Recently, the Supreme Court gave notice in a petition that it will review the specific question of whether the income provided to personnel on secondment qualifies as a taxable service under Section 65(105)(k) of the Finance Act, 1994.

The Registry was instructed to list and link the complaint with another petition titled Commissioner of Service Tax, Delhi-IV v. M/s. Nortel Networks India Pvt. Ltd., which raises the identical issue and is now being decided by a bench made up of Justices Sanjiv Khanna and J.K. Maheshwari.

The respondents in the current petition, M/s. Komatsu India Pvt. Ltd., are a fully owned subsidiary of Komatsu Asia Pacific Limited and are involved in the production of dump trucks (KAP). On a variety of services they acquired from overseas, it appears that the respondents have not paid service tax, in terms of Section 66A of the Finance Act, 1994.

When the demand for service tax was confirmed, the original authority imposed penalties and issued show-cause notices to it for the categories of “Manpower Recruitment or Supply Agency Service,” “Online Information and Database Access and Retrieval Service,” “Consulting Engineering Service,” and “Maintenance and Repair Services.”

Komatsu India Pvt. Ltd. did not contest the demands for Online Information Database Access and Retrieval Service and Consulting Engineer Services before the Customs Excise And Service Tax Appellate Tribunal, Chennai (CESTAT), but it did contest the fines imposed under Section 78 of the Finance Act, 1994. The CESTAT upheld the demand under the aforementioned categories. The fines in this case were dropped because Komatsu had paid service tax and qualified for a credit.

It is important to note that a Bench made up of Justices U.U. Lalit, S. Ravindra Bhat, and P.S. Narasimha held in a decision dated May 19,2022, that an Indian company would be regarded as the service recipient when an overseas group company provides skilled workers to its Indian counterparts on a secondment basis.

[Case Title: M/s. Komatsu India Pvt. Ltd. v. Commissioner of GST and Central Excise Chennai, Diary No. 24354/2022]

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