COMMISSIONER OF CGST AND CENTRAL EXCISE PUNE-I vs EATON INDUSTRIAL SYSTEMS PVT LTD

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, MUMBAI

REGIONAL BENCH - COURT NO. 2

Service Tax Cross No. 85778 of 2018

in

Service Tax Appeal No. 86143 of 2018

[Arising out of Order-in-Appeal No. PUN-EXCUS-001-APP-0722/2017-18 dated 28.11.2017
passed by the Commissioner of Central Tax (Appeals-I), Pune.]

Commissioner of CGST & Central Excise … Appellant
Pune-I Commissionerate
41/A, Sasson Road
Pune – 411 001.
Versus

Eaton Industrial Systems Private Limited …. Respondent
B-33, MIDC, Ranjangaon
Taluk Shirur,
Pune – 412 208.

APPEARANCE:

Shri for the Appellant
Dhananjay Dahiwale, Authorized Representative

Shri Jay Chheda, Advocate along with Ms. Foram Cheeda, Chartered Accountant

CORAM:

HON’BLE MR. AJAY SHARMA, MEMBER (JUDICIAL)
HON’BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)


FINAL ORDER NO. A/86076/2026

Date of Hearing: 10.08.2026

Date of Decision: 02.09.2026

Per: M.M. PARTHIBAN


This appeal has been filed by the Revenue in pursuance of Order of the
Committee of Commissioners dated 22.03.2018, in assailing the Order-in-
Appeal No. PUN-EXCUS-001-APP-0722/2017-18 dated 28.11.2017 (herein
after referred to as ‘the impugned order’) passed by the Commissioner of
Central Tax (Appeals-I), Pune. The respondent assessee M/s Eaton Industrial
Systems Private Limited, Pune has filed cross objection to the said appeal for
upholding the impugned order passed in their favour.

2.1 The facts of the case, leading to this appeal, are summarized herein
below:

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2.2 The respondent herein inter alia , is engaged in manufacture of excisable
goods viz., gear transmission system and other automotive components etc.,
falling under chapter heading 8708 of Central Excise Tariff Act, 1985. For the
purpose of discharge of appropriate excise duty on the final products
manufactured by them and for compliance with Central Excise statute, the
respondent is registered with jurisdiction central excise authorities vide
Registration No.AABCA4586BXM001.

2.3 During scrutiny of records maintained by the respondent, the
department has observed that during the period 2007-2008 to 2010-2011,
that the respondent had received engineers/employees on deputation from its
foreign group company M/s Eaton Corporation, USA in terms of Seconding
Agreement entered in respect of such individuals. Eaton Corporation, USA paid
salaries and statutory employment benefits to such personnel outside India,
for administrative convenience and recovered the same amount from the
respondent assessee without any markup by raising debit notes. All
employment related costs and risk associated with secondment of employees
including all costs relating to hiring, relocation, severance, employment
related lawsuits and any other costs resulting from employment relationship
were also borne by the respondent, by effecting such payment through Eaton
Corporation, USA. These expenses were recorded as salaries to employees in
the books of accounts maintained by the respondent. Based on such scrutiny
of records and debit notes, the department interpreted that the arrangement
constituted import of ‘manpower recruitment or supply agency’ services as
defined under Section 65(105) (k) of the Finance Act, 1994. Since the
respondent assessee had not paid the service tax on such expenses incurred
in foreign currency for such services under the reverse charge mechanism in
terms of Section 66A(1) ibid , the department initiated show cause proceedings
against the respondent.

2.4 Show Cause Notice (SCN) dated 19.04.2013 was adjudicated by the
Additional Commissioner vide Order-in-Original No. PUN/ STC/ADC/08/17-18
dated 31.05.2017 in confirmation of service tax demand of Rs.90,43,587/-
along with interest, under Section 73 ibid read with rule 2 (1) (d) (iv) of the
Service Tax Rules, 1994 by invoking extended period of limitation; besides,
he also imposed penalties on the respondent under Section 77 and 78 ibid on
the appellants. Feeling aggrieved with the said order of the original authority,
the respondent had filed an appeal before the Commissioner (Appeals), who
in disposal of the appeal, has set aside the order of original authority and
dropped the confirmed demands and penalties imposed on the respondent.

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Feeling aggrieved with the impugned order passed by the Commissioner
(Appeals), Revenue has filed this appeal. The respondent has also filed cross
objection to such appeal filed by Revenue.

3. We have heard both sides and perused the records of the case. We have
also considered the additional written submissions given in the form of paper
books by Authorised Representative for the Revenue and the Counsel for the
respondent.

4. The issue involved in the above appeal is whether the respondent being
part of the group company situated in USA, who have seconded their
employees to the respondent as recipient entity, would result in provision of
"manpower recruitment or supply agency" services taxable at the hands of
the respondent in India, under the reverse charge mechanism provided under
section 66A of the Finance Act, 1994.

5. Learned AR for Revenue in his submission had submitted that the
disputed issue is no more res integra , in view of the judgement passed by the
Hon’ble Supreme Court in the case of Commissioner of Customs, Central
Excise & Service Tax, Bangalore (Adjudication) Vs. Northern Operating
System Private Limited - 2022 (61) G.S.T.L. 129 (S.C.). On the other hand,
learned Counsel for the respondent has submitted that that respondent was
of the bonafide belief that the transaction between the same entities is not
exigible to service tax. Further, he submitted that the SCN was issued
19.04.2013 in respect of service tax demand for the period 2007-2008 to
2010-2011, which is beyond the normal period of limitation from the due date
of filing the half-yearly return. Since the issue involved conflicting views
arising on account of interpretation of complex legal provision, it would not
provide any scope for invoking extended period of limitation. In this regard,
he relied upon the judgement of the Hon’ble Supreme Court in the case of
Continental Foundation Joint Venture Vs. Commissioner of Central Excise,
Chandigarh-I – 2007 (216) E.L.T. 177 (S.C.).

6.1 In the present appeal, department had issued SCN on 19.04.2013 for
service tax demands arising for the period 2007-2008 to 2010-2011 by
invoking extended period of limitation. Normal period of limitation provided
for issue of SCN for demand of service tax under Section 73 of the Finance
Act, 2016, for period prior to 28.05.2012 was ‘one year’; during 28.05.2012
to 13.05.2016 it was ‘ eighteen months’; and subsequently with effect from
14.05.2016 it is ‘thirty months’, and the extended period of limitation is for

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five years, where there is presence of any ingredient involving fraud, collusion,
wilful mis-statement, suppression of facts or contravention of legal provisions,
with an intent to evade service tax.

6.2 In the order of the original authority dated 31.05.2017, he had
confirmed the service tax demands by invoking extended period of limitation
on the ground that the respondent has failed to determine and discharge their
service tax liability on the taxable category of service i.e., ‘manpower
recruitment/supply agency’ service; he had stated that even though the
respondent had effected payments to their foreign business entity M/s Eaton
USA, as a service provider, this fact has come to light only after the same has
been pointed out by the departmental officers during the audit and scrutiny of
their records. Therefore, he held that non-payment of service tax on the
services received from abroad is on account of deliberate and wilful
suppression of material facts on the part of the respondent assessee, with an
intention to evade payment of service tax. On the other hand, learned
Commissioner (Appeals) in the impugned order had dealt with the merits of
the case, whether the secondment service provided between group entities
does not amount to taxable service.

6.3 Therefore, in order to decide the issue of application of extended time
of limitation and on the merits of the issue under dispute, we may refer to the
authoritative decisions rendered by the Hon’ble Supreme Court in the case of
Continental Foundation Joint Venture (supra) and Northern Operating System
Private Limited (supra). In the case of Continental Foundation Joint Venture
(supra), the Hon’ble Supreme Court has held as follows:
“12. As far as fraud and collusion are concerned, it is evident that the intent
to evade duty is built into these very words. So far as mis-statement or
suppression of facts are concerned, they are clearly qualified by the word
‘wilful’, preceding the words “mis-statement or suppression of facts” which
means with intent to evade duty. The next set of words ‘contravention of any
of the provisions of this Act or Rules’ are again qualified by the immediately
following words ‘with intent to evade payment of duty.’ Therefore, there
cannot be suppression or mis-statement of fact, which is not wilful and yet
constitute a permissible ground for the purpose of the proviso to Section 11A.
Mis-statement of fact must be wilful.”

In the present case, the arrangement of using the services of personnel
belonging to the group entity based at USA was engaged by the respondent
entity in India in certain specified sectors for enabling their manufacturing
activity as per Seconding Agreement entered in each case, and in due
compliance with immigration visa, tax deduction at source as per Income-Tax
and other statutory compliances. Further, the expenses incurred for such

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secondment were on actual basis without any addition of markup/margin, to
indicate the true nature of such payment being reimbursement expenditure,
and did not constitute any element of service being provided by one person
to another person, both being under same business entity. Further, these
expenses were duly accounted for in their books of accounts and foreign
exchange were paid through official banking channels, duly recording each
activity in the books of accounts maintained by the respondent. Therefore, we
do not find any grounds to substantiate the presence of essential ingredients
such as fraud or collusion or wilful mis-statement or suppression of facts or
contravention of legal provisions, with an intent to evade service tax, in the
present case before us, in respect of the respondent.

6.4 In the case of Northern Operating System Private Limited (supra), the
issue that arose for decision before the Supreme Court was on identical set of
facts involving the disputed issue of whether the overseas group companies,
with whom an assessee had entered into agreements, for providing manpower
services in discharge of its functions through seconded or deputation of
employees, would be liable to payment of service tax as a taxable service. In
the said case, the Supreme Court had observed as follows:
"2…..Following an audit of the records by the revenue’s officials, proceedings
were initiated against the assessee alleging non-payment of service tax
concerning agreements entered into by it with its group companies located in
USA, UK, Dublin (Ireland), Singapore, etc. to provide general back-office and
operational support to such group companies.

3…….As a matter of fact, the assessee issues the prescribed forms to the
seconded employees, in terms of the Income-tax Act, 1961 (hereafter “IT Act”).
Those individuals too file income-tax returns and contribute to the provident
fund. Furthermore, NOS remits the above amounts in foreign exchange, which
are reflected in its financial statements. The assessee is reimbursed (by the
foreign entity, Northern Trust Company - hereafter described as such) for the
amounts it pays as salaries, to these seconded employees. The assessee pays
for certain services received from the group companies. The assessee used to
discharge service tax on payments for such services in terms of Section 66A of
the Act. The appropriate major expense heads were ‘Salaries & Allowances’,
‘Relocation expenses’, ‘Consultancy Charges’, ‘Communication Expenses’ and
‘Computer Maintenance and repairs.’

4. The revenue issued four show cause notices [dated 23-4-2012; (for the
period October, 2006-March, 2011), 19-10-2012 (for the period April, 2011 to
March, 2012), 7-5-2014 & 26-11-2015 (for the period April, 2012 to September,
2014)] alleging that the assessee failed to discharge service tax under the
category of “manpower recruitment or supply agency service” with regard to
certain employees who were seconded to the assessee by the foreign group
companies……
xxx xxx xxx xxx

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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 cross 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.
xxx xxx xxx xxx

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 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.
xxx xxx xxx xxx

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 their
overseas employer, or are deployed on some other secondment.
xxx xxx xxx xxx

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.
xxx xxx xxx xxx

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

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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)

6.5 On reading of the aforesaid judgement of the Hon’ble Supreme Court, it
would transpire that while the control over the performance of the employees
who were seconded and the right to ask them to return was with the assessee,
but it was the overseas employer who, in relation to its business, deployed
them to the assessee; it was the overseas employer who paid them the
salaries; the terms of employment even during the secondment were in accord
with the policy of overseas company; and at the end of the period of
secondment the employees returned to their original place to await
deployment or extension of secondment. The factual matrix of the present
case involves similar arrangement. Thus, the assessee would be a service
recipient of the overseas group company based in USA, which provided
'manpower supply' service, which would become as a taxable service and the
respondent would be required to pay service tax on reverse charge mechanism
as per Section 66A ibid.

6.6 Insofar as the invocation of the extended period of limitation in the show
cause notice, the Hon’ble Supreme Court in Northern Operating System
Private Limited (supra), did not agree with the contention of the Department
that it was correctly invoked and it was held that the Department was not
justified in invoking the extended period of limitation. The relevant paragraphs
of the judgment are as follows:-
“62. The revenue's argument that the assessee had indulged in wilful
suppression, in this court's considered view, is insubstantial. The view of a
previous three judge ruling, in Cosmic Dye Chemical v. Collector of Central
Excise [1995] 6 SCC 117 - in the context of section 11A of the Central Excise
Act, 1944, which is in identical terms with section 73 of the Finance Act, 1994
was that:
Now so far as fraud and collusion are concerned, it is evident that the requisite
intent, i.e., intent to evade duty is built into these very words. So far as
misstatement or suppression of facts are concerned, they are clearly qualified by
the word "wilful" preceding the words "misstatement or suppression of facts" which
means with intent to evade duty. The next set of words "contravention of any of
the provisions of this Act or rules" are again qualified by the immediately following
words "with intent to evade payment of duty". It is, therefore, not correct to say
that there can be a suppression or misstatement of fact, which is not wilful and

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yet constitute a permissible ground for the purpose of the proviso to section 11-
A. Misstatement or suppression of fact must be wilful."


63. This decision was followed in Uniworth Textiles v. Commissioner of Central
Excise [2013] 9 SCC 753, where it was observed that "(t)he conclusion that
mere non- payment of duties is equivalent to collusion or wilful misstatement
or suppression of facts" is "untenable". This view was also followed in Escorts v.
Commissioner of Central Excise [2015] 9 SCC 109 Commissioner of Customs v.
Magus Metals [2017] 16 SCC 491 and other judgments.


64. The fact that the CESTAT in the present case, relied upon two of its previous
orders, which were pressed into service, and also that in the present case itself,
the revenue discharged the later two show cause notices, evidences that the
view held by the assessee about its liability was neither untenable, nor mala
fide. This is sufficient to turn down the revenue’s contention about the existence
of “wilful suppression” of facts, or deliberate misstatement. For these reasons,
the revenue was not justified in invoking the extended period of limitation to
fasten liability on the assessee.”

6.7 Considering the date of issue of SCN on 19.04.2013 for service tax
demands involved in the disputed transactions for the period 2007-2008 to
2010-2011, being beyond eighteen months, it clearly transpires that such
demands were issued by invoking extended period of limitation and the entire
demand confirmed in the order of the original authority is beyond the normal
period of limitation. In view of the aforesaid decision of the Hon’ble Supreme
Court in Northern Operating System Private Limited (supra), we are of the
considered opinion that in the present appeal having similar facts of the case,
it has to be held that the demand of service tax confirmed by the original
authority for the extended period cannot be sustained. Further, as the entire
demand of service tax in the present case is only relating to the extended
period of limitation, and the entire demand being held as not sustainable, in
our considered opinion, the question of demand of interest, consequential
imposition of penalty on the respondent does not arise.

6.8 In view of the above discussions and the settled position of law as held
in the case of Northern Operating System Private Limited (supra), we are of
the considered view that the issue under dispute is no more res integra , and
this Bench of the Tribunal cannot take a different decision than the one already
decided in favour of the respondent. Accordingly, the impugned order in
setting aside the adjudged demands, which was confirmed on the respondent
assessee by the original authority by invoking extended period of limitation,
is not sustainable and the impugned order does not require any interference.

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7. In the result, the appeal filed by the Revenue is dismissed. Cross
objection filed by the respondent assessee is disposed of.


(Order pronounced in the open court on 02.09.2026)





(Ajay Sharma)
Member (Judicial)



(M.M. Parthiban)
Member (Technical)
Sinha