Supply of Manpower by Overseas Entities is a Taxable Service: Supreme court

The division bench of Supreme Court has held that the supply of manpower by overseas entities is a taxable service.

The assessee, M/S Northern Operating Systems Pvt Ltd, provides service under the categories of Manpower Recruitment Agency Service. The assessee is reimbursed by the foreign entity, for the amounts it pays as salaries, to these seconded employees. The assessee pays for certain services received from the group companies. The assessee used to discharge service tax on payments for such services in terms of Section 66A of the Act.

The revenue initiated proceedings against the assessee alleging the assessee failed to discharge service tax under the category of “manpower recruitment or supply agency service” with regard to certain employees who were seconded to the assessee by the foreign group companies and demanded service tax, except the demand for the period from April 2006 to September 2006. On appeal The Commissioner confirmed the decision of AO and against which assessee and revenue filed appeal.

The CESTAT while allowing the assessee’s appeal held that the overseas group companies which had contracted with the assessee were not in the business of supply of manpower and that the assessee was not a service recipient. On the strength of this reasoning, the revenue’s appeals were rejected. Against which the revenue filed petition before Supreme Court.

The counsel for the assessee submitted that the service tax cannot be demanded as the services provided by foreign affiliates do not fall under manpower recruitment or supply agency services for the period prior to negative list. For the period after the introduction of the negative list, the definition of the term ‘service’ under the Finance Act, specifically excluded service provided by the employee to the employer. Therefore, the amount paid to the foreign entity as reimbursement of salary of the seconded employees cannot be construed as consideration for supply of manpower services.

The revenue submitted that mere fact that the temporary control over the manner of performance of duties of the employees seconded did not take away or diminish the fact that their real employer was none other than the overseas company. The scale of payments made to such seconded employees was of such magnitude that they were regarded as highly skilled for the performance of specific tasks by the assessee. The contract between the parties was essential for the supply of services by the concerned overseas company to the assessee. Therefore, it was a taxable service and not excluded by virtue of amended Section 65 of the Finance Act, 1994

The Coram of Mr. Justice Uday Umesh Lalit, Mr. Justice S. Ravindra Bhat and Mr. Justice Pamidighantam Sri Narasimha has observed that 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 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.

The Supreme Court held that “the impugned common order of the CESTAT is accordingly set aside. The commissioner’s orders in original are accordingly restored, except to the extent they seek to recover amounts for the extended period of limitation. The demand against the assessee, for the two separate periods, shall now be modified, excluding any liability for the extended period of limitation”.

GST Evasion: Swiggy gets Notice for Wrongful Availment of ITC

In a case on alleged GST evasion of wrongful availment of input tax credit to the tune of Rs 27.2 crore, the Director-General of GST Intelligence (DGGI), Hyderabad has issued a notice to the operator of food delivery app Swiggy.

The DGGI also asked why a penalty should not be levied on the company, directors and top finance heads of BTPL. Bengaluru-based BTPL is engaged in delivery of food, beverages, groceries and supplies from its own private kitchens, cloud kitchens and other restaurants. They are registered across the country with 88 active GSTIN registrations as a regular taxpayer, e-commerce operator, and input service distributor.

In the notice, the DGGI said: “An amount of Rs 27.2 crore is availed as input tax credit fraudulently by BTPL in various states without receipt of goods, services and in contravention of the Act between August 2017 and October 2019.” Invoices of Noida based company, Green Finch Team Management Private Ltd (GTMPL), were used without any actual receipt of the services, it said. Investigations also revealed that GTMPL have themselves wrongfully availed input tax credit on invoices issued by a set of fictitious and non-existent companies such as Orient Enterprises, Royal Enterprises, and Liya Trading Services and utilized the same while discharging their output tax liability towards invoices issued to BTPL.

BTPL has availed and utilized input tax credit on input services commonly used for its online marketplace services (which attract 5% GST without input tax credit) as well as taxable services but it has not reversed the proportionate input tax credit corresponding to private and cloud kitchens,” the DGGI explained.

Wrong claim of TDS would not amount to Penalty u/s 271: ITAT quashes Penalty

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) comprising Shri Prashant Maharishi, AM and M S Kavitha Rajagopal, JM has held that the wrong claim of TDS would not amount to the Penalty u/s 271 of the Income Tax Act,1961.

The assessee engaged in the business of plastic products. He filed a return of income at a total income of Rs.1,22,83,260/-. The Assessing Officer noted that the assessee has not shown the total interest of Rs.2,97,122/- The assessee submitted that these incomes are credited to the assessee’s account, which belongs to Jolly Containers, where the assessee is a partner and the same was chargeable to tax. The AO made an addition of Rs.2,97,122/-. Stated that the income was credited in the name of the assessee and corresponding TDS also claimed and penalty proceedings u/s 271(1)(C) of the Act were initiated separately for ‘concealment of income and furnishing inaccurate particulars of income’.

The assessee contended that the sole proprietorship business of the assessee was converted into a partnership firm and the fixed deposit & other deposits appeared in the books of the partnership. The credit of TDS was taken by the individual assessee whereas the interest income was offered in the hands of the partnership firm.

It was stated in the assessment order that the penalty was initiated for twin charges and ultimately, levied for ‘furnishing of inaccurate particulars’ It was observed that the Assessing Officer was not sure whether the assessee has furnished inaccurate particulars or had concealed the income. In light of the case of SSA’S Emerald Meadows (supra), the Tribunal observed that the CIT(A) was not correct in upholding the penalty and further viewed that the income has already been offered in the hands of a partnership firm which has already been taxed when the order under section 143(3) of the Act was passed.

The Tribunal held that the explanation given by the assessee clearly shows that there was neither concealment of income nor furnishing of inaccurate particulars of income and deleted the penalty under section 271(1)(c) of the Act. The appeal filed by the assessee was allowed. Shri Rajnikant Chaniyari appeared on behalf of the assessee and Shri Hoshang B Irani appeared on behalf of the revenue.