CESTAT | Whether reimbursement of salary paid to ‘secondee’, to parent company, amounts to consideration for provision of manpower recruitment & supply agency services, within the meaning of S. 65(68) of Finance Act; Tribunal explains

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of P. Venkata Subba Rao (Technical Member) and P. Dinesha (Judicial Member) allowed an appeal filed against Order-in-Appeal passed by Commissioner of Customs, Central Excise & Service Tax, (Appeals-II).

The appellant was a 100% Export Oriented Unit (EOU) and was engaged in research and development services of advanced pharmaceutical ingredients and other biopharma products, a wholly-owned subsidiary of Nektar USA. An employee of the parent company, Nektar USA, was sent to India on a secondment to work as a full-time Managing Director of the appellant company. During his tenure as the Managing Director of the appellant, the ‘secondee’ was a full-time employee of the appellant and that there was a relationship of employer-employee between the appellant and the ‘secondee’. Further, since the ‘secondee’ was a citizen of America, the parent company and the appellant company entered into a ‘salary reimbursement agreement’ for the sake of administrative convenience so that the salary of the ‘secondee’ would be paid in foreign currency outside India by the parent company which would be reimbursed by the appellant to its parent entity. The issue that arose was whether the reimbursement of salary paid to the ‘secondee’, to the parent company, Nektar USA amounted to consideration for the provision of manpower recruitment and supply agency services, within the meaning of section 65(68) of the Finance Act, 1994.

The Tribunal relied upon the CESTAT judgments of Nissin Brake India Pvt. Ltd. v. CCE, 2018 SCC OnLine CESTAT 1690, reiterated in Komatsu (India) (P) Ltd. v. CST, and in Goldman Sachs Services (P) Ltd. v. CST.

The Tribunal while reproducing the relevant portion of Komatsu India (P) Ltd. v. CST allowed the appeal holding that the revenue was not disputing that the ‘secondee’ was always under the control and supervision of the appellant and that the appellant’s parent company had absolutely no obligation to pay the salary and other charges to the ‘secondee’ but for remitting secondee’s salary in foreign exchange based on the salary reimbursement agreement. [Nektar Therapeutics (India) (P) Ltd. v. CCE, 2020 SCC OnLine CESTAT 382, decided on 10-12-2020]

Sakshi Shukla, Editorial Assistant has put this story together

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  • Nissin Brake (India) (P) Ltd. [2019 (24) GSTL 563 (Tri-Del.)] is it Supreme Court decision or that of the Tribunal?

    • It is of CESTAT (Delhi). There is a typographical error in the judgment which was reproduced in this summary. The error is regretted.

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