Services Tax Exemption on man power or job work services

Adiraj Manpower Services Pvt ltd Vs CCE Pune II
Forum-Supreme Court of India
Date-18-02-2022

Sub: Whether services provided are man power services or job work services so as to be exempted under the relevant notifications issued under Finance Act, 1994.

BRIEF FACTS

1. The appellant obtained service tax registration under the category of‘Manpower Recruitment or Supply Agency Service’. On 1 January 2012, theappellant entered into an agreement with Semco Electric Pvt. Ltd. (later known asSigma Electric Manufacturing Corporation Pvt. Ltd.) and was required to providepersonnel for activities such as felting, material handling, pouring and supply ofmaterial to furnace. Similarly, on 1 January 2013 and 1 January 2014, freshagreements were entered into between the appellant and Sigma.

2. 4 On 26 September 2014, a notice to show cause was issued by theCommissioner of the erstwhile Pune-I Central Excise Commissioneratedemanding service tax along with interest and with a proposed penalty of Rs.10,50,23,672.

3. The allegations in the show cause notice were that:

(i) The appellant had failed to pay their service tax dues on or before the duedate for the period from April 2012 to March 2014;

(ii) The appellant had failed to assess and discharge service tax liability on theservice value in accordance with their sales ledgers relating to Sigma forthe period from September 2012 to March 2014 regarding the supply ofmanpower;

(iii) The appellant had suppressed the facts and made a misrepresentation byfiling incorrect ST-3 returns for the above period and did not declare the true and correct taxable value and service tax thereon and;

(iv) The appellant had filed ST-3 returns for the period between April 2013 toSeptember 2013 after the due date as stipulated under Section 70(1) ofthe Finance Act 1994 and Rule 7 of the Service Tax Rules 1994.

4. The allegations in the show cause notice were based on material collectedduring the course of an investigation by the Department, indicating that:

(i) The appellant had obtained service tax registration under the category of‘Manpower Recruitment or Supply Agency Service’;

(ii) The bills were raised by the appellant on their customers on a monthlybasis for providing manpower supply services and service tax was chargedthereon;

(iii) The supply of manpower services by the appellant conformed to theprovisions of the Contract Labour (Regulation and Abolition) Act 1970;

(iv) In respect of the services of manpower supplied by the appellant to theircustomer, namely Sigma, the appellant had charged and paid service taxup to July 2012;

(v) From 1 August 2012, based on an agreement dated 1 January 2012, theappellant had termed the service activity as ‘job work with tonnage rates’and had not charged and paid service tax, classifying the provision of thesaid services as business auxiliary services, claiming the benefit of aservice tax exemption specified at Serial No. 30(c) of NotificationNo.25/2012-Service Tax dated 20 June 2012;

(vi) The invoices raised by the appellant and its agreement dated 1 January2012 and 1 January 2013 indicated that the services provided by theappellant were of supplying skilled/unskilled manpower for carrying outactivities like material handling, assembly, pouring, supply of cast machineparts and painting within the factory premises of Sigma which wasconfirmed by the director of the appellant in his statement recorded on 6February 2014;

(vii) The nature of the services provided by the appellant was similar beforeand after August 2012;

(viii) The appellant had not substantiated their claim of job work; and

(ix) The appellant had not obtained service tax registration under the categoryof business auxiliary services for the period from September 2012 toMarch 2014.

5. The show cause notice was adjudicated upon by the Commissioner ofCentral Excise Pune-I, Commissionerate by an order dated 24 February 2015.

The adjudicating authority held that:

(i) The appellant habitually delayed paying service tax every month from April 2012 to March 2014;

(ii) The appellant did not have any machinery or equipment of its own and was using the equipment and machinery of Sigma at the latter’s premises; and

(iii) The supply of labour by the appellant to Sigma for doing the work offettling, material handling, assembly and pouring on ‘piecemeal basis’ didnot alter the characteristics of the manpower services provided by theappellant to Sigma. The adjudicating authority confirmed the demand ofservice tax and interest besides imposing penalty.

6. The order of the adjudicating authority was challenged in an appeal beforethe CESTAT, WZB, Mumbai. By its judgment dated 15 July 2019, the Tribunalheld that the service provided by the appellant to Sigma was not in the nature ofjob work services exempted under the Notification bearing No.25/2012-ServiceTax dated 20 June 2012. The Tribunal held, after considering the terms of theagreement between the appellant and Sigma and the relevant provisions of the Contract Labour (Regulation and Abolition) Act 1970, that the services provided by the appellant were in the nature of contract labour and not job work.

The Tribunal held that;

(i) clause 10, 11 and 17 of the agreement required theappellant to obtain a licence under the CLRA;

(ii) the agreement imposed theresponsibility for the payment of wages to the employees/workmen and formaking payments under the Employees’ State Insurance Act 1948 and ProvidentFund in respect of the employees of the contractor on the appellant.

(iii) The Tribunal accordingly held that the agreement between the appellant and Sigma is acontract labour agreement executed for the purpose of providing requisitemanpower and is not a job work contract to extend the benefit of NotificationNo.25/2012-Service Tax dated 20 June 2012.

SUPREME COURT HELD THAT

7. The Supreme Court in this case was dealing with the questions;

i) whether the appellant in this case had provided job work services which were exempted in terms of Serial No 30(c) Notification No 25/2012 dated 20th June, 2012 issued under Finance Act, 1994 or

ii) man power services which were fully taxable.

The substratum of the agreement between the appellant and Sigma dealswith the regulation of the manpower which is supplied by the appellant in hiscapacity as a contractor. The fact that the appellant is not a job worker is evidentfrom a conspicuous absence in the agreement of crucial contractual terms whichwould have been found had it been a true contract for the provision of job work interms of Para 30(c) of the exemption notification.

The Court relying on the agreement entered into between the parties by observing that there is a complete absence in the agreement of any reference to:

i) The nature of the process of work which has to be carried out by the appellant;

ii) provisions for maintaining;

(a) the quality of work;
(b) the nature of the facilities utilised; or
(c) the infrastructure deployed to generate the work;

(iii) the delivery schedule;
(iv) specifications in regard to the work to be performed; and
(v) consequences which ensue in the event of a breach of the contractual obligation.

The decisions of CESTAT relied upon by the appellant also do not helptheir submissions as they are fact-specific and based on a reading of thecontracts in those cases. In this case, though ostensibly, the agreement containsa provision for payment on the basis of the rates mentioned in Schedule II, theagreement has to be read as a composite whole.

On reading the agreement as awhole, it is apparent that the contract is pure and simple a contract for theprovision of contract labour. An attempt has been made to camouflage thecontract as a contract for job work to avail of the exemption from the payment ofservice tax. The judgment of the Tribunal does not, in the circumstances, sufferfrom any error of reasoning.

The absence of the above terms and conditions which are determinative of the nature of the services which are performed, led the court to dismiss the appeal by holding that the appellant was trying to camaflouge the agreement as Job work agreement and thus was liable to pay the service tax.

CONCLUSION

This judgement will be helpful in similar disputes where the job work services or man power services are subject matter of dispute. The Apex Court in this case depends on terms and conditions of the agreement between the parties and found that there is complete absence of in the agreement with reference to the nature of the process of work which has to be carried out by the appellant and provisions of maintaining various works and hence the contract is not of nature of Job-Work.

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