Extended limitation cannot sustain secondment service-tax demands absent wilful suppression, despite underlying taxability.

Eaton Industrial Systems Pvt. Ltd. manufactured excisable automotive components and received engineers/employees on deputation from its US group company, Eaton Corporation, under secondment agreements.

The US company paid the secondees’ salaries and statutory employment benefits abroad and recovered the corresponding amounts from the respondent through debit notes, without markup.

The respondent also bore employment-related costs and recorded the payments as salary expenses in its books.

The Department treated the arrangement as an import of “manpower recruitment or supply agency” services and alleged that the respondent was liable to pay service tax under the reverse charge mechanism under Section 66A of the Finance Act, 1994.

A show cause notice dated 19.04.2013, covering the period 2007–08 to 2010–11, was issued by invoking the extended limitation period.

The adjudicating authority confirmed service tax of ₹90,43,587, with interest and penalties under Sections 77 and 78.

The Commissioner (Appeals) set aside the demand and penalties.

The Revenue appealed to the Tribunal, and the respondent filed a cross-objection supporting the appellate order.

Whether the secondment of employees by the respondent’s overseas group company constituted taxable “manpower recruitment or supply agency” services received by the respondent and liable to service tax under the reverse charge mechanism under Section 66A of the Finance Act, 1994?

Whether the extended period of limitation could validly be invoked in the absence of fraud, collusion, wilful misstatement, suppression of facts, or deliberate contravention with intent to evade service tax?

The Tribunal applied Sections 65(105)(k), 66A and 73 of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.

Under the pre-July 2012 regime, the supply of manpower, directly or indirectly and temporarily or otherwise, constituted a taxable service, and services received from abroad attracted reverse-charge liability under Section 66A.

On limitation, the Tribunal relied on Continental Foundation Joint Venture v. CCE, 2007 (216) E.L.T. 177 (S.C.), and Northern Operating System Pvt. Ltd. v. Commissioner of Customs, Central Excise & Service Tax, 2022 (61) G.S.T.L. 129 (S.C.), holding that “suppression” or “misstatement” must be wilful and accompanied by an intent to evade tax; mere non-payment or an interpretational dispute is insufficient to justify the extended period.

Northern Operating System further held that an overseas group company’s secondment of employees may constitute manpower supply service, but that invocation of the extended limitation period was unjustified where the assessee’s position was bona fide and supported by prevailing legal views.

Following Northern Operating System, the Tribunal held that the factual arrangement was taxable in principle: the overseas group company deployed the employees, paid their salaries, retained employment-related terms, and expected them to return or be redeployed after secondment.

Accordingly, the respondent was the recipient of manpower supply services and was liable under the reverse charge mechanism.

However, the respondent had disclosed the secondment-related payments in its books, recorded the expenses as salaries, made payments through official banking channels, complied with immigration and tax requirements, and paid the recovered amounts without markup.

These circumstances, together with the legal uncertainty surrounding the taxability of employee secondment arrangements, did not establish fraud, wilful suppression, misstatement, or intent to evade service tax.

Applying Continental Foundation and Northern Operating System, the Tribunal found the extended limitation period unsustainable.

Since the entire demand fell outside the normal limitation period, no tax, interest, or penalties could survive in the present proceedings.

As the entire demand of ₹90,43,587 related only to the time-barred extended period, the demand, interest and penalties were unsustainable.

The Revenue’s appeal was dismissed, the Commissioner (Appeals)’s order setting aside the adjudicated demand was left undisturbed, and the respondent’s cross-objection was disposed of accordingly.