fiogf49gjkf0d
Salary paid to the secondment employees in terms of employment agreement is not liable for service tax.Facts
The applicant is a subsidiary (Indian) of the foreign (US) company. It required services of a consultant who was in employment with the foreign company. Accordingly, a tripartite agreement was entered between employee, Indian company and US company for usage of the services of the employee by the Indian company for a particular term. During the consultants’ stay in India, he is to be treated as an employee of the Indian company while his social security interests continue to be taken care of by the foreign company. After the advent of the negative list, all earlier definitions got obliterated and new definition of ‘service’ was enacted under section 65(44) wherein service provided by an employee to the employer in the course of employment was granted exclusion from the definition of service. Social security costs were not reimbursed by the Indian company to the US company. Department contended that social security expenditure incurred by foreign company amounts to consideration paid by the applicant for employing the consultant and shall not be covered by the exclusion. Further, RBI circular was relied upon.
Held
The agreement explicitly mentioned that the consultant would be considered as an employee of the Indian company during his stay in India although his social security interests shall be borne by the US company. No salary was received from the US company during his stay in India and hence salary granted by Indian company and US company were mutually exclusive. In view of the clear provision, service of the consultant cannot be regarded as otherwise than a service provided by employee to the employer even though social security costs were paid by the US company. RBI circular is irrelevant for interpretation of the term ‘service’. Indian company is not liable to service tax on salary and allowances paid to the employee in terms of employment agreement.
