2009 (2) TMI 709 - Commissioner - Service Tax

Summary

Issues:
- Whether the appellant is liable to pay service tax for salaries received on behalf of employees from another company.
- Whether the appellant provided "manpower recruitment & supply agency" service.
- Whether penalties imposed on the appellant are justified.
- Whether the appellant's activities fall under the category of "Banking and Other Financial Services."

Analysis:
1. Service Tax Liability for Salaries Received:
The case involved the appellant entering into an agreement with another company to lease their distillery plant along with employees. The appellant received salaries of employees, made deductions, and handed over the plant for production under the lessee's supervision. The department alleged the appellant provided "manpower recruitment & supply agency" service, demanding service tax. The appellant argued that they were not in the recruitment business and cited relevant case law. The Commissioner noted the employees were permanent, salaries were disbursed lawfully, and the appellant's financial difficulties led to the lease agreement. The Commissioner found no basis for the service tax demand and set aside the order.

2. Alleged Provision of Manpower Recruitment Service:
The appellant contended that under the lease agreement, the employees were transferred to the lessee for production, not recruitment. The Commissioner emphasized that the employees remained permanent and were utilized by the lessee for manufacturing, not recruitment purposes. The Commissioner criticized the department's approach of imposing service tax without considering deductions and proper valuation. The Commissioner ruled in favor of the appellant, highlighting the lack of recruitment agency services provided.

3. Penalties Imposed:
The appellant challenged penalties imposed under various sections, arguing against the applicability of certain provisions to their case. The Commissioner found the penalties unjustified, emphasizing the lack of service tax liability. The Commissioner set aside the penalties, considering the appellant's financial circumstances and lawful disbursement of salaries.

4. Banking and Other Financial Services Allegation:
The appellant raised concerns about facing another case for non-payment of "Banking and Other Financial Services" tax, which had already been decided by the Commissioner. The Commissioner criticized the department's actions as vexatious and unsustainable, highlighting inconsistencies in the department's approach. The Commissioner found the order unsustainable under this ground as well.

In conclusion, the Commissioner allowed the appeal, setting aside the original order. The judgment emphasized the lack of service tax liability, criticized the department's approach, and highlighted the lawful disbursement of salaries by the appellant. The decision was based on the specific circumstances of the case, relevant legal principles, and the lack of evidence supporting the service tax demand.