2013 (3) TMI 735 - AT - Service Tax

Short payment of service tax - manpower recruitment or supply agency service - appellant failed to discharge service tax on reimbursement of wages received by them (by way of debit notes) from their client M/s. Tidewater during the period November 05 to December 08. Held that - the OWNER shall furnish CONTRACTOR from time to time with a scale of wages applicable to the SEAFARER. The owner reserves the right to revise such scale at any time on a prospective basis. OWNER shall reimburse the CONTRACTOR, the applicable wages of each SEAFARER incurred as an expense to the CONTRACTOR - the respondent s contentions that the Seafarers are employees of M/s. TIPL and the service rendered by them is manpower recruitment and not manpower supply have no basis whatsoever. Whether the service rendered by the respondent is taxable under manpower recruitment or supply agency service or ship management service ? - Held that - sub-clause (68) relating to manpower recruitment or supply agency service occurs first compared to sub-clause (96a) relating to ship management service. Therefore, the classification sought in the present case by the Revenue under manpower recruitment or supply agency service cannot be faulted at all. Whether the respondent was acting as a Pure Agent of M/s. TIPL? - Held that - When one reads the Agreement entered into by the respondent with M/s. TIPL, it is seen that none of the four elements described above are present. The agreement is not one between an agent and a principal; it is one between two principals. Secondly, the respondent is engaging the seafarers, responsible for their conduct, payment of wages/salaries/other compensations, for their termination and repatriation. For such services rendered, the respondent is getting compensated in two ways, one by way of re-imbursement of the wages/salaries of the seafarers and second by way of daily compensation based on the number/type of seafarers supplied. Thus the question of treating the respondent as a pure agent of M/s. TIPL does not arise at all from the terms and conditions of the agreement. Whether both the amounts received, that is, reimbursement of wages and daily compensation are leviable to Service Tax? - Held that - The Respondent charges for the services rendered by way of two debit notes, one debit note for the daily compensation and the other for the wages of the seafarers. Merely because he has split up the gross amount charged into two elements, it does not mean that only one of them is the gross amount charged and the other is not. The modus operandi adopted in splitting up the gross amount appears to be only for the purpose of avoiding/evading service tax and nothing else. Therefore, the total/gross amount charged for the service rendered is the sum total of both the debit notes, as per the provisions of Section 67 - In the present case, we have determined the value in terms of the provisions of Section 67 of the Finance Act, 1994 and not under Rule 5(1) of the Valuation Rules. Therefore, we do not find any conflict between the issue considered herein. Whether any part of the demand is time-barred and whether there has been any suppression of facts on the part of the respondent? - Held that - If there was any intent to evade service tax, they need not have shown the amounts received under the category of pure agents. Therefore, the extended period of time cannot be invoked to confirm the service tax demand. Whether the penalty is imposable on the appellant? - Held that - Penalty under Section 78 is imposable only when any of the following 5 elements are present, namely, fraud, collusion, willful mis-statement, suppression of facts or contravention of the provisions of the Act or rules made thereunder, with intent to evade payment of service tax - these elements are not present in the instant case. In view of the same, penalty is not imposable under Section 78 of the Finance Act, 1994. Penalty u/s 76 - Held that - No mens rea is required for imposition of penalty under Section 76 and mere failure to pay Service Tax along with interest will attract the provisions - the appellant has not produced any evidence before us for waiver of penalty under Section 76 - penalty u/s 76 upheld. Appeal allowed in part.

Issues Involved:
1. Classification of services rendered by the respondent.
2. Taxability of reimbursement of wages.
3. Applicability of the extended period for demand.
4. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services Rendered by the Respondent:
The core issue was whether the services provided by the respondent, M/s. Jubilant Enpro Pvt. Ltd., should be classified under "Manpower Recruitment or Supply Agency Service" or "Ship Management Service." The agreement between the respondent and M/s. Tidewater India Pvt. Ltd. (TIPL) indicated that the respondent was responsible for supplying seafarers and managing various aspects of their employment, including medical examinations, payment of wages, and insurance. The tribunal concluded that the respondent's services fell under "Manpower Recruitment or Supply Agency Service" as defined under Section 65(68) of the Finance Act, 1994, which includes any service for recruitment or supply of manpower. This classification was upheld based on the express language and terms of the agreement, which clearly indicated the supply of manpower.

2. Taxability of Reimbursement of Wages:
The respondent argued that the reimbursement of wages paid to the seafarers should not be included in the taxable value as they acted as "pure agents" of TIPL. However, the tribunal found that the respondent did not meet the criteria for a "pure agent" as defined in the Service Tax (Determination of Value) Rules, 2006. The respondent held responsibility for the seafarers, including their conduct, payment, and termination, which contradicted the definition of a pure agent. Consequently, the tribunal held that the reimbursement of wages formed part of the gross amount charged for the service and was liable to service tax under Section 67(1)(i) of the Finance Act, 1994.

3. Applicability of the Extended Period for Demand:
The tribunal examined whether the extended period of five years for raising the demand under the proviso to Section 73(1) of the Finance Act, 1994, was applicable. The respondent had disclosed the amounts received as "pure agent" in their ST-3 returns, indicating no intent to evade tax. Since there was no willful suppression of facts, the tribunal held that the extended period could not be invoked. Therefore, the demand for service tax was restricted to the normal period of one year from the relevant date.

4. Imposition of Penalties under Sections 76 and 78 of the Finance Act, 1994:
The tribunal considered the imposition of penalties under Sections 76 and 78. Penalty under Section 78 requires elements such as fraud, collusion, or willful suppression, which were not present in this case. Hence, the penalty under Section 78 was not imposed. However, penalty under Section 76, which applies for failure to pay service tax without requiring mens rea, was found applicable. The tribunal upheld the penalty under Section 76, as the respondent failed to pay the due service tax.

Conclusion:
The tribunal set aside the impugned order, holding that:
1. The respondent's services were taxable under "Manpower Recruitment or Supply Agency Service."
2. The reimbursement of wages was includible in the taxable value.
3. The demand for service tax was restricted to the normal period of limitation.
4. The respondent was liable to pay interest on the tax due and penalty under Section 76 of the Finance Act, 1994.
5. The amounts received were to be treated as cum tax while determining the tax liability.

Operative Part of the Order:
The tribunal pronounced the operative part of the order on 8-3-2013, affirming the above conclusions.

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