Alstom’s Expatriate Secondments Attract Service Tax as Manpower Supply, but CESTAT Remands Normal-Period Demand for Recalculation

Alstom T & D India Ltd. (ATIL) received foreign group-company employees on temporary secondment in India. Under the International Mobility Agreements, the foreign Home Unit employment continued, while the Indian Host Unit assigned duties, exercised operational supervision and paid assignment remuneration through its payroll. The Home Unit retained links to the employees’ reference salary, social-security and pension benefits, governing law and termination entitlements.

The Department alleged that the arrangement was a taxable manpower-supply service and issued a show-cause notice on 14 October 2014 for the period April 2010 to March 2014.

The adjudicating authority dropped the demand of ₹93,75,322 for April 2010 to June 2012 but confirmed ₹54,59,503 for July 2012 to March 2014, with an equal penalty under Section 78. ATIL appealed the confirmation; the Department appealed the dropped demand.

Before 1 July 2012, Sections 65(68) and 65(105)(k) of the Finance Act, 1994 covered services involving the recruitment or supply of manpower, temporarily or otherwise; the applicable Service Tax Rules imposed reverse-charge liability on the recipient.

From 1 July 2012, Section 65B(44) defined “service,” subject to the exclusion for services provided by an employee to an employer; reverse-charge liability was governed by Rule 2(1)(d)(i)(G) of the Service Tax Rules and the Place of Provision of Services Rules, 2012.

Under C.C., C.E. & S.T. v. Northern Operating Systems Pvt. Ltd., the character of a secondment depends on the substance of the agreements and transaction, not any single factor; a foreign entity’s deployment of its employees to an Indian recipient may constitute manpower-supply service.

The Tribunal also relied on Renault Nissan Automotive India Pvt. Ltd. and Nissan Motors India Pvt. Ltd. on secondment and limitation.

Under Easland Combines and Uniworth Textiles, non-payment alone does not establish suppression or intent to evade; a positive act indicating such intent is required for extended limitation.

CENVAT-credit entitlement does not extinguish reverse-charge liability, though revenue neutrality may be relevant to intent and penalty.

The Tribunal treated the continuing Home Unit contract, temporary assignment, foreign-linked salary and benefits, and Home Unit termination rights as evidence that the foreign employment relationship endured. ATIL’s day-to-day control and payroll payments did not, viewed in the context of the agreements as a whole, make the arrangement merely an independent employment relationship with ATIL; the foreign companies had supplied manpower to ATIL.

The absence of a mark-up did not by itself negate a service, and the Karnataka High Court decision concerning a later GST regime did not displace the Supreme Court’s service-tax ruling in Northern Operating Systems.

The Tribunal nevertheless found the dispute interpretative and held that the Department had not shown deliberate evasion. The extended period and Section 78 penalty therefore could not stand; revenue neutrality supported that conclusion but did not eliminate liability for any amount within the normal limitation period.

Because the show-cause notice was issued on 14 October 2014, the pre-July 2012 demand fell beyond the normal period and could not be restored.

The Section 78 penalty was set aside.

The Department’s appeal was dismissed, leaving the dropped April 2010–June 2012 demand unrestored.

ATIL’s claim for credit adjustment, refund of amounts paid under protest and consequential relief was left for consideration subject to verification and statutory requirements.