2013 (8) TMI 58 - AT - Service Tax

Manpower Recruitment or Supply Agency Service or Business Auxiliary Services demand of duty - Penalty u/s 77 and 78 department contended that the assessee was providing harvesting sugar cane and transporting the harvested sugar cane from the farmers fields to the factory site and the same was classifiable as manpower recruitment or supply agency service and is chargeable to service tax and penalty u/s 77 & 78 - Held that - The activity undertaken by the assessee was one of procuring or processing of the goods belonging to the client which was classifiable under Business Auxiliary Service and not under Manpower Recruitment of Supply Agency Service. - The work undertaken is harvesting of sugar cane and transporting the same to the sugar factory for which labour is employed. The sugar cane belongs to the sugar factory in terms of the agreement of sale executed between the farmers and the sugar factory. Therefore, the activity undertaken by the appellant is one of procuring or processing of the goods belonging to the client which is classifiable under Business Auxiliary Service and not under Manpower Recruitment of Supply Agency Service. - Decided in favor of assessee.

Issues: Classification of services under 'Manpower Recruitment or Supply Agency Service', Liability for service tax, Applicability of penalties, Limitation period for demand

Classification of services under 'Manpower Recruitment or Supply Agency Service':
The case involved a private limited company engaged in harvesting and transporting sugar cane from farmers' fields to a factory. The dispute arose when the tax department classified this activity as 'manpower recruitment or supply agency service' subject to service tax. The appellant argued that their role was facilitating harvesting and transportation, not supplying labor directly. They contended that the charges were paid on a tonnage basis, not per labor employed, and the activity was incidental to the sale of sugar cane. The tribunal analyzed the agreements and found that the appellant acted as a facilitator, ensuring the delivery of sugar cane to the factory, with labor either provided by the factory or contractors. The tribunal concluded that the service fell under 'Business Auxiliary Service' rather than 'Manpower Recruitment or Supply Agency Service', as there was no direct supply of labor to the factory.

Liability for service tax:
The tax department issued a show cause notice demanding service tax from the appellant, which was confirmed along with interest and penalties in the original order. The appellant argued that the demand was not sustainable as the activity did not fall under the category of 'manpower recruitment or supply agency service'. The tribunal, after considering the submissions and agreements, ruled in favor of the appellant, setting aside the original order and allowing the appeal with consequential relief.

Applicability of penalties:
Apart from the service tax demand, penalties under sections 77 and 78 of the Finance Act were imposed on the appellant in the original order. However, the tribunal's decision to set aside the order also nullified the penalties imposed, providing relief to the appellant.

Limitation period for demand:
The appellant contended that a part of the demand period was barred by limitation due to the absence of suppression or conscious withholding of information. While this argument was not the primary focus of the tribunal's decision, it adds to the overall context of the case and the appellant's defense against the tax demand.

In conclusion, the tribunal's judgment clarified the nature of the appellant's services, rejecting the tax department's classification and ruling in favor of the appellant. The decision provided relief from the service tax demand and associated penalties, emphasizing the distinction between 'Manpower Recruitment or Supply Agency Service' and 'Business Auxiliary Service' based on the specific facts and agreements involved in the case.

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