The Supreme Court in the case Commissioner of GST And Central Excise Chennai v. M/s. Komatsu India Pvt. Ltd observed and has issued in a plea to consider the limited issue that whether a salary paid on secondment of employees is a taxable service under Section 65(105) (k) of the Finance Act, 1994.
The bench comprising of Justice Sanjiv Khanna and Justice JK Maheshwari observed and has directed the Registry to list and tag the plea with another petition titled Commissioner of Service Tax, Delhi-IV v. M/s. Nortel Networks India Pvt. Ltd., which raises the same issue and the adjudication is pending.
In the present petition, M/s. Komatsu India Pvt. Ltd, the respondent is engaged in manufacturing of Dump Trucks and are a wholly owned subsidiary of Komatsu Asia Pacific Limited (KAP). It stated the respondents have not paid service tax on various services received from abroad, in terms of Section 66A of the Finance Act, 1994. However, a show cause notice was issued to it for demand of service tax under the categories of ‘Manpower Recruitment or Supply Agency Service’, ‘Online Information and Database Access and the Retrieval Service’, ‘the Consulting Engineering Service’ and ‘the Maintenance and Repair Services’ and upon confirmation of the demand of the original authority imposed penalties.
It was observed that before the Customs Excise And Service Tax Appellate Tribunal, Chennai (CESTAT), Komatsu India Pvt. Ltd. did not contest the demand on Online Information Database Access and Retrieval Service and Consulting Engineer Services, but has challenged the penalties imposed under Section 78 of the Finance Act, 1994. The CESTAT upheld the demand under the said categories. While considering that the Komatsu had paid service tax and was eligible for credit and the penalties in this regard were set aside.
The court observed with respect to the demand of service tax on ‘Manpower Recruitment or Supply Agency Service, it was observed by the CESTAT that the agreement executed between the respondent and its parent company (KAP) is for secondment of the service engineers from the foreign companies.
The employees from KAP were deputed to work in the factory of the respondent for after-sales and other related work. As per the CESTAT, once an employee is deputed to the respondent it would enter into individual contracts for employment with each employee.
It was noted that there was no payment of consideration towards rendering of Manpower Recruitment or Supply Agency Service. Thus, citing Nortel Network (I) Pvt. Ltd. v. CST Delhi, it was stated by CESTAT that the secondment of employees from abroad for serving in India does not constitute rendering of ‘Recruitment Service or Manpower Supply’.
It held that the payment made to the foreign company which had been subjected to service tax under ‘ Supply Agency or Manpower Recruitment’ is not sustainable. Further, it was held and stated that the concerned services would be classifiable under “Business Auxiliary Service’ and not ‘Maintenance and Repair Services’.
It was observed by the CESTAT that being ‘Business Auxiliary service’ it would qualify as ‘Export Service’ according to Rule 3(1)(ii) of Export of Service Rules, 2005, as the service recipient is situated outside India. The demand was set aside, while considering that the services are exempted and is not taxable in India.
However, it is pertinent to note that in a judgment dated 19.05.2022, the bench comprising of Justice U.U. Lalit, Justice S. Ravindra Bhat and Justice P.S. Narasimha observed and has held that when overseas group companies providing skilled employees, on secondment basis, to its Indian counterparts amounts to supply of manpower services and the Indian company would be considered as service recipient.