UNDERSTANDING THE DISPUTEIn a landmark decision, the Larger Bench of the Hon’ble Supreme Court has dealt with the issue of taxability of secondment transactions under service tax in the case of
Commissioner vs. Northern Operating Systems Private Limited (NOS) [2022-VIL-31-SC-GST].
The brief facts of the case were that NOS is a company incorporated in India to provide various back-office support services to its group companies across the globe on a cost-plus basis, for which separate agreements are also entered into. In the course of providing the said services, NOS requests its group company to “second” skilled managerial and technical personnel to assist in NOS’s business activities under a secondment agreement entered into with its foreign group companies. This is a separate agreement between the two parties, important terms of which are summarised below (as referred to in the judgment):
a. Upon request from NOS, the foreign group company shall select employees who possess the expertise required by NOS based on the description of skills and competencies required by NOS.
b. Foreign group company shall second the employees to NOS for the time period.
c. The employees seconded to NOS shall continue to be remunerated through the payroll of foreign group company only for the continuation of social security, retirement and health benefits. However, for all practical purposes, NOS shall be the employer.
d. Foreign group company shall ensure that during the secondment period, the employee shall act in accordance with the instructions and directions of NOS and devote their time, attention and skills to the duties of their secondment.
e. The seconded employees shall be reportable and responsible to NOS, and all the responsibility and risk for work undertaken by the employees shall remain with NOS during the secondment period.
f. NOS shall have the right at any time to approve or reject the employee selected for secondment and to request the foreign group company the replacement of any employees who, in their opinion, are not qualified or do not meet the necessary requirements to fulfil their secondment.
g. During the period of secondment, the terms and conditions of employment between the foreign group company and the seconded employee shall cease to be in force, and the terms and conditions, as stated in the employment agreement, between the employees and NOS will remain in force.
The consideration clause of the above agreement is equally important. Apart from specifically mentioning that during the secondment period, the role of the foreign group company shall be restricted to that of a payroll service provider only, it requires NOS to reimburse foreign group company the following amounts:
a. All remuneration of employees, including but not limited to salary, incentives and employment benefits paid by the foreign group company.
b. All out-of-pocket expenses incurred by the seconded employees and reimbursed by the foreign group company, including but not limited to business travel expenses and other miscellaneous expenses directly related to the secondment of the employee.
c. In addition, NOS shall also pay the administrative cost to the foreign group company, which shall be 1% of actual costs incurred.
NOS believed that an employer – employee relationship existed with the seconded employees, and NOS exercised control over them. The employees also devoted all their time and efforts under the direction of the assessee and their remuneration was also fixed by NOS.
Further, NOS was also of the opinion that the above activity could be taxed under ‘manpower supply services’ only if the same was provided by a manpower recruitment or supply agency, which the foreign group company was not. They were engaged in providing personal financial services and corporate and institutional services along with investment products. Therefore, the foreign group company could not be considered a ‘manpower supply agency’.
Therefore, the reimbursement made to the foreign group company, to the extent of payroll costs and OPE reimbursement, was not a ‘manpower supply service’ (upto June, 2012) and a service (post July, 2012), and therefore, there was no liability to pay service tax under the reverse charge mechanism.
The above view was supported by the following decisions of the CESTAT, affirmed by the High Court on a couple of occasions:
a. In Arvind Mills Ltd. vs. CST, Ahmedabad [2014 (34) STR 610 (Tri. – Ahmd.)], the Tribunal had set aside the demand of service tax on employee cost recovery from domestic group companies on the grounds that the assessee was not a ‘manpower supply agency’. This view was affirmed by the HC in 2014 (35) STR 496 (Guj), wherein the HC not only upheld the Tribunals’ view that the assessee was not a manpower supply agent to be liable to pay service tax, it also held that the deputation was in the interest of the assessee and they did not exclusively work under the direction or supervision or control of the subsidiary. Further, the HC also observed that since the actual cost incurred was recovered from the group companies, there was no profit element or financial benefit.
b. In a case involving similar facts where the salary to seconded employees was paid by the foreign company, the Tribunal had in the case of Volkswagen India (Pvt.) Ltd. vs. CCE, Pune [2014 (34) STR 135 (Tri.-Mum.)] held that in such cases also, the seconded employees were working as employees and an employer – employee relationship existed, and therefore, there was no liability to pay tax under reverse charge. An appeal filed against this decision was dismissed by the Supreme Court, though not on merits, but on non-condonable delay, as reported in 2016 (42) STR J145 (SC).
c. The Delhi Bench of Tribunal has in the case of Computer Science Corporation India Pvt. Ltd. vs. CST, Noida [2014 (35) STR 0094 (Tri. – Del.)] held that no service tax was liable even in cases where the salary was paid directly to the seconded employees and only the social welfare expenses incurred by the foreign company were reimbursed to the foreign company. This decision was also upheld by the Allahabad HC as reported in 2015 (037) STR 0062 (All).
d. The Tribunal again in Nissin Brake India Pvt. Ltd. vs. CCE, Jaipur [2019 (24) GSTL 563 (Tri. – Del.)] again dealt with a similar issue. In this case, the Tribunal held that merely because the payment of salary and perks was made by the foreign company would not alter the fact that an employer – employee relationship existed between the seconded employee and the domestic employer. An appeal filed against this decision has also been dismissed by the Supreme Court on grounds that the same was without any merits as reported in 2019 (24) GSTL J171 (SC).
e. In Ivanhoe Cambridge Investment Advisory (India) Private Limited vs. CST, Delhi [2019 (21) GSTL 553 (Tri. – Del.)], the Tribunal dealt with the levy of service tax under RCM in a transaction involving cross-border secondment where the seconded employees were paid the salary by the domestic company. In this case, the Tribunal held that there was an employer – employee relationship between the domestic company (assessee) and the seconded employee, and therefore, no service tax was payable under reverse charge. An appeal against this decision is pending before the Supreme Court.
CESTATS’ TAKE ON THE ABOVE ARRANGEMENT
This matter first reached before the Hon’ble CESTAT, Bangalore, wherein vide judgment reported in 2021 (52) GSTL 292 (Tri. – Bang.), the Tribunal allowed their appeal on the following grounds:
- There existed an employer – employee relationship between NOS and the seconded employee. The Tribunal relied on its decision in the case of Honeywell Technology Solutions Pvt. Ltd. vs. Commissioner [2020-TIOL-1277-CESTAT-BANG.].
- The method of disbursement of salary cannot determine the nature of the transaction, as held in Volkswagen India Pvt. Ltd. vs. CCE, Pune-I [2014 (34) STR 135 (Tri. – Mumbai)] and upheld 2016 (42) STR J145 (SC). In this case, facts were similar as the salary to the seconded employees was paid by the foreign company and reimbursed by the assessee.
- The Tribunal also relied on the decision in the case of Computer Sciences Corporation India Pvt. Ltd. vs. Commissioner of Service Tax, Noida [2014 (35) STR 94 (Tri. – Del.)] and affirmed in [2015 (37) STR 62 (All.)].
- The Tribunal also followed the decision of Gujarat HC in the case of Arvind Mills Ltd. [2014 (35) STR 496 (Guj.)], wherein the Court has held that even if the actual cost incurred by the appellant in terms of salary remuneration and perquisites is only reimbursed by group companies, there remains no element of profit or finance benefit. The arrangement is that of the continuous control and the direction of the company to whom the holding company has deputed the employee, and such an arrangement is out of the ambit to be termed ‘manpower supply service’.
REVENUE APPEAL AGAINST SUPREME COURT DECISION
Being aggrieved by the above Tribunal Order, the Revenue had preferred an appeal before the Supreme Court. The primary ground raised by the Revenue was that the conclusion of the Tribunal that there existed an employer – employee relationship merely because the domestic company exercised control over the seconded employees was erroneous. They highlighted on various decisions wherein it has been held that the existence of control is not the conclusive factor in determining whether an employer – employee relationship exists or not, key being the decision in the case of Silver Jubilee Tailoring House vs. Chief Inspector of Shops & Establishments [1974 (1) SCR 747] and the recent decision in the case of Sushilaben Indravadan Gandhi vs. New India Assurance Co Ltd [(2021) 7 SCC 151].
The Revenue further emphasised the fact that the terms of the secondment were also decided by the foreign company, including salary, allowances, the duration of secondment, etc., and that upon completion of the assignment, the seconded employees were to revert to their original positions in the parent company. Therefore, the control, if any of NOS was for a very limited period which also did not enable NOS to take actions against the seconded employee, if it was unsatisfied with his/ her performance. The only recourse available with NOS in such a case was to terminate the secondment of such employees who would return to their original positions upon termination. In view of the same, the Revenue concluded its argument that the entire transaction of secondment agreement was to provide service by the foreign company to NOS and therefore, it was a taxable service.
COUNTER SUBMISSION ON BEHALF OF NOS
The position of law, prior to June, 2012 and post July, 2012 as well was the same. The category of supply of manpower by an agency covers those cases where the manpower so supplied comes under the direction and control of the recipient without contractual employment, a view clarified by CBIC vide circulars B1/6/2005-TRU dated 27th July, 2005 and Master Circular No. 96/7/2007-ST dated 23rd August, 2007. It was also reiterated that the intention of the legislature, not only in India but also globally was to not levy indirect tax on employer – employee relationship.
It was also argued that an employer – employee relationship existed between NOS and the seconded employees on account of the following:
- The seconded personnel are contractually hired as NOS’s employees.
- Control over them is exercised by NOS.
- The employees devote their time and effort exclusively to NOS, under the direction of NOS.
- The remuneration of employees is also fixed by NOS.
- The employees are required to report to NOS’s designated offices and are accountable to NOS.
The various decisions of the Tribunals on a similar issue were relied upon. Emphasis was placed on the decisions of the Tribunal in the case of Nissin Brake and Volkswagen India, revenue appeals against which were dismissed by the SC.
It was also argued that the foreign group company were not in the business of supply of manpower and, therefore, cannot be considered a ‘manpower supply agency’.
The following alternate arguments were also raised:
- The salary costs were reimbursed to foreign group company, and therefore, relying on the decision in the case of UOI vs. Intercontinental Consultants & Technocrats Private Limited [2018 (10) GSTL 401 (SC)], the amounts reimbursed as salary cost was to be excluded from the gross value of taxable services provided.
- The ground of revenue neutrality was also raised, and reliance was placed on the decision in the case of SRF Ltd. vs. Commissioner [2016 (331) ELT A138 SC] and CCE vs. Coca Cola India Private Limited [2007 (213) ELT 490 (SC)]. It was highlighted that if the tax was paid under reverse charge, they would have been eligible to claim as CENVAT credit and, further, claim the same as a refund.
SUPREME COURT DECISION
The Supreme Court has summarized the issue to determine who should be reckoned as the employer of the seconded employee? While doing so, the Court has resorted to a co-joint reading of the two agreements between NOS and the foreign group company to discern the true nature of the relationship between the seconded employees and the assessee, and the nature of service provided by the foreign group company to NOS.
In determining this question, the Court has first referred to the decision in the case of Director Income Tax vs. Morgan Stanley & Co. Inc [(2007) 7 SCC 1]. The Court has also referred to the decision in the case of Commissioner of Income Tax vs. Eli Lily & Co India Pvt. Ltd. [(2009) 15 SCC].
The Court has then referred to various decisions which dealt with the issue of determining whether an employer – employee relationship existed or not in the following order:
- Firstly, the Court has referred to the decision in the case of Dharangadhara Chemical Works Ltd. State of Saurashtra [1957 SCR 158], wherein the Supreme Court has held that it was well settled that the prima facie test of such relationship was the existence of the right in the employer not merely to direct what work was to be done but also to control the manner in which it was to be done, the nature or extent of such control varying in different industries and being by its nature, incapable of being precisely defined. The correct approach, therefore, was to consider whether, having regard to the nature of the work, was there due control and supervision of the employer or not?
- The Court then referred to the decision in the case of D C Dewan Mohideen Sahib & Sons vs. Secretary, United Beedi Workers Union [1964 (7) SCR 646] in a matter pertaining to the applicability of Factories Act, 1948 as the decision where the control test was diluted by the Courts while determining the existence of employer – employee relationship.
- The Court has then referred to the decision in the case of Silver Jubilee Tailoring House vs. Chief Inspector of Shops & Establishments [1974 (1) SCR 747], wherein the Court has diluted the applicability of the test of control while determining the existence of employer-employee relationship and held that it cannot be used as a conclusive factor while deciding on the same.
- The Court then referred to its recent decision in the case of Sushilaben Indravadan Gandhi vs. New India Assurance Co Ltd [(2021) 7 SCC 151], wherein the decision in the case of Silver Jubilee was reiterated, and it was held that the test of control was not a determining factor for employer-employee relationship and referred to the Courts’ observations at para 24 to this effect.
Basis this, the Court has arrived at a conclusion that the control test is not the decisive factor for employer – employee relationship and proceeded to determine if the foreign group company has provided any services to NOS.
The Court has then proceeded to analyse all the agreements in totality by concluding that an overall reading of the agreement and its effect is to be seen by the Courts. This means that the two agreements between NOS and the foreign group company, i.e., the service agreement and the secondment agreement, are read collectively while determining the nature of the transaction in the secondment agreement. The Court has, thereafter, concluded that the foreign group company has a pool of highly skilled employees at their disposal and are seconded to the group companies for the use of their skills. This deployment is in relation to the business of the foreign group company. Lastly, the Court has held that there is a quid pro quo in the secondment agreement, wherein NOS has received the benefit of experts for a limited period for a consideration being paid to the foreign group company in the form of reimbursement.
The Court also rejected the reliance placed on the decisions in the case of Volkswagen India (where revenue appeal on a similar issue was rejected) and SRF Limited (on revenue neutrality) on the grounds that there was no independent reasoning in this judgment and therefore, the same had no precedential value. The Court has, however, held that the extended period of limitation was not invocable in this case as there was a substantial question of law involved.
IMPORTANT POINTS EMANATING FROM THE JUDGMENT
Implications on reading multiple agreements jointly
The decision very succinctly brings out the journey of factors which needs to be looked into while determining the existence of an employer – employee relationship. It also explains the need to look into the agreements as a whole, and at times, the need to read the agreements together to determine the intention of the transacting parties. However, such an approach may have a direct bearing on the recent decision of the Gujarat HC in the case of Munjaal Manish Bhatt vs. Union of India [2022-TIOL-663-HC-AHM-GST], wherein the HC had refused to link two separate agreements, one for sale of developed land and another for construction of bungalow on the said land and held that only the later was to be included for the purpose of determining the value of supply.
Dual employment: Which contract is superior?
However, when one looks into the intention of the parties, it is apparent that this is a case where NOS intended to use the services of employees employed by foreign group company and therefore, the flow of contract somewhere stood as under:
1) Employment contract between the the foreign group company and the employee.
2) Letter of secondment to be issued by foreign group company to its employee selected for secondment.
3) Letter of Understanding between NOS and the seconded employee.
The above events occur sequentially and if the agreement at 1 fails, the resultant agreements also become void. In other words, though the seconded employee would be under dual employment, his agreement with the foreign group company always remains superior as compared to the agreement with NOS, which was more of a nature of understanding with the seconded employee of the terms of the secondment. An important point which also needs to be kept in mind is that NOS had no right to dismiss an employee. The only right available with NOS was to terminate the secondment, which would mean that the employee would revert to the foreign group company, his original and perhaps, the full-time employer. More importantly, even in the event of misconduct of an employee, this is the only recourse which would have been available with NOS. The right to fire the employee would vest only with the foreign group company.
Morgan Stanley case
The SC has in this judgment relied on the decision in the case of Morgan Stanley, though in the context of Income-tax, wherein it has been held as under:
15. As regards the question of deputation, we are of the view that an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with the MSCo the said company retains control over the deputationist’s terms and employment. The concept of a service PE finds place in the U.N. Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. Applying the above tests to the facts of this case we find that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally, MSAS makes a request to MSCo. A deputationist under such circumstances is expected to be experienced in banking and finance. On completion of his tenure he is repatriated to his parent job. He retains his lien when he comes to India. He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(l). We find no infirmity in the ruling of the ARR on this aspect. In the above situation, MSCo is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a Service PE in India (MSAS). Accordingly, the civil appeal filed by the Department stands partly allowed.
(emphasis added)
The above decision was followed by the Delhi HC in the case of Centrica India Offshore Private Limited vs. Commissioner of Income Tax [W.P. (C) No. 6807/2012], wherein it has been held as under:
35. The concept of a legal and economic employer, as considered by Vogel (relied upon by CIOP), is when “a local employer wishing to employ foreign labour for one or more periods of less than 183 days recruits through an intermediary established abroad who purports to be the employer and hires the labour out to the employer.” In this case, the temporal element of the three-way employment relationship is crucial. The secondees were – originally – employees of the overseas entities. They were not hired by that entity as a false façade, whose productivity is to be ultimately traced to CIOP. Rather, the secondees were regular employees of the overseas entities. There is no dispute with this fact. They have only been seconded or transferred for a limited period of time to another organization, CIOP, in order to utilize their technical expertise in the latter. The secondment agreement between CIOP and the overseas entity, and the agreement WP(C) No. 6807/2012 Page 41 between CIOP and the employees, envisages an end to this exception, and a return to the usual state of affairs, when the secondees return to the overseas entities. The employment relationship between the secondee and the overseas organization is at no point terminated, nor is CIOP given any authority to even modify that relationship. The attachment of the secondees to the overseas organization is not fraudulent or even fleeting, but rather, permanent, especially in comparison to CIOP, which is admittedly only their temporary home. Today, CIOP attempts to cast that employment relationship as a tenuous link because, for the duration of the secondment, CIOP pays the salary of these. Even here, the salary is ultimately paid through the overseas entity, which is not a mere conduit. Crucially, the social security, emoluments, additional benefits etc. provided by the overseas entity to the secondee, and more generally, its employees, still govern the secondee in its relationship with CIOP. It would be incongruous to wish away the employment relationship, as CIOP seeks to do today, in the face of such strong linkages. Whilst CIOP may have operational control over these persons in terms of the daily work, and may be responsible (in terms of the agreement) for their failures, these limited and sparse factors cannot displace the larger and established context of employment abroad.
The SLP against the above decision was dismissed by the Supreme Court. It, therefore, appears that the Supreme Court has already settled the dispute in the context of secondment transactions that there does not exist an employer – employee relationship between the domestic company and the seconded employee, but rather it is a contract for service between the foreign company and the domestic company.
Interestingly, very recently (after the decision in the case of NOS was pronounced), the Karnataka HC has in the case of Flipkart Internet Private Limited vs. Dy. Commissioner of Income Tax [2022-VIL-156-KAR-DT] dealing with secondment transactions, held as under:
37. Accordingly, the findings in the impugned order and the conclusion regarding the employer-employee relationship is based on a wrong premise and is liable to be set aside. As observed by this Court in Director of Income Tax (International Taxation) vs. Abbey Business Services India (P.) Ltd.((2020) 122 Taxmann.Com 174 (Kar)), “it is also pertinent to note that the Secondment Agreement constitutes an independent contract of services in respect of employment with assessee.” Hence, the DCIT in the impugned order has missed this aspect of the matter and has proceeded to consider the aspect of rendering of service as to whether it was ‘FIS’.
(emphasis added)
In this case, the HC has distinguished the NOS judgment as under:
(x) It needs to be noted that the judgment rendered was in the context of service tax and the only question for determination was as to whether supply of manpower was covered under the taxable service and was to be treated as a service provided by a Foreign Company to an Indian Company. But in the present case, the legal requirement requires a finding to be recorded to treat a service as ‘FIS’ which is “make available” to the Indian Company.
It, therefore, remains to be seen if the decision in Flipkart survives before the Supreme Court or not on appeal, if preferred by the Revenue.
Valuation: Does pure agent apply?
The decision is also glaringly silent on the valuation point raised by NOS. It was argued on behalf of NOS that the costs reimbursed to the foreign group companies should be excluded from the value of taxable service in view of Rule 5 of Service Tax (Determination of Value) Rules, 2005. They had also relied upon the decision in the case of Intercontinental Consultants.
It is imperative to note that in the current case, NOS makes the following payments to the foreign group company:
a) Reimbursement towards various payments made to the seconded employees by the foreign group company at cost.
b) Administrative cost, being 1% of the total payment made by the foreign group company to the seconded employees.
As such, there is a strong basis to argue that the value of service, if any provided by the foreign group company, should have been restricted to 1% of the service fees and the reimbursement component should have been excluded from the value of taxable supply, especially for the period upto 13th May, 2015.
The conclusion in the case of Centrica Offshore on the valuation front may also bear relevance to the current case. The SC has held as under:
38. The mere fact that CIOP, and the secondment agreement, phrases the payment made from CIOP to the overseas entity as reimbursement? cannot be determinative. Neither is the fact that the overseas does not charge a mark-up over and above the costs of maintaining the secondee relevant in itself, since the absence to mark-up (subject to an independent transfer pricing exercise) cannot negate the nature of the transaction. It would lead to an absurd conclusion if, all else constant, the fact that no payment is demanded negates accrual of income to the overseas entity. Instead, the various factors concerning the determination of the real employment link continue to operate, and the consequent finding that provision of employees to CIOP was the provision of services to CIOP by the overseas entities triggers the DTAAs. The nomenclature or lesser-than-expected amount charged for such services cannot change the nature of the services. Indeed, once it is established, as in this case, that there was a provision of services, the payment made may indeed be payment for services – which may be deducted in accordance with law – or reimbursement for costs incurred. This, however, cannot be used to claim that the entire amount is in the nature of reimbursement, for which the tax liability is not triggered in the first place. This would mean that in any circumstance where services are provided between related parties, the demand of only as much money as has been spent in providing the service would remove the tax liability altogether. This is clearly an incorrect reasoning that conflates liability to tax with subsequent deductions that may be claimed.
One may interpret the above as under:
a) If the reimbursement is on a pure cost basis, without there being any element of charges for the “service” rendered, the claim of reimbursement may fall through.
b) However, if there is a service charge levied along with the reimbursement of cost, a taxpayer may claim the benefit of excluding such reimbursement from the scope of value of supply provided the pure agent conditions are satisfied to do so.
Other points
The judgment is also silent on the reliance placed on the decision in the case of Nissin Brake, where the revenue appeal was dismissed as being without merits. While admittedly, the Volkswagen India appeal was delayed on account of delay in filing, which was not condoned and, therefore, could not be said to have precedential value, the same logic may not extend to the Nissin Brake decision.
IMPLICATIONS UNDER GST
Coming to GST, the first question that may arise is the applicability of this decision under GST. This may need analysis from the perspective of cross-border transactions as well as domestic transactions.
In the case of cross-border transactions, it can be said that the decision in the context of NOS will squarely apply since the provisions under service tax and GST, so far as pertaining to the import of service, are identical. Further, it should be kept in mind that the SC has dismissed the plea of revenue neutrality, i.e., tax paid under RCM was eligible for credit, and therefore, demand fails. In such a circumstance, when a person is entitled to claim credit, a prudent tax position would be to pay tax under reverse charge and claim credit, even if the same leads to a temporary cash flow issue.
When it comes to domestic transactions, there are two scenarios which may prevail, one being inter-company and the second being intra-company in view of the deeming fiction provided under Schedule I, Entry 2, which deems supply of services between related persons or distinct persons as supply, even if made without consideration. This deeming fiction creates a liability on the supplier to pay tax on the value to be determined as per the prescribed Rules. However, not all cases will fall under secondment in the case of domestic transactions.
For example, a holding company handles the administrative aspect of all its group companies through its staff. This may not be treated as “secondment” or “deputation”. When can the case of “secondment” arise may be understood with the help of the following example.
A hospital chain, having a presence in multiple states, may deploy its specialist doctor who is based in a particular state (say Maharashtra) to its hospital in another state (Gujarat) for an emergent case and returns after completion of treatment. This may not qualify as manpower supply service, but rather health care services. However, when an employee stationed in Maharashtra is sent to Gujarat for a specified period and treats all the patients there, it may be said that the Maharashtra branch has actually supplied manpower to the Gujarat branch, and the same may be perhaps treated as manpower supply services. The following decisions under service tax may be relevant for this discussion:
a) In Future Focus Infotech India (P) Ltd. vs. CST, Chennai [2010 (18) STR 308 (Tri.-Che.)], the Tribunal has, while determining if a particular service constitutes manpower supply service or IT Software Service, held as under:
11. The learned special counsel further points out that the manpower supplied have to work under the guidance and control of TCS and Infosys. The appellants have no mandate to execute any work independently as normally a consulting engineer would do. He also brings it to our notice that if a person leaves, the appellants are required to provide suitable substitute. This indicates that the appellants are responsible only for supplying manpower, and they are not responsible for completion of any software project per se.
13. No doubt there are clauses relating to deliverables and quality of work in the contracts but these by themselves do not indicate that the appellants are providing information technology software services to TCS and Infosys. Any person or organization obtaining skilled personnel has to ensure that such men deliver work of standard quality. No one would employ a person who is not skilled enough and no one would pay for shoddy work even if done by a skilled man. The relevant clauses in the contract in this regard on which much emphasis was sought to be put by the learned senior counsel for the appellants have to be viewed in the light that TCS and Infosys are merely seeking to obtain personnel from the appellants with necessary skill who will work diligently on the projects undertaken by TCS and Infosys.
b) Interestingly, on the very same day, the same bench has in another case, Cognizant Tech Solutions (I) Pvt. Ltd. vs. Commissioner, Chennai [2010 (18) STR 326 (Tri.-Che.)], has held in a case involving slightly different facts, that services provided would not constitute manpower supply services, as under:
10. We find force in the contentions made by the appellants that the work force recruited and retained by the appellants are required to work under a project manager appointed by the appellants who has to act as single point of contact being responsible for overall management of the project. From the arguments advanced from both sides, it is clear that the learned special counsel for the Department is not disputing that in the second stage of the project, the appellants would be providing functional service to Pfizer. It is also not in dispute that such functional service relating to data management, bio statistics and reporting will be provided through the very same manpower which has been recruited, retained and trained during the first phase. It has to be appreciated that recruitment and training precedes provision of specialized services. If it is accepted that the same manpower will be providing specialized functional services to Pfizer in the second phase of the contract, it is logical to conclude that the manpower has been retained with the appellants during the first phase and not supplied to Pfizer though recruitment of manpower has no doubt been done at the instance of Pfizer. The assistance in recruitment provided by Pfizer to select suitable personnel and subsequent training provided by Pfizer is also understandable considering the strict standards Specified by FDA of USA, the export market for the pharmaceutical products of Pfizer. The assistance in recruitment and imparting of specialized training for the recruited personnel cannot be held against the appellants’ claim that they have not supplied the manpower but have merely recruited and retained the same for providing specialized services to Pfizer utilizing such manpower. Moreover, we find that the nature of services required to be provided by the appellants are in the nature of information technology services as the same relates to data management. Consequently, we hold that the appellants are not liable to pay Service tax in respect of the services provided by them to Pfizer under the impugned contract. Therefore, we also hold that they are eligible for the small scale exemption in respect of the small value of services provided by them to M/s. SAP LABS India Pvt. Ltd. which is below the exemption limit of Rs. 4 lakhs.
c) Lastly, in a recent decision, the Supreme Court dealt with the issue of whether a particular activity constituted job-work or manpower supply in the case of Adiraj Manpower Services Private Limited vs. CCE, Pune [2022-VIL-12-SC-ST] and held as under:
16. The substratum of the agreement between the appellant and Sigma deals with the regulation of the manpower which is supplied by the appellant in his capacity as a contractor. The fact that the appellant is not a job worker is evident from a conspicuous absence in the agreement of crucial contractual terms which would have been found had it been a true contract for the provision of job work in terms of Para 30(c) of the exemption notification.
There is a complete absence in the agreement of any reference to:
(i) the nature of the process of work which has to be carried out by the appellant;
(ii) provisions for maintaining
(a) the quality of work;
(b) the nature of the facilities utilised; or
(c) the infrastructure deployed to generate the work;
(iii) the delivery schedule;
(iv) specifications in regard to the work to be performed; and
(v) consequences which ensue in the event of a breach of the contractual obligation.
It can always be argued in the case of intra-company supplies that the employer – employee relationship exists between the employee and the legal entity, and therefore, even if there is intra-company secondment, the same cannot be treated as supply. However, it should be noted that for the purpose of GST law, the branches in different states/ UT of the same entity are deemed to be distinct persons. Generally, for the purpose of accounting as well as profession tax compliances, an employer is required to tag each employee to a particular branch. Therefore, if an employee in one branch is deputed to another branch, there would be a supply, and therefore, if the cost is booked in one branch, the same should also be factored in determining the value of intra-branch supplies. This aspect has also been clarified by AAAR in the case of Columbia Asia Hospitals Private Limited [2019 (20) GSTL 763 (AAAR-GST-Kar.)]. However, when the benefit of proviso to Rule 28 is available, i.e., the receiving branch is entitled for full input tax credit, since the transaction value is to be accepted, inclusion/exclusion of employee cost from the value of supply may not matter.
CONCLUSION
With the Supreme Court negating the revenue–neutrality argument, which was considered a strong response to demands for cases where credit was available, this decision will trigger the need to re-look at positions not only in the case of cross-border transactions, but also in domestic transactions, where the GST law deems existence of a supply and need to pay tax. Especially, where the input tax credit is available, it is always prudent that businesses pay the tax upfront and avail the credit, rather than awaiting a confrontation with the tax authorities.
Highly motivated by it, we let ourselves go unrestrained in deciding our goals. The idea was to set the task tall and then give blood and soul to achieve it no matter whether we succeed or not. As they say in Gujarati, 
… From that standpoint, I am happy to say that in this one year, we have tried to give best to ensure that those wishes — some of them indeed wild — translate into reality.
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BCAS is the institution where you make friends for life. These are the real friends who will stand by you come whatever it may. The opportunity to network that BCAS provides across platforms is amazing and has definitely contributed to my personal progress, even without seeking the same.
is part of Ancient Indian Scriptures dealing with the study of face reading, aura reading, and whole body analysis1. The Sanskrit term “Samudrika Shastra” translates roughly as “knowledge of body features.” It is related to astrology and palmistry (Hast-samudrika), as well as phrenology (kapal-samudrika) and face reading (physiognomy, mukh-samudrika). It is now scientifically proven that humans communicate not only through words but also through gestures, actions, aura, thoughts, etc. Collectively they are known as “aids to communication”.
