It is very common in group companies wherein the employees working for one company may be posted to sister companies in the same group for assisting in certain projects or providing necessary technical know-how, however, the expense of the employee such as salary, allowance, etc. are still borne by the company, the employee was originally working for and thus, to compensate such company, the sister company who was utilising the services of the said employee reimburses the expenses incurred by the company who sent its employees. This is also called secondment of employee which has now been made taxable by the Hon'ble Supreme Court in the matter of C.C.,C.E. & S.T. – Bangalore (Adjudication) Etc. v/s M/s Northern Operating Systems Private Limited bearing Civil Appeal No. 2289-2293 of 2021, wherein it was held that such services of 'Secondment of employee' would fall under the category of Manpower Recruitment and supply agency, therefore, would be liable to service tax.
However, before the issue was settled by the Hon'ble Supreme Court, our team dealt with the issue of applicability of service tax on secondment of employee before the Hon'ble CESTAT, New Delhi (Appellate Tribunal), wherein the assessee had received certain amounts from its subsidiaries for secondment of its employees for the expenses such as salary and allowances incurred by it. The Department took the view that such amount received by the assessee for secondment of its employees would come under the classification of 'business support services' defined under Section 65(105)(zzzq) of the Finance Act, 1994 and on the basis of the same confirmed the demand on the assessee directing to pay service tax on the same along with applicable interest and penalty. The assessee filed an Appeal against the said demand before the Appellate Tribunal and it was contended by our team that the assessee has received reimbursement of salary of its employees who remain posted with the subsidiary companies for which it cannot be said that the assessee is providing any service under the taxable category of 'business support services'. It was further contended before the Appellate Tribunal that the employees are being transferred on temporary basis for specific project and the cost recovery from its subsidiaries is more in form of sharing of expenses and thus, the said activity cannot be categorized as service as there is no economic benefit to the assessee herein. Extending on our previous contentions, we submitted that even if it the activity in question liable to service tax, the same shall be taxable under the head of 'manpower recruitment or supply of agency service' and since the demand has been raised on wrong interpretation of law and under a wrong category of service, the whole demand is liable to be quashed and set aside. The Appellate Tribunal agreed with the contentions of our team and held that the secondment of employees will not come under the head of 'business support services' and in view of the same, dropped the demand along with interest and penalty.
Case details — Rural Electrification Corpn. Ltd. v. Commissioner of S.T., New Delhi
Forum — CESTAT, New Delhi
Case No. — Final Order No. 51431/2019 dated 07.11.2019 in ST/51998/2015
Represented by — CA Atul Kumar Gupta