The Kolkata Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that reimbursement of Technical personnel salary by JV Partners does not tantamount to manpower supply services.
The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) distinguished the Supreme Court’s ruling in the case of Northern Operating Systems Pvt. Ltd. vs C.C. in which it was held that ‘control’ alone cannot be a factor to decide as to who is the employer has stated that there is no one single determinative factor, which the courts give primacy to, while deciding, whether an arrangement is a contract of service (as NOS pleads) or a contract for service (as the revenue pleads). The Supreme Court stated that one test has been consistently applied by them, which is ‘substance over form’, requiring a close look at the terms of the agreement.
The tribunal noted that the facts and circumstances of the present case on hand is different from the facts and circumstances of the case of Northern Operating Systems Pvt. Ltd. In that case the appellant has been sending the manpower to their subsidiary companies abroad and service tax was demanded on the consideration received under the category of ‘import of service’, where as in the present case the appellant as a Lead JV partner was sending their technical and non-technical personnel of the appellant is engaged in execution of the project. In terms of the JV Agreement and the decision of the JV partners, the cost of such personnel is reimbursed to the appellant on actual basis.
The bench relied on the Supreme Court’s decision on Commissioner Of CGST, Delhi South Versus Boeing India Defense Pvt. Ltd. in which it was held that reimbursable amount is not consideration under Section 67 of the Act, furthermore, if at all such reimbursement is taxable, the same is taxable from 14-05-2015.
The appellant, Assam Gas Company Limited is engaged in the business of transmission of natural gas through pipeline network and sale of gas. The appellant has a joint venture (DNP) with Num Aligarh Refinery Ltd. (NRL), having 26% share, Oil India Limited (OIL), having 23% share and the appellant 51% share.
As a lead JV partner, the technical and non-technical personnel of the appellant is engaged in execution of the project. In terms of the JV Agreement and the decision of the JV partners, the cost of such personnel is reimbursed to the appellant on actual basis.
The department considered the reimbursable expenses received by the appellant as ‘consideration’ towards rendering of the taxable service of ‘supply of manpower’ and accordingly demanded service tax from the appellant.
The appellant was of the view that the cost of the personnel engaged in execution of the project in which the appellant is a lead JVpartner, is not ‘consideration’ under section 67 of the Finance Act, 1994.
As the reimbursement was received on actual basis, the appellant was of the view that such amount received was not for provision of any service and therefore, demand of Service Tax on reimbursement is not sustainable.
A Show Cause Notice was issued to the appellant demanding Service Tax of Rs. Rs.1,52,56,361, for the period April 2009 to March 2014. The notice was adjudicated and the demand of service tax raised in the notice has been confirmed along with interest and imposed equal amount of tax as penalty under Section 78 of the Finance Act, 1994.
The issue raised was whether Service Tax is payable on reimbursable expenses received by the appellant from the JV partner, considering such reimbursement as ‘consideration’ for providing service under the category ‘Manpower Supply Agency Service’?
The tribunal held that the service rendered by the appellant is not for any other company but to themselves. Thus, there is no service provider and service receiver relationship exists in the transaction. The personnel engaged are the employees of the appellant company and the appellant is paying all salaries etc. to such employees. Only the cost of salary of such employees are reimbursed by the JV on an actual basis.
The tribunal quashed the demand of service tax confirmed in the order is not sustainable on merits as well as on limitation. As the demand itself is not sustainable, the question of demanding interest and imposing penalties does not arise.
Case Details
Case Title: M/s. Assam Gas Company Limited Versus Commissioner of Central Excise & Service Tax
Case No.: Service Tax Appeal No. 75603 of 2015
Date: 25.02.2025
Counsel For Appellant: Tarun Chatterjee
Counsel For Respondent: S. K. Dikshit
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