Extended limitation cannot be invoked without a reasoned finding of suppression.

Hi Tech Arai Ltd. (“HTA”) entered into an MOU with Arai Seisakusho Co. Ltd., Japan, for the assignment of Mr. Daiki Ando, an Arai employee, to HTA for a specified period.

HTA maintained that it employed him directly, relying on his employment visa, salary payments, tax deduction at source and Form 16; the Revenue treated the arrangement as a supply of manpower by Arai to HTA.

The demand concerned the period 1 June 2009 to October 2012, and the show-cause notice was issued on 27 May 2014.

The appeal challenged the confirmation of service-tax liability under Manpower Recruitment and Supply Agency Service (“MRAS”).

1. Whether service tax was payable by HTA under MRAS in respect of the Japanese company’s assignment of its employee to HTA.

2. Whether the Revenue had established grounds to invoke the extended period of limitation.

Section 65(68) of the Finance Act, 1994 defined the taxable service as a service provided by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise; Section 65(105)(k) defined such an agency as a person providing, directly or indirectly, services for the recruitment or supply of manpower to another person.

The Tribunal applied the Supreme Court’s decision in Northern Operating Systems Pvt. Ltd., which it considered controlling on the treatment of employee secondment as manpower supply; it also held that deduction of TDS and issuance of Form 16 did not determine the service-tax character of the arrangement.

For limitation, the Tribunal relied on its decision in Precision Equipments Chennai Pvt. Ltd., which stated that suppression requires deliberate withholding of material facts and that an adjudicating authority must explain the basis for such a finding.

The MOU described Ando as Arai’s employee and his placement with HTA as a temporary assignment; its provisions concerning the assignment period and other employment-related arrangements supported the Tribunal’s view that Arai supplied manpower to HTA. It therefore rejected HTA’s reliance on its employment-related documents and TDS treatment as determinative, and concluded that the arrangement fell within MRAS.

On limitation, however, the Tribunal found that the orders did not adequately explain how HTA had deliberately suppressed facts. HTA had asserted that the department’s internal audit had examined the relevant documents and that it had responded to an audit notice, but the record did not disclose the contents of that response or whether the audit had raised the tax-liability issue. Applying Precision Equipments, the Tribunal held that the necessary basis for invoking the extended period had not been established.

It set aside the demand as time-barred and ordered consequential relief in accordance with law.