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Lea International Limited V/S C.S.T., Delhi

    Service Tax Appeal No. ST/59141/2013-ST [DB] (Arising out of Order-in-Original No. 11/ST/Commr/DM/RTK/2013-14 dated 10.05.2013 passed by the Commissioner (Appeals), Central Excise, Rohtak) and Final Order No. 50313/2018

    Decided On, 12 January 2018

    At, Customs Excise Service Tax Appellate Tribunal Principal Bench New Delhi

    By, THE HONORABLE JUSTICE: S.K. MOHANTY
    By, MEMBER AND THE HONORABLE JUSTICE: B. RAVICHANDRAN
    By, MEMBER

    For Petitioner: B.L. Narasimhan, Advocate And For Respondents: R.K. Maji, D.R.



Judgment Text


1. The appellant is aggrieved by the order dated 10.05.2013 of Commissioner of Central Excise, Rohtak, Haryana. The appellant is a project office of M/s. Lea International Ltd. (LIL). The LIL entered into various agreements with clients based in India for providing engineering consultancy services and technical assistance in various road related projects. The appellant have a small establishment in India, and are registered with the Department for discharging tax liability on considerations which are accruing to LIL in terms of the said agreements with Indian clients. The dispute in the present appeal relates to the liability of the appellant for service tax on 2 counts:-

(a) Certain expenditure shown in the books of the appellant with reference to income

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and expenditure of projects in India is sought to be taxed as a consideration for consulting engineer service

(b) Tax liability under manpower supply in respect of staff deputed by LIL to India to render the services in terms of the agreement with the Indian clients.

2. The brief facts of the case are that the appellants are maintaining accounts in India to fulfill the provisions of income tax, as the income generated in India should be accounted and suffer tax liability in India. These accounts were audited by the Service Tax Officers and they entertained a view that expenditure incurred/shown in the accounts of appellant against consultancy fees and technical fees, which was further taken into account by LIL, Canada in the overall income and expenditure is liable to be taxed under the category of engineering consultancy service on reverse charge business. In other words, the Revenue held that the appellant received consultancy service from LIL, Canada in execution of various service contracts in India. Similarly, for the staff and officers deputed by LIL, Canada to render the service in India to the Indian clients, the appellant was sought to be taxed on reverse charge basis under manpower supply service. The original authority held against the appellant and confirmed the Service Tax liability alongwith penalties.

3. The Ld. Counsel submitted both the tax liabilities are confirmed under reverse charge basis. First of all the appellant is not liable to any Service Tax at all. However, in terms of the agreement with Indian clients, it has become their responsibility to discharge Service Tax. They are mandated to maintain separate accounts for Indian operations in terms of income tax law.

4. The considerations received from Indian clients in pursuance of various consultancy agreements are fully credited to LIL, Canada directly. The appellant has no role in execution of the agreement, rendering of service or receipt of consideration for such service. The full consideration, which is accounted towards the receipt from Indian clients are shown in their accounts in India, which is also captured in the accounts of LIL, Canada. This accounting is followed mainly to satisfy the local Income tax law for tax liability. For Service Tax purpose, they are neither rendering any service nor received any consideration towards such service. Since, they have discharged Service Tax as mandated by the agreement between the Indian clients and LIL, Canada, the expenditure shown as consultancy fee which in-fact was incurred by LIL, Canada in the execution of such contract cannot be taxed at the hands of the appellant. In other words, it is the submission of the appellant that when the whole of the income accruing to the LIL, Canada, though shown in the books of accounts of appellants having suffered Service Tax under the category of consultancy engineering service, the expenditure, if any, for such income cannot be again taxed under the same heading either as a domestic tax or as a reverse charge tax. This is not legally tenable.

5. On the second issue regarding Service Tax liability on the manpower supply, the Ld. Counsel drew our attention to various decided cases to hold that sending on deputation the employees from foreign country by the foreign service provider to the project office to render service to Indian clients will not make supply of manpower to a branch project office located in India. In any case, the appellant has not received any service of man-power supply. The Indian clients received service of manpower from LIL, Canada.

6. The Ld. AR reiterated the findings of the original authority. He submitted that admittedly, the appellant was registered with the Department and paid Service Tax as applicable to a domestic service provider. The present taxation is with reference to expenditure shown in their accounts towards the receipt of consultancy service. This is independent of the tax liability suffered by the appellant.

7. We have heard both the sides and perused the appeal records. On the first point, we note that the appellants paid Service Tax on the full consideration shown to have been paid by the Indian service recipient to LIL, Canada, which is captured in the accounts of the appellant and further adjusted in the accounts of LIL, Canada. This fact has not been disputed. In fact, this is recorded in the show cause notice that the income which is shown in the accounts of the appellants were subject to Service Tax as consultancy engineering service. However, certain expenditure shown in the same books of accounts under the category of consultancy fee and technical fee, which is again reflected in the accounts of LIL, Canada, was sought to be taxed on reverse charge basis at the hands of the appellant. We note, such tax liability cannot be sustained on two basic principles.

7.1 Firstly, the whole of the income shown in the books of accounts of the appellant, though the same is accrued to LIL, Canada has suffered tax under the category of consultancy engineering service. An expenditure, which is part of the same accounting for income, cannot be taxed for the same service, even under reverse charge tax. Secondly, the appellant has no agreement or arrangement with LIL, Canada to receive any consultancy service. No such allegation has been made. LIL, Canada apparently, procured such consultancy service from various consultants, which in turn were used for rendering service to Indian clients. In fact, such services were effectively managed and utilized by LIL, Canada. This is expenditure for LIL, Canada, which is also reflected in the appellant's accounts as per the requirement. The full income on consultancy service, as already noted, has suffered Service Tax. This is an admitted fact. The expenditure to provide such service cannot be put to Service Tax even under reverse charge basis. There is no basis either on fact or law to sustain such confirmation.

7.2 Regarding the second issue of Service Tax liability under manpower supply, we note that the same dispute came before the Tribunal as well as High Courts for decision in Computer Science Corporation India Pvt. Ltd. - 2014 TIOL 1896 (H.C.-All.-ST). The Hon'ble Allahabad High Court held that in such arrangement, the deputation of employee for executing work cannot be considered as a manpower supply. It was held that the employer cannot be considered as a manpower supply agency. The said ratio has been adopted in various other decisions of the Tribunal also. We note, neither the appellant nor LIL, Canada can be considered as a manpower supply agency. In such situation, the tax liability to said category cannot be sustained.

8. In view of the above discussion and analysis, we find the impugned order is not legally sustainable. Accordingly, the same is set aside. The appeal is allowed with consequential benefit.

[Dictated and pronounced in the open Court.
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