2012 (11) TMI 642 - AT - Service Tax

Demand of service tax 100% EOU operating under STP Scheme Demand under the category of manpower recruitment and supply agency service Held that - Appellants are involved in running projects and delivering developed software after testing and installing the same for use by the clients - entire responsibility of paying and supervising the manpower deployed for developing the software/undertaking the project is on the appellants and clients have a right to reject the software development and seek for modification - their activities as mere manpower supply agency services may not be appropriate - stay granted.

Summary

Issues:
1. Service tax demand under "manpower recruitment and supply agency service" in India.
2. Service tax demand under "business auxiliary service" for services received from overseas.
3. Pre-deposit of dues as per the impugned order.
4. Applicability of service tax on activities undertaken in a foreign territory.
5. Interpretation of contract terms and responsibilities of the appellant.

Analysis:
1. The appellant, a 100% EOU operating under STP Scheme, faced a service tax demand of Rs. 1,12,86,898/- for activities in India categorized as "manpower recruitment and supply agency service." The appellant challenged the order, arguing that their work involved full-fledged project execution, not just supplying manpower. They highlighted clauses in agreements with clients like Philips, emphasizing their responsibility for software development, testing, and client satisfaction. The Tribunal found the demand unsustainable, noting the project-oriented nature of the appellant's services.

2. Another service tax demand of Rs. 4,69,45,582/- was imposed on the appellant for "business auxiliary service" received from overseas providers. The appellant contended that a significant portion of the demand related to activities pre-dating a specific date and that services undertaken in a foreign territory should not attract Indian service tax. Citing a relevant Stay Order, the appellant argued against the taxability of such services. The Tribunal agreed, stating that activities falling under "business auxiliary service" carried out in a foreign territory may not be subject to service tax in India.

3. The Additional Commissioner sought pre-deposit of dues based on the impugned order, supported by a Tribunal decision in a related case. However, the Tribunal, after considering submissions from both sides and contract details, found the demands unsustainable. The Tribunal emphasized the project-centric nature of the appellant's work, leading to a waiver of the pre-deposit requirement and a stay on recovery pending appeal disposal.

4. The Tribunal differentiated the appellant's case from a precedent relied upon by the Department, emphasizing the distinct nature of the appellant's services. It highlighted the responsibility, project execution, and client interaction aspects, concluding that the demand under "business auxiliary service" was not sustainable. The Tribunal also noted the similarity between the appellant's case and a relevant Stay Order, further supporting its decision to waive pre-deposit and stay recovery.

5. In light of the significant financial implications, the Tribunal scheduled an out-of-turn hearing for prompt resolution of the appeal, recognizing the importance and complexity of the issues involved.

This detailed analysis of the judgment highlights the legal arguments, interpretations of contract terms, and the Tribunal's reasoning behind its decision on each issue raised in the case.