Manpower Recruitment & Supply Agency Services

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Saurabh (Querist)
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16 February 2011 Case Study:

1. Company A leases its production facility to Company B. The Agreement for lease speaks of Company B to reimburse the salaries and wages of employees of Company A who shall continue to work at reduced salaries & wages.

2. In practice, no amount of salaries and wages are reimbursed to company A. Instead, Company B pays the salaries and wages (and PF, ESIC contributions) directly to the employees (and contributions deposited in respective accounts directly)

3. According to law for Manpower Recruitment and supply agency services,salaries paid directly to the employees also are liable to service tax and shall be included in Gross Amount chargeable to Service tax.

My question:
Part 1. Does the clause in the "agreement for lease of production facility", for reimbursement of salaries make company A liable for service tax under manpower recruitment and supply agency.
Part 2. Are there any Supreme / High Court or Tribunal decisions similar to this case study.