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Tribunal explains the concept of joint employment and held that the activity of deputation of employees between group companies in the course of “joint employment” arrangement and cost of employees borne by such companies on actual basis would not constitute service.
Facts Appellant’s three sister concerns entered into an agreement for utilizing marketing network of Appellant for their businesses and paid certain percentage of sales towards recovery of expenses. It is also mentioned in the agreement that cost attributable to salary, wages, bonus, incidental expenses etc. for employees who were deputed to the group companies was also recovered. The revenue contended that the Appellant being specialist in marketing of Pharma products was rendering “business auxiliary services” and if not “business auxiliary services”, at least “manpower recruitment and supply services” and charged a consideration in the form of pre-decided percentage of sales.
Held
Tribunal found that agreement is suggestive of the fact that when employees were deputed to group companies, they are governed by rules and regulations of such group companies; such group companies were required to address and solve any complaint regarding sales (of products manufactured by them) made by deputed employees; Further, after completion of jobs, employees were re-deputed to any of the group companies or retained by the Appellant. Hence, Tribunal found that there was no indication of Appellant rendering promotion/ marketing services to group companies. It was further held that legislative intent of keeping services in the course of employment outside the purview of service tax is also applicable to cases of joint employment where employee renders services to more than one employer. Such joint arrangements are entered into on account of reasons such as unwillingness of employees for entering into several contracts, convenience in accounting and contracting etc. and as a result, contract of joint employment is signed by one employer and not all. Tribunal concurred with Draft Circular dated 27/07/2012 (which was never released), to the extent it provided that where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later recouped from the other employers on an agreed basis on actual, such recoveries will not be liable to service tax as it is merely a case of cost reimbursement. It was explained that mere fact that the employee’s appointment letter is signed by just one employer and not by others would not mean that it’s not a case of collective employment. If an employee consents to his deputation or secondment to another company and willingly works for other employercompanies for long periods of time, knowing fully well that his emoluments are being paid by such other companies, his contract of employment with a single employer will, by virtue of the parties conduct, transform itself into a contract of joint employment with several employers. In this case, employees have been working for many years with several group companies who have, in terms of a pre-existing understanding amongst themselves, been sharing the actual cost of employment on an agreed basis. It was held that the collective conduct of employees and employer companies for a long period of time has effect of establishing that contract of employment as one of the joint employment. In the absence of such a mark-up/ margin, the payments received against debit notes by one employer-company upon the other employer-companies, will not partake the character of consideration for any service, but will represent only reimbursement of shared costs.
