Reimbursement of Expenses incurred by Employees deputed from Foreign falls under “Manpower Recruitment and Supply”: CESTAT Bangalore

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore on 03^rd February adjudicated matter compiling several petitions between M/s Dell International Services and Revenue Department.

The appellant is a subsidiary of Dell International LLC. And Dell India Private Limited is a company incorporated under the Companies Act, 1956 with its registered office in Bangalore. It is engaged, in the business of import and sale of storage units, servers, notebooks and peripherals such as projector and monitors. It also provides various other services such as “erection, commissioning or installation” services, “management maintenance or repair” services, “information technology software” services and “business auxiliary service”.

During the period from 2006 to 2010, the employees of group companies of the appellant were deputed to India and salaries and expenses of the deputed employees were paid by the group companies and the same was reimbursed from the respective group of companies. The reimbursed amount was grouped under “salary cost” in the “Profit and Loss Account” of the appellant.

It was noticed during the Audit of the records that the expenses incurred in foreign currency were leviable to service tax under the category of “manpower recruitment or supply agency” services with effect from 16^th June 2005 under the reverse charge mechanism in terms of Section 66A of the Finance Act, 1994. Therefore, show cause notice was issued to the appellant.

The Authority observed that the Supreme Court of India has decided in Commissioner of Customs, Central Excise & Service Tax-Bangalore (Adjudication) ETC. v/s M/s Northern Operating System Pvt. Ltd. (2022). Where it was held that the assessee was recipient for service of “manpower recruitment and supply” services by overseas entity and held they are liable to pay service tax. Consequently, this authority relying on SC’s judgement held that the appellant is liable for service tax. However, it held that the demand for the extended period of limitation is malafide, thus no interest is payable.