C.C., C.E. & S.T. – BANGALORE (ADJUDICATION) ETC. versus M/S NORTHERN OPERATING SYSTEMS PVT LTD.

Citation: [2022] 18 S.C.R. 901 · Decided: 19-05-2022 · Supreme Court of India · Bench: UDAY UMESH LALIT · Disposal: Case Partly allowed

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Judgment (excerpt)

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   [2022] 18 S.C.R. 901
901
C.C., C.E. & S.T. – BANGALORE (ADJUDICATION) ETC.
v.
M/S NORTHERN OPERATING SYSTEMS PVT LTD.
(Civil Appeal No. 2289-2293 of 2021)
MAY 19, 2022
[UDAY UMESH LALIT, S. RAVINDRA BHAT AND
PAMIDIGHANTAM SRI NARASIMHA, JJ.]
Finance Act, 1994 – Service Tax – SecondmentAgreement;
Service Agreement–Revenue issued four show cause notices(SCNs
) alleging that the respondent-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–Demandsconfirmed
by Commissioner of Service Tax–Commissioner had also discharged
the proceedings arising from a show cause notice–Appeals by
Revenue as well as by assessee –Revenue’s appeals were rejected
while that of the assessee’s were allowed by CESTAT – On appeal,
held: Assessee was the service recipient for service (of manpower
recruitment and supply services) by the overseas entity, in regard to
the employees it seconded to the assessee, for the duration of their
deputation or secondment – Assessee liable to pay service tax for
the periods spelt out in the SCNs, consequential demands therefore,
shall be recovered from the assessee – However, the invocation of
the extended period of limitation was unjustified – Impugned
common order of the CESTAT is set aside –Commissioner’s orders
in original are 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 be modified,
excluding any liability for the extended period of limitation.
Secondment Arrangement– Held: In a typical secondment
arrangement, employees of overseas entities are deputed to the host
entity (Indian associate) on the latter’s request to meet its specific
needs and requirements of the Indian associate – During the
arrangement, the secondees work under the control and supervision
of the Indian company and in relation to the work responsibilities
of the Indian affiliate – Social security laws of the home country
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SUPREME COURT REPORTS
[2022] 18 S.C.R.
(of the secondees) and business considerations result in payroll
retention and salary payment by the foreign entity, which is claimed
as reimbursement from the host entity.
Finance Act, 1994 – s.65(44) – Held: By s.65 (44), “service”
means (a) any activity (b) carried out by a person for another (c)
for consideration, and (d) includes a declared service (the term
“declared service” is defined in s.66E) – However, s.65 (44)excludes
from its sweep [by clause (b)], “a provision of service by an employee
to the employer in the course of or in relation to his employment”.
Deeds and Documents – Interpretation of documents – Held:
One of the cardinal principles of interpretation of documents, is
that the nomenclature of any contract, or document, is not decisive
of its nature – An overall reading of the document, and its effect, is
to be seen by the courts.
Contract – Contract of service or Contract for service – Held:
There is not one single determinative factor, which the courts give
primacy to, while deciding whether an arrangement is a contract of
service (as the assessee asserts the arrangement to be) or a contract
for service – The general drift of cases which have been decided,
are in the context of facts, where the employer usually argues that
the person claiming to be the employee is an intermediary –Supreme
court has consistently applied one test- substance over form,
requiring a close look at the terms of the contract, or the agreements.
Partly allowing the appeals, the Court
HELD: 1.1 The issue which this court has to decide is
whether the overseas group company or companies, with whom
the assessee has entered into agreements, provide it manpower
services, for the discharge of its functions through seconded
employees.The contemporary global economy has witnessed rapid
cross-border arrangements for which dynamic mobile workforces
are optimal. To leverage talent within a transnational group,
employees are frequently seconded to affiliated or group
companies based on business considerations. In a typical
secondment arrangement, employees of overseas entities are
deputed to the host entity (Indian associate) on the latter’s
request to meet its specific needs and requirements of the Indian
associate. During the arrangement, the secondees work under
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