Lear Automotive (I) Pvt. Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No.ST/878/12

(Arising out of Order-in-Original No.29/RKS/ST/P-I/2012 dated 13/10/2012 passed by Commissioner of Central Excise, Pune)

For approval and signature:

Honble Mr.M.V. Ravindran, Member (Judicial) Honble Mr. P.R. Chandrasekharan, Member (Technical)

1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy :Seen of the Order?

4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================

Lear Automotive (I) Pvt. Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Pune-I

Appearance:

Shri.Vinay Jain, CA for appellant Shri.R.K. Das, Dy. Comm.. (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.R.Chandrasekharan, Member (Technical)

Date of Hearing : 12/02/2015 Date of Decision : 12/02/2015

ORDER NO

Per: M.V. Ravindran

1. This appeal is directed against Order-in-Original No.29/RKS/ST/P-I/2012 dated 13/10/2012 passed by Commissioner of Central Excise, Pune.

2. The relevant facts that arise for consideration are during the course of audit of the records of the appellant, it was noted by the audit party that the appellant/assessee paid M/s.Lear Corporation, USA, their associate foreign company towards expenses incurred by them on behalf of the appellant/assessee. On Further scrutiny of the related documents, it appeared to department that part of such reimbursement was towards salary of some employees of the said associated company then working for the assessee/appellant in India. After considering the reply to the audit partys query, departmental officers felt that the transaction between Lear Corporation, USA and the services of appellant/assessee would fall under the category of manpower recruitment or supply agency services and by reverse charge mechanism, the appellant/assessee is liable to discharge the service tax liability. Coming to such conclusion, a show-cause notice was issued demanding service tax liability, interest thereof and proposing to impose penalty. The appellant/assessee contested the issue on merits as well as on limitation. The adjudicating authority after following the due process of law did not agree with the contentions raised by the appellant/assessee and confirmed the demands along with interest and also imposed penalties.

3. The learned CA appearing on behalf of the appellant would take us through the entire case records. He would draw our attention to the agreement entered by the appellant/assessee with Lear Corporation, USA. He would take us through various clauses of the agreement and submit that the employees, who were working in their facility are the employees of Lear Corporation, USA. It is his submission that these employees are recruited from Lear Corporation as an employee of the Indian entities and in order to not to deny the benefit of social security of USA, they were reimbursing the amount paid by Lear Corporation, USA in the social security scheme of the employees working with them. He also draw our attention to the various clauses and specifically to clause no.3 & 4 of the said agreement. It is his submission that the employees who are working in Indian entities are considered as their own employees. Their provident fund, TDS, etc. are deducted by the appellant/assessee and remitted to the various Government agencies. In support of such claim, he would draw our attention to the returns, challans, etc. It is his further submission that the said agreement on which reliance has been placed was entered for codification of the arrangements held in place. He would submit that identical issue in the case of Computer Science Corporation Idia Pvt. Ltd., Vs. CST  2014 (35) STR 94 (Tri-Del) was held in favour of the assessee. He would submit that the Revenue aggrieved by the order of the Tribunal preferred an appeal before the Honble High Court of Allahabad and the same was also dismissed by the Honble High Court. He would also rely upon the decision of the Tribunal in the case of Arvind Milsl Ltd., Vs. CST  2013-TIOL-1455-CESTAT-AHM wherein Arvind Mills Ltd. had deputed various employees to their own group companies for functioning as the employees of the group companies. It is his submission that the said case, the view was held in favour of the assessee as their activity would not fall under the category of Manpower Recruitment or Supply Agency Services. He would also submit that the order was contested by the Revenue before the Honble High Court of Gujarat and the Honble High Court has dismissed their appeal as reported in 2014-TIOL-441-HC-AHM-ST.

4. Learned DR on the other hand would draw our attention to the brief facts of the case as recorded by the adjudicating authority. He would submit that the employees were working with the appellant/assessee are the employees of Lear Corporation, USA and their salaries and other dues were paid by Lear Corporation, USA. He would submit that agreement which has been referred to by the learned Counsel specifically states as the appellant herein are desirous of recruiting certain employees on a full time basis to work for Lear India. It is his submission that tenor of agreement indicates that Lear Corporation, USA has supplied manpower to the appellant. He also sought our attention to the findings recorded by the adjudicating authority and submit that recruitment of persons from USA indicates that the appellant is taking them only on loan basis or on deputation.

5. We have considered the submissions made by both the sides and perused the records.

5.1 The issue to be decided in this case is whether the appellant herein is liable to discharge the service tax liability under the reverse charge mechanism under the category of Manpower Recruitment or Supply Agency Services, on payments made by them to Lear Corporation, USA; it is undisputed fact that the amounts which are paid by the appellant to Lear Corporation, USA are reimbursement of amounts paid by Lear Corporation, USA to the Government therein towards the social security funds of the employees who are deputed to Lear India, the appellant herein.

5.2 The adjudicating authority has held that the services rendered by Lear Corporation, USA would fall under the category of Manpower Recruitment or Supply Agency Services. The reasoning given by the adjudicating authority is that the employees of Lear Corporation, USA are sent on deputation to Lear India and the transaction of reimbursement to Lear Corporation, USA could not have taken place, if the relationship between the assessee and the employees or the employer, the employees who are on deputation were not independently hired by the assessee and there is a connection between such employees and the Lear Corporation, USA and it continued to exist even after they started working at the appellants facility.

5.3 We do not agree with the findings recorded by the adjudicating authority for more than one reasons. Firstly, we find from the agreement which is produced before us, specifically indicates that during the period of the services of the deputed employees, they would be entitled to pension and social services benefits extended to them outside India and the appellant/assessee is required to reimburse the said amounts to Lear Corporation, USA. In effect this would amount to paying social security services of the employees who are working with the appellant in USA, which would mean that the appellant discharge his obligation towards employees who are working with them.

5.4 Further, it is noticed that clause No.3 of the agreement talks of the disbursement of remuneration of the employees who are deputed. Reading of the clause indicates that Lear India has extended all the benefits to the deputed personnel as an employee in India. Further reading of clause No.4 specifically indicates that sole obligation of Lear Corporation, USA is to depute employees and the said obligation would cease on actual deputation of the employees to Lear India and it is specifically mentioned in the said agreement that Lear Corporation, USA is not providing any services to Lear India by deputing the employees. The same clause also talks about the deputed personnel will be taken into employment by the appellant/assessee and shall work under direct Control and Management of the appellant/assessee during the entire period of their employment and; that the deputed employees will be proceeded against in terms of the disciplinary issues on the same terms as the appellant/assessees own employees. In short, we find that entire agreement, on which reliance has been placed by the Counsel of the appellant indicates that the personnel who are deputed to India are taken on rolls as employees of the appellant/assessee. If that be so, the question of rendering any services to the appellant by Lear Corporation, USA dos not arise by any extent of imagination.

5.5 We find that similar issue came up before this Tribunal in the case of Computer Sciences Corporation India Pvt. Ltd. (supra). Bench considering the decisions of the Tribunal in the case of Volkswagen India Pvt. Ltd.  2014 (34) STR 135 held that the arrangements of deputing employees for employment in any other facility would not fall under the category of Manpower Recruitment & Supply Agency Services. We find that this ratio has been settled by the Honble High Court of Allahabad when the Revenue took in appeal, the judgement of the Tribunal in the case of Computer Sciences Corporation India Pvt. Ltd. Honble High Court in their order as reported in 2015-37-STR 62 (All) held as under:

In the present case, the Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The 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 the employees under the laws of the foreign jurisdiction. There was 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) are fulfilled, the element of taxability would not arise.

5.6 It can be seen that on an identical issue, the Honble High Court of Allahabad has held that the services rendered cannot be classified as Manpower Recruitment and Supply Agency Services. In view of the foregoing, we hold that the impugned order is unsustainable and liable to be set aside.

6. We set aside the impugned order and allow the appeal with consequential relief, if any.

(Pronounced in Court)

(P.R. Chandrasekharan) Member (Technical) (M.V. Ravindran) Member (Judicial)

pj

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