement of employment. In terms of the Employment Contract, it is clear that the expats work in the normal capacity of a regular Indian employee. Some of the instances are: of such covenants are the Annual Leaves, Customary Holidays etc. the employees of Mitsui India are eligible for an similarly, the rules and regulations, employees are required to adhere to are:
• Expats are eligible for the annual salary computed in Indian Currency.
• All mandatory public holidays in India are applicable to expats also.
• Expats are governed by normal working hours and sick leaves available to other Indian employees.
• Expats are required to serve the mandatory notice period in the event of discontinuing the employment.
• Expats are required to adhere to the general policies and rules and regulations formed by Mitsui India for its employees.
The conclusion of the two contractual arrangements is diagrammatically represented below:
Basis the above factual submissions, it is clearly established that the expats who come to Mitsui India are taken as its employees. Mitsui India assumes all the risks and responsibilities of an employer in relation to the employment of expats which further strengthens that there is an employer-employee relationship between the expats and Mitsui India and that Mitsui India has not received manpower supply services from Mitsui Japan.”
The reply submitted by Mitsui India did not find favour of the Deputy Commissioner, who by the order dated 10.11.2016, confirmed the demand of service tax with interest and penalty. The relevant portions of the order are reproduced below:
“55(ii). It is obvious that the assessee company in India had received the services of Japanese experts/ seconded employees in respect of assisting in establishment and smooth running of their factory situated at Neemrana in India. Thus, it would be illogical to argue that they did not receive the said services. Based on these services, the noticee manufactured and sold their goods, thus the benefit of services accrued to them. Thus, it’s a simple case of providing of manpower by a person located outside India (i.e. MIC) and received by ACI in India.
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In this case an already discussed above that under the circumstances principal employer of these experts/seconded employees was MIC as they have provided manpower to ACI on temporary basis as per the terms and conditions entered into under a Agreement as referred to above and paid the total amount of salaries and bonus paid to Japanese experts/ seconded employees in Japan which have subsequently been reimbursed by ACI on the basis of invoice raised by MCI and some of expenses were directly paid by ACI to these experts/employees in India for their well being. Therefore, the salary and bonus amount paid to these Japanese experts/seconded employees and other perks are nothing but payment towards agreed upon consideration between ACI and MCI on account of supply of manpower to ACI under ‘Manpower Recruitment and Supply Agency Service’. Therefore, the whole amount of emoluments paid to the Japanese experts/Seconded employees by the noticee is liable to service tax under Reverse Charge Mechanism.
Thus, the said reimbursement does not affect the taxability of gross amount inasmuch as reimbursed amount also constitute gross payment towards the services received by ACI. Further it is on record that MCI have provided manpower (i.e. Japanese experts/seconded employees) to CI to assist their personnel in establishment and running of the assesse’s company, therefore, any expenses incurred by the foreign service provider and reimbursed by them are definitely on account of services i.e. ‘manpower recruitment or supply agency service’ since Japanese experts/seconded employees worked for boosted the business of the assessee. If the said services were rendered by any unrelated agency then also the payment would have been on account of service as well as the administrative expenses of such agency. As already discussed above that the service receiver (i.e. ACI) and service provider (i.e. MCI) are separate entity. Thus, gross payment (including reimbursement) made to Japanese experts/seconded employees constitute gross taxable value of the said service liable to service tax under ‘manpower recruitment or supply agency service’. Therefore, the said argument does not help the assessee.”
(emphasis supplied)
Shri Shashank Shekhar learned counsel for the appellant assisted by and Shri Tushar Joshi, made the following submissions:
(i) The expats are employees of Mitsui India and, therefore, there is no service element in the transactions. The Deputy Commissioner, therefore, committed an error in holding that the expats are employees of Mitsui Japan;
(ii) A conjoint reading of the Circular dated 27.07.2005 and the Circular dated 23.08.2007 clearly shows that for a transaction to be taxable as manpower supply service, the manpower should not be contractually employed by the service recipients;
(iii) On a plain reading of the various clauses of the Agreement, it is clear that the transferred employees work under the control and supervision of Mitsui India;
(iv) Mitsui India contributes Provident Fund for the transferred employees as an employer;
(v) Mitsui India reflects the amount reimbursed to Mitsui Japan as ‘reimbursement of salary’;
(vi) There is no employer-employee relationship between the expats and Mitsui Japan;
(vii) The decision of the Tribunal in M/s. Mitsui Prime Advanced Composites India Pvt. Ltd. vs. CCE, Jaipur-I, Service Tax Appeal No. 52581/2014 decided on 23.03.2018 and the decision of the Tribunal in M/s. Mitsui Prime Advanced Composites India Pvt. Ltd. vs. CCE & ST, Jaipur-I, Service Tax Appeal No. 52745/2015 decided on 14.06.2018 in the matter of the appellant holding that service tax would not be leviable on the secondment arrangement between Mitsui India and Mitsui Japan would govern the present matter;
(viii) The decisions of the Tribunal in Volkswagen India (Pvt.) Ltd. vs. Commissioner of C. Ex., Pune-I, 2014 (34) S.T.R. 135 (Tri. - Mumbai) and Computer Sciences Corpn. India Pvt. Ltd. vs. Commr. of S.T., Noida, 2014 (35) S.T.R. 94 (Tri. - Del.) would apply to the facts of the present case;
(ix) Reimbursements are on cost to cost basis as no fee is charged by Mitsui Japan for the alleged manpower supply services; and
(x) Neither interest nor penalty could have been imposed.
Shri Manoj Kumar, learned authorised representative appearing for the department, however, supported the impugned order and submitted that a does not call for any interference. Learned authorized representative submitted that the issue involved in this appeal has been decided against the appellant by the Supreme Court in C.C., C.E. & S.T. – Bangalore (Adjudication) etc. vs. M/s. Northern Operating Systems Pvt. Ltd, Civil Appeal No. 2289-2293 of 2021 decided on 19.05.2022.
The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
A perusal of the Agreement indicates that; (i) Mitsui Japan shall assign certain of its employees to Mitsui India as officers or employees of Mitsui India and Mitsui India shall accept such employees who shall continue to be employee of Mitsui Japan; (ii) Rules of Mitsui India shall, in principle, apply to matters relating to the services of the seconded employees; (iii) Salary and bonuses payable to the seconded employees shall be paid by Mitsui Japan in accordance with their rules; and (iv) Mitsui Japan shall send to Mitsui India an invoice for the amount of the expenses incurred by Mitsui Japan in a month under the Agreement and Mitsui India shall be pay the invoice amount.
The Supreme Court in Northern Operating Systems examined almost a similar Agreement as has been executed in this appeal and ultimately held that the overseas group company provided manpower supply service to the Indian company. It would, therefore, be relevant to reproduce the relevant paragraphs of the judgment of the Supreme Court and they are as follows:
“Analysis and Conclusions
The issue which this court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, provide it manpower services, for the discharge of its functions through seconded employees.
The contemporary global economy has witnessed rapid cross-border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the latter’s request to meet its specific needs and requirements of the Indian associate. During the arrangement, the secondees work under the control and supervision of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed.
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The assessee’s contention before the CESTAT, inter alia, was that apart from it having control over the nature of work of the seconded employees, no consideration was charged by the foreign entities from it for providing the supply of manpower as the revenue alleged.
A plain reading of the definition of “manpower recruitment agency” (per Section 65 (68) of the unamended Act) requires that to fall within that description,
(a) a person (the expression is not defined; however, by Section 3 (42) of the General Clauses Act, the term includes “any company or association or body of individuals whether incorporated or not”);
(b) provides service
(c) directly or indirectly,
(d) in any manner for recruitment or supply of manpower,
(e) temporarily or otherwise
The question is what are the services provided to the assessee, and by whom? Do they include the provision of services, through employees, by its overseas group companies or affiliates? After 01.07.2012, the definition of “service” underwent a change. Except listed categories of activities excluded from, or kept out of the fold of the definition, every activity virtually is “service”. Now, by Section 65 (44), “service” means
(a) any activity
(b) carried out by a person for another
(c) for consideration, and
(d) includes a declared service (the term “declared service” is defined in Section 66E).
Section 65 (44), however, excludes from its sweep [by clause (b)], “a provision of service by an employee to the employer in the course of or in relation to his employment.” The assessee contends that the secondment agreement has the effect of placing the overseas employees under its control, so to say, and enables it to require them to perform the tasks for its purposes. It emphasizes that the real nature of the relationship between it and the seconded employees is of employer and employee, and outside the purview of the service tax regime.
From the above discussion, it is evident, that prior to July 2012, what had to be seen was whether a (a) person provided service (b) directly or indirectly, (c) in any manner for recruitment or supply of manpower (d) temporarily or otherwise. After the amendment, all activities carried out by one person for another, for a consideration, are deemed services, except certain specified excluded categories. One of the excluded category is the provision of service by an employee to the employer in relation to his employment.
One of the cardinal principles of interpretation of documents, is that the nomenclature of any contract, or document, is not decisive of its nature. An overall reading of the document, and its effect, is to be seen by the courts.
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The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided – in that context - by the overseas group company to the assessee.
A co-joint reading of the documents on record show that:
(i) Attachment 1 to the service agreement ensures that the overseas group company assigns, inter alia, certain tasks to the assessee, including back office operations of a certain kind, in relation to its activities, or that of other group companies or entities;
(ii) The assessee is paid a mark up of 15% of the overall expenditure it incurs, by the overseas company (clause 2, read with attachment 1 of the Service Agreement);
(iii) By the Secondment Agreement, the parties agree that the overseas employee is temporarily loaned to the assessee (Article I read with the Schedule);
(iv) During the period of secondment, the assessee has control over the employee, i.e. it can require the seconded employee to return, and likewise, the employee has the discretion to terminate the relationship (Article II);
(v) The overseas employer (group company) pays the seconded employee, which is reimbursed to the overseas company, by the assessee (Article III);
(vi) The assessee is responsible for the work of the seconded employee, i.e., the overseas employer, during the secondment period, is absolved of any liability for the job or work of its seconded employees (Article VII);
(vii) The secondment is for a specified duration, and the employment with the assessee ceases upon the expiration of that period (Article II of the secondment agreement and the “Duration” clause in the letter of understanding with the seconded employee);
(viii) The letter of understanding issued to the seconded employee specifies that the tenure with the assessee is an assignment (in one place, the term used is “At its conclusion, repatriation will be in accordance with the Global Mobility Repatriation Policy”);
(ix) The terms include the salary payable as well as other allowances, such as hardship allowance, vehicle allowance, servant allowance, paid leave, housing allowance, etc. The nature of salary and other perks underscore the fact that the seconded employees are of a certain skill and possess the expertise, which the assessee requires.
The above features show that the assessee had operational or functional control over the seconded employees; it was potentially liable for the performance of the tasks assigned to them. That it paid (through reimbursement) the amounts equivalent to the salaries of the seconded employees – because of the obligation of the overseas employer to maintain them on its payroll, has two consequences: one, that the seconded employees continued on the rolls of the overseas employer; two, since they were not performing jobs in relation to that employer’s business, but that of the assessee, the latter had to ultimately bear the burden. There is nothing unusual in this arrangement, given that the seconded employees were performing the tasks relating to the assessee’s activities and not in relation to the overseas employer. To put it differently, it would be unnatural to expect the overseas employer to not seek reimbursement of the employees’ salaries, since they were, for the duration of secondment, not performing tasks in relation to its activities or business.
As discussed previously, there is not one single determinative factor, which the courts give primacy to, while deciding whether an arrangement is a contract of service (as the assessee asserts the arrangement to be) or a contract for service. The general drift of cases which have been decided, are in the context of facts, where the employer usually argues that the person claiming to be the employee is an intermediary. This court has consistently applied one test: substance over form, requiring a close look at the terms of the contract, or the agreements.
A vital fact which is to be considered in this case, is that the nature of the overseas group companies business appears to be to secure contracts, which can be performed by its highly trained and skilled personnel. This business is providing certain specialized services (back office, IT, bank related services, inventories, etc.). Taking advantage of the globalized economy, and having regard to locational advantages, the overseas group company enters into agreements with its affiliates or local companies, such as the assessee. The role of the assessee is to optimize the economic edge (be it manpower or other resources availability) to perform the specific tasks given it, by the overseas company. As part of this agreement, a secondment contract is entered into, whereby the overseas company’s employee or employees, possessing the specific required skill, are deployed for the duration the task is estimated to be completed in. This court is not concerned with unravelling the nature of relationship between the overseas company and the assessee. However, what it has to decide, is whether the secondment, for the purpose of completion of the assessee’s job, amounts to manpower supply.
Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid- and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their origin. It is doubtful whether without the comfort of this assurance, they would agree to the secondment. Furthermore, the reality is that the secondment is a part of the global policy – of the overseas employer loaning their services, on temporary basis. On the cessation of the secondment period, they have to be repatriated in accordance with a global repatriation policy (of the overseas entity).
The letter of understanding between the assessee and the seconded employee nowhere states that the latter would be treated as the former’s employees after the seconded period (which is usually 12-18 months). On the contrary, they revert to their overseas employer and may in fact, be sent elsewhere on secondment. The salary package, with allowances, etc., are all expressed in foreign currency (e.g., US $ 330,000/- per annum in the letter produced before court, extracted above). Furthermore, the allowances include a separate hardship allowance of 20% of the basic salary for working in India. The monthly housing allowance in the specific case was ₹ 366,700. In addition, an annual utility allowance of ₹3,97,500/- is also assured. These are substantial amounts, and could have been only by resorting to a standardized policy, of the overseas employer.
The overall effect of the four agreements entered into by the assessee, at various periods, with NTS or other group companies, clearly points to the fact that the overseas company has a pool of highly skilled employees, who are entitled to a certain salary structure- as well as social security benefits. These employees, having regard to their expertise and specialization, are seconded (a term synonymous with the commonly used term in India, deputation) to the concerned local municipal entity (in this case, the assessee) for the use of their skills. Upon the cessation of the term of secondment, they return to their overseas employer, or are deployed on some other secondment.
This court, upon a review of the previous judgment in Sushilaben Indravadan (supra) held that there no one single determinative test, but that what is applicable is “a conglomerate of all applicable tests taken on the totality of the fact situation in a given case that would ultimately yield, particularly in a complex hybrid situation, whether the contract to be construed is a contract of service or a contract for service. Depending on the fact situation of each case, all the aforesaid factors would not necessarily be relevant, or, if relevant, be given the same weight.”
Taking a cue from the above observations, while the control (over performance of the seconded employees’ work) and the right to ask them to return, if their functioning is not as is desired, is with the assessee, the fact remains that their overseas employer in relation to its business, deploys them to the assessee, on secondment. Secondly, the overseas employer-for whatever reason, pays them their salaries. Their terms of employment – even during the secondment – are in accord with the policy of the overseas company, who is their employer. Upon the end of the period of secondment, they return to their original places, to await deployment or extension of secondment.
One of the arguments of the assessee was that arguendo, the arrangement was “manpower supply” (under the unamended Act) and a service [(not falling within exclusion (b) to Section 65 (44)] yet it was not required to pay any consideration to the overseas group company. The mere payment in the form of remittances or amounts, by whatever manner, either for the duration of the secondment, or per employee seconded, is just one method of reckoning if there is consideration. The other way of looking at the arrangement is the economic benefit derived by the assessee, which also secures specific jobs or assignments, from the overseas group companies, which result in its revenues. The quid pro quo for the secondment agreement, where the assessee has the benefit of experts for limited periods, is implicit in the overall scheme of things.
As regards the question of revenue neutrality is concerned, the assessee’s principal contention was that assuming it is liable, on reverse charge basis, nevertheless, it would be entitled to refund; it is noticeable that the two orders relied on by it (in SRF and Coca Cola) by this court, merely affirmed the rulings of the CESTAT, without any independent reasoning. Their precedential value is of a limited nature. This court has been, in the present case, called upon to adjudicate about the nature of the transaction, and whether the incidence of service tax arises by virtue of provision of secondment services. That a particular rate of tax- or no tax, is payable, or that if and when liability arises, the assessee, can through a certain existing arrangement, claim the whole or part of the duty as refund, is an irrelevant detail. The incidence of taxation, is entirely removed from whether, when and to what extent, Parliament chooses to recover the amount.
This court is also of the view, for similar reasons, that the orders of the CESTAT, affirmed by this court, in Volkswagen and Computer Sciences Corporation, are unreasoned and of no precedential value.
In view of the above discussion, it is held that the assessee was, for the relevant period, service recipient of the overseas group company concerned, which can be said to have provided manpower supply service, or a taxable service, for the two different periods in question (in relation to which show cause notices were issued).”
(emphasis supplied)
It transpire from paragraph 32 of the judgment of the Supreme Court in Northern Operating Systems that the Indian company would request the UK company to provide employees for the expertise required by the Indian company and the UK company would thereafter select the employees and second them to the Indian company. The employees seconded shall continue to be remunerated by the UK company. However, during the secondment period, the Indian company shall reimburse the UK company of all the remuneration of the employees, including but not limited to salary incentives and employment benefit.
Thus, the basic agreement between Mitsui India and Mitsui Japan in the present matter and the UK company and the Indian company in Northern Operating Systems are almost similar.
The Supreme Court also held that the decisions of the Tribunal in Volkswagen India and Computer Sciences Corporation, are unreasoned and of no precedential value.
Thus, in view of the reasons given by the Supreme Court in the aforesaid judgment in Northern Operating Systems, it has to be held that Mitsui Japan provided manpower services to Mitsui India. The contentions raised by Mitsui Japan run contrary to the aforesaid judgment to the Supreme Court.
The decision of the Commissioner holding that Mitsui Japan provided manpower services to Mitsui India, therefore, does not call for any interference in this appeal.
The appeal is, accordingly, dismissed.
(Order Pronounced on 15.10.2024)