2013 (12) TMI 800 - AT - Service Tax

Demand for service tax - Manpower supply services - Penalty u/s 77 and 78 - Difference between manpower recruitment service and manpower supply service - Held that - There is an essential difference between manpower recruitment service and manpower supply service . In the case of MRS, a specific number of persons are sent by the recruiting agency to the service receiver who selects a person or persons depending upon the requirement and pays the service charges to the recruitment agency and the service ends there. The persons recruited by the service receiver become the employees of the service receiver and thereafter the service provider need not and will not have any relationship with the persons whom he has sent. On the other hand, in the case of MSS, the service receiver requests for a number of men or women as the case may be with requisite qualification and once they are sent, the service receiver may choose and select or may simply accept the persons sent by the service provider but the responsibility for the performance of these persons and payment of salaries to them and other obligations which are required to be met by the employer will be with the service provider only. There is no obligation to show reasons as to why the persons were sent back. Further there is no connection between the persons sent by the appellant and the organizations because the salaries are being paid by the appellant and not by the service receiver. The service receiver simply pays the amount to the appellant adding a commission due to the appellant. This is nothing but MSS and it is difficult to accept that this is MRS. Only when the service recipient has an obligation legal or contractual to pay certain amount to any third party and the said amount is paid by the service provider on behalf of the service recipient, the question of reimbursing the expenses incurred on behalf of the recipient shall arise - cost of input services and inputs used in rendering service cannot be treated as reimbursable cost. In the case of MSS, manpower is the input and just because it is separately charged, it cannot be treated as reimbursable expenditure - appellant failed to make out a prima facie case on merits - Decided against assessee.

Summary

Issues:
Demand for service tax on 'manpower supply services' (MSS) vs. 'manpower recruitment service' (MRS) - applicability of Rule 5(1) of Service Tax Rules - invocation of extended period for demand confirmation - challenge to show-cause notice - financial difficulties plea - pre-deposit amount determination.

Analysis:

The judgment involves a dispute regarding the demand for service tax on 'manpower supply services' (MSS) provided by the appellant. The appellant argued that the services rendered were 'manpower recruitment services' (MRS) and not MSS. The appellant contended that the salaries of candidates sent were reimbursable and not a consideration for services provided, relying on a decision of the Hon'ble Delhi High Court and a Larger Bench decision. The appellant challenged the demand, citing the quashing of Rule 5(1) of Service Tax Rules and the inapplicability of the extended period due to conflicting views in different Tribunal Benches.

The Appellate Tribunal analyzed the nature of MRS and MSS, emphasizing the distinction where in MRS, recruited persons become employees of the service receiver, while in MSS, the responsibility for employees remains with the service provider. The Tribunal noted that the salaries paid by the appellant were an essential element of MSS, not reimbursable expenses. The Tribunal differentiated the case from the decisions cited by the appellant, asserting that the appellant's services fell under MSS, not MRS.

Regarding the challenge to the show-cause notice, the Tribunal found it unnecessary to consider as it was not raised earlier. The Tribunal also addressed the lack of evidence supporting financial difficulties claimed by the appellant. The Tribunal directed the appellant to deposit a specified amount, considering the differential tax amount and other activities' income. The Tribunal highlighted that certain decisions were not cited before the original adjudicating authority, necessitating a remand for reevaluation of the demand, applicability of the extended period, and quantum of service tax payable.

In conclusion, the Tribunal directed the appellant to comply with the deposit requirement and instructed the original adjudicating authority to reexamine the matter, considering all submissions and decisions cited. The Tribunal emphasized the need for a well-reasoned order after providing the appellant with a fair hearing. The judgment highlighted the importance of cooperation with the adjudicating authority for a comprehensive resolution of the dispute.