Alstom TandD India Ltd vs LTU CHENNAI
- Court
- Customs, Excise and Service Tax Appellate Tribunal
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Service Tax Appeal No.40842 of 2016
(Arising out of Order in Original No. LTUC/39-A/2016-C dated 21.01.2016 passed by
the Commissioner of Central Excise (LTU), Chennai)
M/s. Alstom T & D India Ltd., Appellant
FSSC Building, 19/1 GST Road, Pallavaram,
Chennai 600 043.
Vs.
Commissioner of GST and Central Excise Respondent
Chennai Outer Commissionerate,
Newry Towers, No. 2054/1, II Avenue,
th
12 Main Road, Anna Nagar, Chennai – 600 040.
And
Service Tax Appeal No.41110 of 2016
(Arising out of Order in Original No. LTUC/39-A/2016-C dated 21.01.2016 passed by
the Commissioner of Central Excise (LTU), Chennai)
Commissioner of GST and Central Excise Appellant
Chennai Outer Commissionerate,
Newry Towers, No. 2054/1, II Avenue,
th
12 Main Road, Anna Nagar, Chennai – 600 040.
Vs.
M/s. Alstom T & D India Ltd., Respondent
FSSC Building, 19/1 GST Road, Pallavaram,
Chennai 600 043.
APPEARANCE:
Shri Joseph Prabhakar, Advocate for the Assessee
Shri M. Selvakumar, Authorised Representative for the Revenue
CORAM
Hon’ble Shri P. Dinesha, Member (Judicial)
Hon’ble Shri M. Ajit Kumar, Member (Technical)
FINAL ORDER NOS. 41140 & 41141/2026
Date of Hearing : 04.05.2026
Date of Decision: 29.10.2026
Per M. Ajit Kumar,
Both the appeals arise out of Order-in-Original No. LTUC/39-
A/2016-C dated 21.01.2016, passed by the Commissioner of Central
2
Excise (LTU), Chennai. These appeals were heard together and are
being disposed of by this common order.
Brief Facts
2. The appellant is registered with the Service Tax Department for
providing Business Auxiliary Service and also holds Input Service
Distributor (ISD) registration, under which it avails CENVAT credit of
service tax paid on input services and utilises the same for payment of
service tax, besides distributing such credit to its other units in terms
of Rule 7 of the CENVAT Credit Rules, 2004. During internal audit, it
was observed that foreign group companies of Alstom had deputed
employees to the appellant for specified periods. The appellant made
foreign-exchange payments towards their remuneration and services
to the employees and associated companies and also incurred
expenses towards school fees, travel and other incidental expenses.
The Department took the view that, prior to July 2012, the activity was
liable to service tax under the category of “Manpower Supply Agency
Service” under Section 65(68) of the Finance Act, 1994, on reverse
charge basis under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. For
the period from July 2012, the activity was considered taxable as a
“service” under Section 65B(44), with liability on the appellant under
Rule 2(1)(d)(i)(G) of the Service Tax Rules read with Rule 3 of the
Place of Provision of Services Rules, 2012. Since no service tax was
discharged, a Show Cause Notice dated 14.10.2014 proposed demand
of Rs.1,48,34,825/- under Section 73(1), along with interest and
penalty under Section 78 of the Finance Act, 1994, alleging suppression
with intent to evade payment of tax. Upon adjudication, the demand
of Rs.93,75,322/- for the period up to June 2012 was dropped.
3
However, the demand of Rs.54,59,503/- for the period from July 2012
onwards was confirmed, along with an equivalent penalty under
Section 78. Aggrieved by the confirmation of the demand for the period
from July 2012 onwards, the appellant has preferred the present
appeal before the Tribunal. The Revenue, being aggrieved by the
dropping of the demand for the period up to June 2012, has also
preferred an appeal before us.
Appeal No.41110 of 2016 (Department Appeal)
3. The Adjudicating Authority dropped the demand of ₹ 93,75,322/-
for April 2010 to June 2012, but confirmed 54,59,503/- for the period
₹
from July 2012 onwards. Aggrieved by the dropping of the pre-July
2012 demand, the Department has filed this appeal on the following
grounds:
A. Having held in paragraphs 10 to 16 of the impugned order that
no employer-employee relationship existed between ATIL and the
deputed foreign personnel, the Adjudicating Authority ought to have
applied the same finding to the pre-July 2012 period, as the facts
remained unchanged.
B. The Adjudicating Authority failed to consider CBEC Circular No.
96/7/2007-ST dated 23.08.2007, which clarifies that the employer-
employee relationship in manpower supply arrangements exists
between the supplying agency and the personnel. Under the
International Mobility Agreement, the expatriates remained employees
of the French Home Unit, which governed their salary, social security,
pension, insurance and employment rights.
C. The expatriates' temporary deputation to the Indian Host Unit,
with their original employment merely held inactive, constituted
4
Manpower Recruitment or Supply Agency Service, rendering the
assessee liable to service tax under the reverse charge mechanism.
Submissions made by the Assessee
4. Shri Joseph Prabhakar, the Ld. Counsel for the Appellant-
Assessee. In his common submissions made in respect of Appeal No.
ST/40842/2016 and Appeal No. ST/41110/2016, he submitted that:
A. The SCN dated 14.10.2014 was issued demanding Service Tax
of Rs.1,48,34,825/- for the periods 2010 to March 2014. The appellant
had paid Rs.88,83,203/- under protest on 25.03.2014, which was
appropriated to the extent of the confirmed demand.
B. The appellant submitted that the secondment arrangement
created a genuine employer-employee relationship. The employees
were paid salary in Indian currency, TDS was deducted under the
Income-tax law, statutory labour requirements were complied with,
and the employees remained under the exclusive control and
supervision of the appellant during the period of secondment. The
arrangement was, therefore, in the nature of employment and stood
outside the scope of taxable service.
C. The appellant distinguished the decision of the Hon’ble Supreme
Court in Northern Operating Systems Pvt. Ltd. , 2022-TIOL-48-SC-ST-
LB, on facts. Relying on the decision of the Karnataka High Court in
Alstom Transport India Ltd. , reported as 2025-TIOL-1159-HC-KAR-
GST, it was submitted that, in Northern Operating Systems , the foreign
entity had levied a mark-up on salary reimbursements, which was a
material factor in treating the arrangement as a service transaction.
No such mark-up was involved in the present case. The appellant relied
on the Karnataka High Court’s finding that where seconded employees
5
are under the exclusive administrative and functional control of the
Indian entity, integrated into its organisation, paid salary by it,
subjected to TDS and extended statutory employment benefits, a
genuine employer-employee relationship exists and the transaction is
not taxable.
D. As regards invocation of the extended period, the appellant relied
upon Nissan Motor India Pvt. Ltd. , Final Orders Nos. 41473-
41475/2024 dated 07.11.2024, wherein the Tribunal held that the
issue of manpower supply services involving overseas entities was
complex and that clarity emerged only with the decision of the Hon’ble
Supreme Court in Northern Operating Systems . It was therefore
submitted that suppression of facts or mala fide intent could not be
attributed to the appellant and that the extended period and penalty
were not sustainable.
E. The appellant submitted that the demand confirmed for July
2012 to March 2014 was liable to be set aside on merits as well as on
limitation. Consequently, the entire amount of Rs.88,83,203/- paid
under protest on 25.03.2014 was liable to be refunded with applicable
interest.
Submissions made by Revenue
5. Ld. AR Shri. M. Selvakumar appeared for the department and
submitted that:.
A. The deputation of foreign personnel to Alstom India constituted
Manpower Recruitment or Supply Agency Service under Sections
65(68) and 65(105)(k) of the Finance Act, 1994.
B. The expatriates continued to be employees of the foreign Home
Unit under the International Mobility Agreement, while their temporary
6
assignment to Alstom India was governed by the relevant agreements.
The arrangement, therefore, attracted service tax under the reverse
charge mechanism.
C. The plea of revenue neutrality was untenable, as service tax
under the reverse charge mechanism was required to be paid in cash,
with CENVAT credit being available only subsequently. The non-
payment of tax thus enabled the assessee to retain and utilise the
funds for its business activities.
Analysis
6. Heard both sides and have carefully perused the appeal
memorandum and written submissions of both the parties. The issues
for determination are:
A. Taxability prior to 01.07.2012 : Whether the deputation of
employees by foreign group companies to the appellant constituted
Manpower Recruitment or Supply Agency Service under Sections
65(68) and 65(105)(k) of the Finance Act, 1994, attracting service tax
under the reverse charge mechanism.
B. Taxability from 01.07.2012 : Whether the secondment
arrangement constituted a taxable service under Section 65B(44) of
the Finance Act, 1994, read with Rule 3 of the Place of Provision of
Services Rules, 2012, and whether the appellant was liable to pay
service tax under reverse charge.
C. Employer-employee relationship : Whether the seconded
expatriates were employees of the appellant or continued to be
employees of the foreign group companies, having regard to the
International Mobility Agreements, employment agreements, payment
7
of salaries, statutory deductions, and the appellant’s control and
supervision.
D. Applicability of Northern Operating Systems : Whether the
principles laid down by the Hon’ble Supreme Court in Northern
Operating Systems Pvt. Ltd. apply to the appellant’s secondment
arrangements, or whether the facts are distinguishable in view of the
decision of the Karnataka High Court in Alstom Transport India Ltd.
E. Limitation and penalty : Whether the extended period of
limitation under the proviso to Section 73(1) was invocable on the
allegation of suppression with intent to evade payment of service tax
and whether the penalty imposed under Section 78 was sustainable.
F. Revenue neutrality and consequential relief : Whether the
appellant’s plea of revenue neutrality is tenable, having regard to the
requirement of payment of service tax under reverse charge in cash,
and whether the appellant is entitled to refund of the amount paid
under protest, with applicable interest, if the demand is set aside.
G. Departmental appeal : Whether the Adjudicating Authority was
justified in dropping the demand of ₹ 93,75,322/- for April 2010 to June
2012, or whether the deputation arrangement constituted a taxable
manpower supply service during that period.
Agreements
7. The whole tax liability depends on the terms and conditions
between the secondee the Home Unit and the Host Unit. It would hence
be apposite to summarise the salient features of the ‘International
Mobility Agreement’ (IMA), as extracted in the OIO and stated
below:
8
Summary of the IMA
i. The International Mobility Agreement amends, and is
to be be read with, the employee’s principal Home Unit
Employment Agreement and the Long Term Assignment
Policy (LTAP). If there is a conflict, the Home Unit
Employment Agreement prevails.
ii. The assignment to the Indian Host Unit is temporary.
Any local employment contract required by Indian law
operates only locally and is not to be combined with the
Home Unit contract.
iii. The assignment is conditional upon the employee
obtaining the necessary immigration and work
authorisations.
iv. The employee continues to be employed by ALSTOM
Grid SAS-PEM Unit, Massy, France (Home Unit), while being
assigned to work for ALSTOM T&D India Ltd–SEI Unit, New
Delhi (Host Unit).
v. The employee serves as Project Director, reports to
the Host Unit’s Operations Director, and is assigned initially
for 24 months from about 1 March 2013, subject to visa
issuance. Any extension must be in writing and have
immigration approval.
vi. The assignment may be terminated early under the
LTAP without affecting the subsisting Home Unit
Employment Agreement.
vii. The personnel will continue to participate in the Home
Unit Social Security and Pension Plans. They will be enrolled
in the following pension and medical insurance schemes to
which the Company will make the necessary contributions.
The contributions will be based on their Home Unit Gross
Reference Base Salary.
a. Social security & basic pension
b. Complementary pension
c. Complementary International Medical Coverage
d. Death & disability plan
e. Unemployment scheme
f. Emergency health & safety assistance
viii. India is the primary place of assignment, although
duties may be performed in other countries.
ix. The Home Unit gross reference base salary is EUR
85,680 per year and is reviewed under Home Unit rules.
9
x. Net expatriate assignment remuneration is calculated
under the LTAP and paid through the Host Unit payroll. It is
recalculated annually for changes in the Home Unit salary,
exchange rates, cost and quality of living, tax and social-
security rates.
xi. The employee continues in Home Unit social-security,
pension, medical, death and disability, unemployment, and
emergency-assistance schemes; contributions are based on
the Home Unit reference salary.
xii. French labour law governs matters not specifically
dealt with in the Agreement, subject to mandatory host-
country law, and French courts have exclusive jurisdiction.
xiii. Termination-related entitlements on resignation,
dismissal or retirement are calculated under Home Country
legislation. Any local termination payment made by the Host
Unit is deducted from the amount due from the Home Unit.
7.1 The important terms of the 'Employment Agreement' are as
follows -
i. The agreement establishes the terms and conditions
of employment of the employee with Alstom India;
ii. These terms apply in conjunction with the mandatory
legal provisions of the labour laws in India and other
mandatory statutory regulations of this country;
iii. The employee is subject to the 'General Regulations
of Employment of Alstom India as well as other instructions
or directives issued by it;
iv. The salary due to the employee shall be paid from the
Indian payroll of Alstom India;
v. Similarly, the employee is eligible to special
allowances as per the policies of Alstom India;
vi. Income Tax payable on the remuneration shall be
deducted from the employee's salary as per the tax laws of
India and the employee shall file personal Tax returns as per
Indian Income Tax rules;
vii. Alstom India will provide the employee with
accommodation and transportation;
8. The material terms of the International Mobility Agreement are
significant. The agreement amends and is to be read with the
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employee's principal Home Unit Employment Agreement and the Long
Term Assignment Policy. In the event of a conflict, the Home Unit
Employment Agreement prevails. The assignment to India is
temporary, and any local employment contract required by Indian law
is to operate separately without being combined with the Home Unit
contract. The employee continues to be employed by the foreign Home
Unit, and the assignment may be terminated without affecting the
subsisting Home Unit Employment Agreement.
9. The agreement further provides that the employee's reference
salary is determined under the Home Unit's rules, while the expatriate
remuneration is calculated under the Long Term Assignment Policy.
The employee continues to enjoy the Home Unit's social security,
pension, medical, insurance and other benefits, with contributions
linked to the Home Unit reference salary. French law governs matters
not specifically dealt with in the agreement, subject to mandatory
Indian law, and French courts have exclusive jurisdiction. These
provisions indicate that the foreign employment relationship was not
extinguished upon deputation to India.
10. It is seen that the appellant exercised operational control over
the expatriates, assigned their duties and paid their remuneration
through its payroll. The deduction of income tax at source and
compliance with Indian employment requirements are also relevant
circumstances. However, these factors cannot be considered in
isolation from the contractual arrangement as a whole. The question is
not merely who supervised the employees in their day-to-day work,
but whether, in substance, the foreign group company made its
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personnel available to the appellant under the secondment
arrangement.
11. The employer–employee relationship can be summarised as
under:
i)
Home Unit: The Agreement expressly preserves the employee’s
continuing employment with the French Home Unit and the
employer-employee relationship is clearly discernible between
the two. The Home Unit contract remains operative and
paramount; the reference salary, social-security and pension
base, governing law, jurisdiction and ultimate termination
entitlements remain tied to France.
ii)
Host Unit: The Indian Host Unit receives and directs the
employee’s services during the assignment, provides the
reporting line and pays assignment remuneration through its
payroll. Any local contract is expressly confined to local
regulatory purposes.
iii)
Overall legal character: The arrangement with the Host Unit is
a temporary secondment/deputation, not an outright transfer of
employment. The Host Unit has day-to-day operational control,
but the enduring or substantive employment nexus remains with
the Home Unit. At most, the documents create a limited
concurrent/local employment relationship with the Host Unit
during the assignment.
Judgments
12. In C.C., C.E. & S.T. – Bangalore (Adjudication) Vs Northern
Operating Systems Pvt. Ltd . [2022 (61) G.S.T.L. 129 (S.C.)], the
Hon'ble Supreme Court held that the nature of a secondment
12
arrangement must be determined by examining the agreements and
the substance of the transaction, rather than its nomenclature. The
Court held that, on the facts before it, the overseas group company
provided manpower supply services to the Indian entity. It was held
that 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 courts have consistently applied one test: substance
over form, requiring a close look at the terms of the contract, or the
agreements. The Hon’ble Court held:
"34. 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 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 (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. The crux of the issue
is the taxability of the gross charge, which is primarily based
on who should be reckoned as an employer of the secondee.
If the Indian company is treated as an employer, the
payment would in effect be reimbursement and not
chargeable to tax in the hands of the overseas entity.
However, in the event the overseas entity is treated
as the employer, the arrangement would be treated
as service by the overseas entity and taxed.
*
46. From the above discussion, it is evident, that prior to
July 2012, what had to be seen was whether a (a) person
provided service (b) directly or indirectly, (c) in any manner
for recruitment or supply of manpower (d) temporarily or
otherwise. After the amendment, all activities carried out by
one person for another, for a consideration, are deemed
13
services, except certain specified excluded categories. One
of the excluded category is the provision of service by an
employee to the employer in relation to his employment.
*
49. A co-joint reading of the documents on record show
that:
(i) Attachment 1 to the service agreement ensures that the
overseas group company assigns, inter alia, certain tasks to
the assessee, including back office operations of a certain
kind, in relation to its activities, or that of other group
companies or entities;
(ii) The assessee is paid a mark up of 15% of the overall
expenditure it incurs, by the overseas company (clause 2,
read with attachment 1 ST/3195/2011 and others.
of the Service Agreement);
(iii) By the Secondment Agreement, the parties agree that
the overseas employee is temporarily loaned to the
assessee (Article I read with the Schedule);
(iv) During the period of secondment, the assessee has
control over the employee, i.e. it can require the seconded
employee to return, and likewise, the employee has the
discretion to terminate the relationship (Article II);
(v) The overseas employer (group company) pays the
seconded employee, which is reimbursed to the overseas
company, by the assessee (Article III);
(vi) The assessee is responsible for the work of the seconded
employee, i.e., the overseas employer, during the
secondment period, is absolved of any liability for the job or
work of its seconded employees (Article VII);
(vii) The secondment is for a specified duration, and the
employment with the assessee ceases upon the expiration
of that period (Article II of the secondment agreement and
the "Duration" clause in the letter of understanding with the
seconded employee);
(viii) The letter of understanding issued to the seconded
employee specifies that the tenure with the assessee is an
assignment (in one place, the term used is "At its
conclusion, repatriation will be in accordance with the Global
Mobility Repatriation Policy");
(ix) The terms include the salary payable as well as other
allowances, such as hardship allowance, vehicle allowance,
servant allowance, paid leave, housing allowance, etc. The
nature of salary and other perks underscore the fact that
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the seconded employees are of a certain skill and possess
the expertise, which the assessee requires.
50. The above features show that the assessee had
operational or functional control over the seconded
employees ; it was potentially liable for the performance of
the tasks assigned to them. That it paid (through
reimbursement) the amounts equivalent to the salaries of
the seconded employees - because of the obligation of the
overseas employer to maintain them on its payroll, has two
consequences: one, that the seconded employees continued
on the rolls of the overseas employer; two, since they were
not performing jobs in relation to that employer's business,
but that of the assessee, the latter had to ultimately bear
the burden. There is nothing unusual in this arrangement,
given that the seconded employees were performing the
tasks relating to the assessee's activities and not in relation
to the overseas employer. To put it differently, it would
be unnatural to expect the overseas employer to not
seek reimbursement of the employees’ salaries, since
they were, for the duration of secondment, not
performing tasks in relation to its activities or
business.
*
54. The letter of understanding between the assessee and
the seconded employee nowhere states that the latter would
be treated as the former’s employees after the seconded
period (which is usually 12-18 months). On the contrary,
they revert to their overseas employer and may in fact, be
sent elsewhere on secondment. The salary package, with
allowances, etc., are all expressed in foreign currency (e.g.,
US $ 330,000/- per annum in the letter produced before
court, extracted above). Furthermore, the allowances
include a separate hardship allowance of 20% of the basic
salary for working in India. The monthly housing allowance
in the specific case was Rs. 366,700/-. In addition, an
annual utility allowance of Rs. 3,97,500/- is also assured.
These are substantial amounts, and could have been only
by resorting to a standardized policy, of the overseas
employer.
55. The overall effect of the four agreements entered into
by the assessee, at various periods, with NTS or other group
companies, clearly points to the fact that the overseas
company has a pool of highly skilled employees, who are
entitled to a certain salary structure- as well as social
security benefits. These employees, having regard to their
expertise and specialization, are seconded (a term
synonymous with the commonly used term in India,
deputation) to the concerned local municipal entity (in this
case, the assessee) for the use of their skills. Upon the
cessation of the term of secondment, they return to
15
their overseas employer, or are deployed on some
other secondment.
*
57. Taking a cue from the above observations, while the
control (over performance of the seconded employees'
work) and the right to ask them to return, if their functioning
is not as is desired, is with the assessee, the fact remains
that their overseas employer in relation to its business,
deploys them to the assessee, on secondment. Secondly,
the overseas employer- for whatever reason, pays them
their salaries. Their terms of employment - even during the
secondment - are in accord with the policy of the overseas
company, who is their employer. Upon the end of the period
of secondment, they return to their original places, to await
deployment or extension of secondment.
*
65. It is held, for the foregoing reasons, that the 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. Furthermore,
in view of the above discussion, the invocation of the
extended period of limitation in both cases, by the
revenue is not tenable.
66. In light of the above, the revenue’s appeals succeed in
part; the assessee is liable to pay service tax for the periods
spelt out in the SCNs. However, the invocation of the
extended period of limitation, in this court’s opinion, was
unjustified and unreasonable. Resultantly, the assessee is
held liable to discharge its service tax liability for the normal
period or periods, covered by the four SCNs issued to it. The
consequential demands therefore, shall be recovered from
the assessee. "
(emphasis supplied)
13. The decision of this Tribunal in Renault Nissan Automotive
India Pvt. Ltd. Vs Commissioner of GST & Central Excise [2023
(7) TMI 635 (CESTAT, Chennai)], applies the principles laid down in
Northern Operating Systems to a secondment arrangement involving
overseas personnel. The Tribunal held that the arrangement
constituted manpower supply service on merits, while also holding that
16
the extended period of limitation was not invocable and that the
demand, if any, could survive only for the normal period.
14. In M/s. Nissan Motors India Private Ltd. Vs The
Commissioner of GST& Central Excise, Chennai [2023 (11) TMI
1429 - CESTAT CHENNAI (LB)], Final Order Nos. 41473–41475/2024,
dated 07.11.2024]. The majority decision applied the principles
governing secondment, limitation and quantification. The majority,
following Northern Operating Systems Pvt. Ltd. (supra), and the
Tribunal’s decision in Renault Nissan Automotive India Pvt. Ltd.
(supra), held that the secondment arrangement constituted manpower
supply. The fact that part of the remuneration was paid directly by the
Indian entity to the secondees, rather than remitted to Nissan Japan,
did not by itself exclude that component from the consideration for the
service. The entire salary, bonus and allowances, including the Indian-
currency component, were includible in the taxable value. The Tribunal
held:
“19.2 It is the Appellant's case that the payments made to
the secondee, held to be taxable in the impugned order, is
paid to the secondees in India by the appellant in Indian
Currency, and is not charged by Nissan on the Appellant and
hence does not represent ‘consideration’ for the service.
Hence, the salary, bonus and allowances paid by the
appellant to the secondee in India will not form a part of
consideration and cannot be taken for the purpose of
computing the value of the service.
19.3 Every agreement that is enforceable in law is a
contract in the realm of private law. All conditions including
‘consideration’, ‘breach’, ‘non-performance’ etc. are to be
understood between the parties accordingly. Its
understanding is governed by the provisions of the Contract
Act. Since the definition of consideration in a special act like
FA 1944 is an ‘inclusive’ one, it would be beneficial to look
at the definition of the said term under the Indian Contract
Act, 1872 also before reverting to FA 1994. In this case the
Contract Act complements the provisions of FA 1994 in
understanding the term ‘consideration’. ‘Consideration’ as
17
given under section 2(d) of the Indian Contract Act, 1872
states.
(d) When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is
called a consideration for the promise; (emphasis added)
19.4 To illustrate the definition with the impugned situation,
say if A enters into an agreement with B, to supply his
employee C to B. The contracting parties agree to split the
consideration for service rendered by A towards pay and
allowances of C on a formula indicated by A. A pays a part
of the salary to C (which is to be reimbursed to B by A) and
B pays the remaining part equal to the balance of salary to
C. This shows that there is a promise by A and a valid
consideration for the promise by B which is lawful and
enforceable by the contracting parties, though one of
the beneficiary of the contract is not a party to the
contract.
19.5 To elaborate on the example using the present facts
it can be stated, when Nissan makes a proposal for
deputation of secondees to the Appellant for a certain
consideration, which when accepted by the Appellant
becomes a promise. Then Nissan is the promisor and the
Appellant the promisee. The promise forming the
consideration is an agreement. Hence when at the desire of
Nissan, the Appellant has agreed to pay the consideration
as an amount in money to the secondee. This is further split
as per the desire of Nissan, and paid to the secondee directly
and also indirectly through Nissan (amount paid by Nisan
Japan to the secondee is reimbursed to Nissan by the
Appellant). Such an act involving the payment by the
Appellant of the gross amount of the contract for
supply of manpower by Nissan, as salary, bonus and
allowances to the secondee, is the consideration for
the promise made in the Agreement. In other words the
amount paid by the Appellant to the overseas manpower
supply service provider i.e. Nissan is the gross amount
charged by them as consideration for the services and is
equivalent to the salaries, bonus and allowances of the
seconded employees. The mode of this payment is by the
Appellant disbursing the monies to the secondee as per the
instructions of Nissan.
19.6 With the above understanding under the Contract Act,
the issue can be examined under FA 1994. Section 67 of the
finance act, 1994 has an inclusive definition of the term
consideration. Section 67(4)(a) during the relevant time
stated that consideration includes any amount that is
payable for the taxable services provided or to be provided.
18
Therefore, the following elements must be present to
constitute a valid consideration, namely:
(i) any amount
(ii) that is payable
(iii) for the taxable services
(iv) provided or to be provided
The nature and substance of the Agreement is with
regard to a proposal for deputation/ supply of
secondees to the Appellant made by Nissan and sets
the terms and conditions for the same. The quid-pro-
quo for the secondment agreement, (as mentioned in
Northern Operating System (supra)), where the
appellant has the benefit of experts for limited
periods, is implicit in the overall scheme of things.
Hence, as rightly pointed out by the learned AR, any amount
that is payable to the overseas supplier of manpower for the
taxable service, if paid or payable directly or indirectly to
the secondee at the behest of the supplier i.e. by both the
overseas supplier (reimbursable) plus the Appellant,
represents the gross consideration for the service provided
or to be provided. Since if this gross amount is not agreed
to be paid the deputation would not have taken place and
the Agreement would not be operable or if operative one of
the parties to the contract could sue the other for damages
for a breach or non-performance of the agreement as
mentioned in the Agreement itself.”
(emphasis added)
15. The appellant's reliance on the absence of a mark-up on the
salary reimbursements does not, by itself, distinguish the present case
from Northern Operating Systems. The absence of a profit element
does not necessarily mean that no service was supplied. Where the
contractual arrangement establishes that personnel were made
available by the foreign entity to the Indian recipient, the absence of a
separate mark-up cannot alone negate the service or the consideration
attributable to it. The nature of the transaction must be determined
from the agreement and the actual arrangement between the parties.
15.1 In Centrica India Offshore Pvt. Ltd. Vs CIT [(2014) 364 ITR
336 (Delhi), the Hon’ble Delhi High Court examined the taxability of
reimbursements in the context of the Income Tax Act. Though arising
19
under a different statute, the decision recognises that reimbursement
of expenses without any mark-up does not, by itself, alter the
character of the underlying payment or render it non-taxable
where it otherwise constitutes fees for technical or managerial
services (FTS) . The Court held:
“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 .”
(emphasis added)
[Also see: CIT (International Taxation) Vs Ernst & Young U.S.
LLP (Delhi High Court - (2026) 187 taxmann.com 711 (Delhi HC)]
18. The appellant relies on Alstom Transport India Ltd. Vs
Commissioner of Commercial Taxes , [2025-TIOL-1159-HC-KAR-
GST]. That decision concerns the GST regime and the application of
the relevant GST provisions and CBIC Circular No. 210/4/2024-GST
20
dated 26.06.2024. It does not displace the binding decision of the
Hon'ble Supreme Court in Northern Operating Systems governing the
earlier service-tax regime. The decision must, therefore, be considered
in its own statutory and factual context and cannot, by itself, determine
the present appeals.
16. Having regard to the terms of the International Mobility
Agreement, particularly the continuation of the Home Unit
employment, the temporary nature of the assignment and the
retention of employment-related rights and benefits under the foreign
arrangement, we find that the secondment cannot be regarded as
merely an arrangement under which the expatriates independently
entered into employment with the Indian entity. Applying the principles
laid down in Northern Operating Systems and Renault Nissan
Automotive India Pvt. Ltd ., we hold that the arrangement constituted
the supply of manpower by the foreign group companies to the
appellant.
17. For the period up to 30.06.2012, the arrangement is covered by
the definition of Manpower Recruitment or Supply Agency Service
under Sections 65(68) and 65(105)(k) of the Finance Act, 1994, read
with the applicable reverse charge provisions. For the period from
01.07.2012, the fact that the secondees rendered their services under
the appellant's supervision does not, by itself, bring the underlying
supply by the foreign group companies within the exclusion for services
provided by an employee to an employer under Section 65B(44). The
nature of the transaction must be distinguished from the employment
services rendered by the secondees in the course of their work. Hence
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the classification of service has been correctly done in the impugned
order.
Limitation and penalty
18. The Hon’ble Supreme Court in Easland Combines, Coimbatore
Vs Collector of Central Excise, Coimbatore [(2003) 3 SCC 410;
2003 (152) E.L.T. 39 (S.C.)] held that mere non-payment of duty or
failure to register, without fraud, suppression, or wilful misstatement,
does not justify the extended limitation period. Reaffirming this in
Uniworth Textiles Ltd. Vs Commissioner of Central Excise,
Raipur [2013 (288) E.L.T. 161 (S.C.)], the Court held that wilful
default requires a positive act revealing intent to evade duty. The
dispute relating to secondment is an interpretative one receiving clarity
after the judgment of the Hon’ble Supreme Court in Northern Operating
Systems. The period under dispute precedes the judgment, and hence
taxability by itself does not justify invoking the extended period under
the proviso to Section 73(1) of the Finance Act, 1994.
19. In Northern Operating Systems (supra), the Hon’ble Supreme
Court declined to sustain the extended period in the circumstances of
that case and restricted the demand to the normal period. This
principle was followed in Renault Nissan Automotive India Pvt. Ltd. and
the majority decision in Nissan Motors India Pvt. Ltd. , discussed above,
which also set aside the penalties.
20. We find that the issue involved an interpretational point of law
and Revenue has not demonstrated a deliberate attempt on the part
of the Appellant to evade payment of duty, therefore, we hold that the
extended period is not invokable considering the facts of the case and
the penalty under Section 78 is hence unsustainable.
22
Revenue Neutrality and Quantification
21. The appellant’s entitlement to CENVAT credit, does not
extinguish its reverse-charge service-tax liability by cash. However,
revenue neutrality is relevant to determining intent to evade tax and,
in this case, supports setting aside the extended period and penalty,
without extinguishing liability for the normal period. The legal issue has
been examined by this Bench in Toyota Kirloskar Motors Pvt. Ltd.
Vs Commissioner of Customs , Chennai [2026 (9) TMI 667 -
CESTAT CHENNAI / Final Order Nos 40998-41000/2026, dated:
08.09.2026] .
Departmental Appeal
22. Although the secondment arrangement was taxable even prior
to 01.07.2012, the Department’s appeal cannot succeed unless the
demand survives the normal limitation period. The show cause notice
was issued on 14.10.2014, and as per the discussions above the
extended period cannot be invoked.
23. The demand for April 2010 to June 2012 falls beyond the normal
period. Hence the demand dropped by the adjudicating authority
cannot, therefore, be restored.
Conclusion
24. In view of the foregoing discussion, we pass the following order:
(i) The assessee's appeal, ST/40842/2016, is partly allowed. The
finding of taxability of the secondment arrangement is upheld.
However, the demand for July 2012 to March 2014 is restricted to the
portion falling within the normal period of limitation. The matter is
remanded to the adjudicating authority solely for verification and re-
23
quantification of the demand and interest in accordance with this order
and the applicable provisions of law.
(ii) The penalty imposed under Section 78 of the Finance Act, 1994
is set aside. Interest under Section 75 shall be payable on the tax, if
any, surviving after such re-quantification, in accordance with law.
(iii) The Department's appeal, ST/41110/2016, is dismissed.
(iv) The appellant's claim for adjustment of credit or refund of the
amount paid under protest and any other consequential relief shall be
considered, after verification of the payments made, the demand
surviving under this order along with the interest due and the
applicable statutory requirements.
25. Both appeals are disposed of in the above terms.
(Order pronounced in open court on 29.10.2026)
Sd/- Sd/-
( M. AJIT KUMAR ) ( P. DINESHA)
Member (Technical) Member (Judicial)
Rex