2013 (12) TMI 733 - AT - Service Tax

Demand of service tax - Manufacturing activity or Job work - Whether appellant shall be liable to Service Tax as manpower provider - Held that - On totality of the construction of the agreement without being read in piece-meal does not throw light to hold that the objective of the parties was to provide manpower only without carrying out manufacture. Had that been the objective, the appellant would have ceased to operate after supply of manpower. But that was not so. While object is clear from Clause 3 of agreement, that appears to be determining factor to decide incidence of tax under law - appellant had not provided service of manpower but had acted as job worker in absence of finding that no manufacture activity was carried out - Decided in favour of assessee.

Summary

Issues:
Interpretation of an agreement for job work activity - Whether the activity constitutes "manpower supply" for Service Tax purposes.

Analysis:
The appellant argued that the activity of carrying out job work should not be considered as "manpower supply" for Service Tax purposes. They presented an agreement between the parties, dated 2-3-2004, which outlined the terms of the agreement and the activities to be carried out by the appellant. The agreement specified that the appellant was to perform manufacturing activities, particularly making fabric sacks, which were beyond the scope of Service Tax law for taxing such activities. The appellant contended that since the objective of the agreement was manufacturing and not just providing manpower, they should not be liable for Service Tax as a manpower provider. The appellant requested the disposal of stay applications and appeal based on the clarity of the contract terms.

The Departmental Representative (DR) opposed the appellant's argument, stating that the agreement aimed to provide skilled labor for the activity, and the appellant had employed labor, which fell under the purview of manpower supply for Service Tax purposes. The DR highlighted that the appellant's statutory liability under labor law was evident in the agreement, specifically in Clause 8.

Upon hearing both sides and examining the records, the Tribunal reviewed the findings of the adjudicating authority and observations in the appeal folder. The authorities noted that the individuals involved in the job work were not covered under the service of manpower supply, as they performed the work themselves, and the labor remained under the control of the job worker, not the service receiver. The Tribunal considered the overall construction of the agreement and concluded that the objective of the parties was not solely to provide manpower but to carry out manufacturing activities as specified in Clause 3 of the agreement.

The Tribunal held that the appellant did not provide a service of manpower but acted as a job worker, as there was no evidence to suggest that no manufacturing activity was carried out. Consequently, the appeals were allowed, and both the stay applications and appeals were disposed of accordingly. The Tribunal emphasized that understanding the fundamental concept of the agreement was crucial in determining the tax incidence under the law.