2012 (4) TMI 56 - AT - Service Tax

Application for stay - Demand - Suppression of facts - The department was of the view that the service undertaken by the appellants is liable to be taxed under the category of Manpower Recruitment or Supply Agency Service for the period prior to 01.05.2006 and under the category of Ship Management Services w.e.f 01.05.2006 - Board s Circular no. 334/1/2008-TRU dated 29.02.2008 - As per the agreement entered into by the appellant with their customers, it is seen that the appellant has to arrange for Master, officers and crew on-board the vessels as required under the Merchant Shipping Act, 1958 and any other International Maritime Act and as per manning standards - The very fact that the appellants have collected the Service Tax from their customers such as M/s ABG Shipping Co. and M/s Pranik Shipping without remitting the same to the exchequer clearly shows that they were fully aware of their service tax liability CBE & C in their letter dated 29.02.2008 has clarified that introduction of a later entry under the Service Tax does not ipso facto mean that the said activity was not covered under the previous entry though they were specifically included under the definition of taxable services - the appellant has not made out any prima facie case for grant of complete waiver of pre-deposit. Inasmuch as the appellant has collected the amount of service tax form some of their clients, the balance of convenience lies in favour of the Revenue by way of direction to deposit Rs. 85 Lakhs

Issues Involved:

1. Taxability of services rendered prior to 01.05.2006 under "Manpower Recruitment or Supply Agency Service."
2. Taxability of services rendered post 01.05.2006 under "Ship Management Services."
3. Liability of sub-contractors when the main contractor has paid service tax.
4. Applicability of Section 73A of the Finance Act, 1994.
5. Scope of service tax liability on emoluments vs. service charges.
6. Time-barred demand of service tax.

Issue-wise Detailed Analysis:

1. Taxability of Services Rendered Prior to 01.05.2006:

The Tribunal examined whether the services provided by the appellant fell under "Manpower Recruitment and Supply Agency Service" before 01.05.2006. The agreement indicated that the appellant arranged for Master, officers, and crew on-board vessels, with the supplied personnel remaining employees of the appellant. Under Section 65(68) of the Finance Act, 1994, "Manpower Recruitment and Supply Agency" is defined as any person engaged in providing service for recruitment or supply of manpower to a client. The Tribunal concluded that the appellant's activities were indeed covered under this definition, making them liable for service tax under this category prior to 01.05.2006.

2. Taxability of Services Rendered Post 01.05.2006:

The appellant contended that their services should be classified under "Ship Management Services" from 01.05.2006. The Tribunal noted that "Ship Management Service" includes multiple activities, one of which is the supply of manpower. However, the Tribunal held that since "Manpower Recruitment or Supply Agency Service" is more specific and was introduced earlier, it should take precedence. Therefore, the appellant's activities continued to be taxable under "Manpower Recruitment or Supply Agency Service" even after 01.05.2006.

3. Liability of Sub-contractors When the Main Contractor Has Paid Service Tax:

The appellant argued that they were not required to pay service tax as a sub-contractor since the main contractor, M/s SICAL, had already discharged the service tax liability. The Tribunal rejected this argument, stating that under the Value Added Tax regime, each service provider must discharge their service tax liability independently, and subsequent service providers can avail input service credit. The Tribunal emphasized that the service tax regime mandates tax payment at each stage of the taxable event.

4. Applicability of Section 73A of the Finance Act, 1994:

The appellant claimed they were not liable to discharge service tax collected from customers before the enforcement of Section 73A on 18.04.2006. The Tribunal did not accept this argument, noting that the appellant had collected service tax from customers without remitting it to the exchequer, indicating awareness of their tax liability.

5. Scope of Service Tax Liability on Emoluments vs. Service Charges:

The appellant contended that service tax should only apply to service charges and not to emoluments recovered for manpower supply. The Tribunal did not specifically address this contention in detail, focusing instead on the broader issue of taxability under "Manpower Recruitment or Supply Agency Service."

6. Time-barred Demand of Service Tax:

The appellant argued that the demand was time-barred as the notice was issued beyond the normal period of one year. The Tribunal found that the appellant had suppressed facts and collected service tax without informing the department, justifying the invocation of the extended period for demand.

Conclusion:

The Tribunal concluded that the appellant had not made a prima facie case for a complete waiver of pre-deposit. Given that the appellant had collected service tax from some clients and only paid a portion of the total demand, the Tribunal directed the appellant to pre-deposit Rs. 85 lakhs within eight weeks with compliance to be reported on 23.05.2012. Upon compliance, the balance of the service tax, interest, and penalty would be waived and recovery stayed during the appeal's pendency.

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