Khushi Gupta
Published on: May 26, 2022 at 19:48 IST
The Supreme Court has held that when the overseas group companies providing skilled employees, on secondment basis, to its Indian counterparts amounts to supply of manpower services, the Indian company would be considered as service recipient.
Therefore, the Indian company is liable to pay service tax on the salaries of the seconded employees reimbursed to the overseas company.
Upon perusal of the agreements entered between the overseas group companies and the Assessee (Indian counterpart), a Bench comprising Justices U.U. Lalit, S. Ravindra Bhat and P.S. Narasimha determined the Assessee to be a service recipient and liable to be taxed, but the invocation of the extended period of limitation by the revenue was held to be untenable.
In the light of the same, the Court set aside the orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The Court noted that in the contemporary global economy where cross-border arrangements have become rampant, employees are frequently seconded to group companies based on business considerations.
Typically, in secondment arrangements, employees of overseas entities are deputed to the host entity to meet its specific needs. During the arrangement the seconded employees are under the supervision of the host entity and to meet statutory mandates, the salary is paid by the overseas entity which is claimed as reimbursement from the host.
The Court observed that if the overseas entity is treated as the employer, the arrangement would be treated as service and be taxed.