2024 ACR 118 CESTAT Ahmedabad
Gujarat Urja Vikas Nigam Limited
Vs
C.C.E & S.T.-Vadodara-I
HON’BLE MR. RAMESH NAIR (JUDICIAL)
HON’BLE MR. RAJU, MEMBER (TECHNICAL)
Service Tax Appeal No. 12155 of 2019-DB
(Arising out of OIA No. VAD-EXCUS-001-APP-101-2019-20Dated-30.05.2019 passed by Commissioner (Appeals)-Vadodara)
FINAL ORDER NO.12599/2024 PRONOUNCED ON 06.11.2024

Note –

The service recipient is a subsidiary of the appellant and the appellant are recovering the actual cost of the salary paid to the employees who are deputed at the subsidiary.

Where the Actual cost incurred by the alleged service provider in terms of salary, remuneration and perquisites is only reimbursed by the said recipient and there is no element of profit or finance benefit, the subsidiary cannot be said to be their clients. Where Deputation of the employees was only for and in the interest of the company/alleged service provider, there was no relation of agency and client. Where the employee deputed did not exclusively work under the direction of supervision or control of subsidiary, and all throughout he would be under the continuous control and direction of the company/alleged service provider, there is no manpower supply.

APPEARANCE:

Sh. Vijay N. Tewar, Chartered Accountant appeared for the Appellant

Sh. Rajesh Nathan, Assistant Commissioner (Authorized Representative) for the Respondent

ORDER

RAMESH NAIR

The brief facts of the case are that the Gujarat Energy Training Research Institute (GETRI) is an autonomus training and research facility promoted by the appellant and its subsidiaries companies. The government body consist of not more than 15 persons including the Chairman of Appellant who shall be the Chairman of Governing body. All he member of governing body including the Chairman and Director of GETRI shall be appointed by the appellant with the concurrence of the Promotor Companies namely the appellant GUVNL and its subsidiaries. The objective/ purpose of the GETRI are catering to the need for training the employees of the appellant and its subsidiary companies. Thus GETRI is the associate concern of GUVNL (appellant) promoted for the primary purpose of training the employees of GUVNL and its subsidiary companies. The appellant have deputed its employees to GETRI as per MoA of GETRI for easy administration of the GETRI. As per the MoA all the employees of GETRI can be either staff on deputation from GUVNL or its subsidiaries companies. The appellant are paying salaries to its employees including employees who are on deputation to GETRI as per the contractual terms of the employees. As per the terms of employment, appellant has its employees to other group concerns on deputation basis. Being the employer, the appellant also bears all statutory liabilities like provident fund, gratuity etc. together with the salary of such employees on deputation. Being the Government companies, posting of employees are subject to change at regular intervals. The appellant have recovered actual cost of salary paid to employees deputed at GETRI from it at regular interval. However there was no profit element involved in the amount recovered from the GETRI by the appellant. Further the salary cost is reimbursed by GETRI out of major source of revenue earned by way of contribution receipts. The case of the department is that on account of cost of salary recovered by the appellant from GETRI is liable to service tax under the category of man-power recruitment or supply agency service. Hence there is a demand of service tax. Being aggrieved by the impugned order, the appellant filed the present appeal.

  1. Shri Vijay N Tewar, learned Chartered Accountant appearing on behalf of the appellant, at the outset, submits that recovery of cost of the employees deputed to the group entity M/s GETRI is not liable to service in the hands of the appellant. He submits that the identical issue has been considered in various judgments. He placed reliance on the following judgments:

    • Arvind Mills Ltd. 2014 (4) TMI 132

    • Taisei Corp. 2017 (87) Taxmann.com 180 (New Delhi)

    • Franco Indian Pharmaceutical (P) Ltd. Appeal No. ST/368/2012 decided on 05.01.2016

  2. Shri R. Nathan, learned Assistant Commissioner (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order.

  3. We have carefully considered the submission made by both the sides and perused the records. We find that there is no dispute in the fact that so called service recipient M/s GETRI is a subsidiary of the appellant and the appellant are recovering the actual cost of the salary paid to the employees who are deputed at GETRI. In the same type of arrangement Hon’ble Gujarat High Court considering the identical issue in the case of Arvind Mills Ltd. 2014 (4) TMI 132 passed the following order:

Revenue is in appeal against the judgment of the Customs Excise and Service Tax Appellate Tribunal (“the Tribunal” for short) dated 26.07.2013 raising following questions for our consideration:-

        1. Whether in the fact and the circumstances of the case the Hon’ble CESTAT has erred in applying the ratio of a case decided by CESTAT Delhi in case of Paramount Communication Ltd. vs. CCE 2013 (29) STR 317 without narrating and applying the same to the facts of the present case/

        2. Whether in the facts and the circumstances the activity of the Respondent is covered under the definition of “Manpower Recruitment Agency” as Contemplated in C168 of S.65 of the Finance Act 1994 R/w. C1 105 (k), thus the respondent is liable for the Service Tax?

        1. Whether in the facts and circumstances of the case whether the service 2. Issue in biodered by the respondent is a taxable activity Recruitment Agency. Definition of the said term applicable at the relevant activity attracting Service Tax?”

      1. Issue in brief is whether the respondent is a Manpower Supply Recruitment Agency. Definition of the said term applicable at the relevant time reads as under:-

“Manpower recruitment or supply agency means any commercial concern engaged in providing any service directly or indirectly, in any manner for recruitment or supply of manpower, temporary or otherwise to a client”.

3. Brief facts are that respondent had a composite textile mill and was engaged in manufacturing of fabrics and ready-made garments. In order to reduce its cost the respondent deputed some of its employees to its group company, who were also engaged in similar businesses. Reason for such deputation was also on certain occasions stipulated work arising for a limited period. The Tribunal recorded that there was no allegation of finding that the respondent had deputed employees to any other concerns outside its own subsidiary companies. The Tribunal also recorded that undisputedly the employees deputed do not work exclusively under the direction or supervision of the subsidiary company and upon completion of the work they were repatriated to the respondent company. On such basis, the Tribunal held that the respondent cannot be said to be Manpower Supply Recruitment Agency and, therefore, not exigible to service tax.

4. Counsel for the Revenue vehemently contended that the definition of Manpower Supply Recruitment Agency is very wide and would include range of activities of supply of manpower either temporarily or permanently, He submitted that sizable manpower was required for the respondent from the group companies for deputation of the staff. He drew our attention to the amendment of such definition to contend that after the amendment, the definition was widened.

5. It is true that in the present form, the definition of Manpower Supply Recruitment Agency is wide and would cover within its sweep range of activities provided therein. However, in the present case, such definition would not cover the activity of the respondent as rightly held by the Tribunal. To recall, the respondent in order to reduce his cost of manufacturing, deputed some of its staff to its subsidiaries or group companies for stipulated work or limited period. All throughout the control and supervision remained with the respondent. As pointed out by the respondent, company is not in the business of providing recruitment or supply of manpower. Actual cost incurred by the company in terms of salary, remuneration and perquisites is only reimbursed by the group companies. There is no element of profit or finance benefit. The subsidiary companies cannot be said to be their clients. Deputation of the employees was only for and in the interest of the company. There was no relation of agency and client. It was pointed out that the employee deputed did not exclusively work under the direction of supervision or control of subsidiary company. All throughout he would be under the continuous control and direction of the company.

6. We have to examine the definition of Manpower Supply Recruitment Agency in background of such undisputable facts. The definition though provides that Manpower Recruitment Supply Agency means any commercial concern engaged in providing any services directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise to a client, in the present case, the respondent cannot be said to be a commercial concern engaged in providing such specified services to a client. It is true that the definition is wide and would include any such activity where it is carried out either directly or indirectly supplying recruitment or manpower temporarily or otherwise. However, fundamentally recruitment of the agency being a commercial concern engaged in providing any such service to client would have to be satisfied. In the present case, facts are to the contrary.

7. In the result, no question of law arises. Tax Appeal is dismissed.”

From the above decision of Hon’ble Jurisdictional High Court of Gujarat, the issue is no more res-integra as under the identical arrangements within the group company, no service tax can be charged. Accordingly, in the present case having the same facts, the ratio of the above judgment is directly applicable and considering the same, the impugned order is set aside and appeal is allowed.

(Order pronounced in the open court on 06.11.2024)

(RAMESH NAIR)

MEMBER (JUDICIAL)

(RAJU)

MEMBER (TECHNICAL)