Case Title
C.C., C.E. & S.T. – Bangalore (Adjudication) Etc. v. M/s. Northern Operating Systems Pvt. Ltd. [Civil Appeal No. 2289-2293 of 2021]
Orders Passed
The Supreme Court of India has held that service tax is payable on the secondment of employees to India from overseas companies where the Indian company has had the benefit of expert services for the period of the secondment.
Facts of the Case
In this case, the respondent, i.e., Northern Operating Systems Pvt. Ltd. (Assessee), had contracted with its overseas group entities for rendering back-office support and information technology support services. Under the contract, the overseas entity was required to second its employees (Seconded Employees) to the Assessee as per the Assessee’s requests. The Seconded Employees were required to act under the directions and control of the Assessee.
However, the salary, bonus/incentives, social security and welfare benefits of the Seconded Employees were paid to them by the overseas group entity. Such expenses were subsequently reimbursed by the Assessee to its overseas entity. The liability to pay service tax on such reimbursements by the Assessee was in question before the Supreme Court (SC).
The assessee contended that the secondment agreement has the effect of placing overseas employees under its control. It was emphasized that the real nature of the relationship between the Assessee and seconded employees is employer-employee and accordingly outside the purview of the service tax regime.
The Revenue argued that through the combined reading of the agreements on record, the arrangement between Assessee and the overseas group company is of a contract for service (i.e., a contract between the parties was essential for the supply of services by the concerned overseas company to Assessee). Further, the tasks performed by seconded employees were to aid Assessee’s work which was undertaken by it through the service agreement with the overseas group company. Therefore, the mere fact that the temporary control by Assessee over the manner of performance of duties of the employees that were
seconded did not take away or diminish the fact that the real employer was the overseas group company. The control if any, which was with Assessee was for a limited duration. It was not enabled to impose sanctions such as cuts in salary, etc.
Issue before Court
The issue before the SC was whether the secondment of employees by the foreign group companies to the assessee in India be regarded as a supply of manpower?
Conclusion
The SC held that the foreign company has provided manpower supply services to its Indian counterpart and such services are liable to service tax under the reverse charge mechanism. This is because the employees are being seconded by overseas entities for their own business and Remuneration is being paid by foreign companies only. Further, once the contract ends, seconded employees return to the foreign company or await deployment somewhere else. The judgment is highly relevant for the current GST regime and the companies must relook the existing secondment arrangements entered by it with its group companies to either restructure the arrangement or ascertain the probable tax liabilities.
