2014 (4) TMI 36 - AT - Service Tax

Demand of service tax - Supply of manpower - Penalty u/s 76 & 78 - Held that - Appellant has not undertaken any recruitment activity for M/s. Bajaj and, therefore, for the period up to 16/06/2005 the activity of the appellant does not come within the purview of service tax under the category of manpower recruitment agency service as defined in law. However, w.e.f. 16/06/2005 the scope of the taxable service was widened bringing within the purview not only recruitment but also supply of manpower and the taxable service was also amended so as to levy on the activity of supply of manpower. Therefore, supply of manpower would be exigible to service tax effective from 16/06/2005. Appellant s activity comes within the purview of supply of manpower on or after 16/06/2005 and the appellant would be liable to discharge service tax liability on the consideration received w.e.f. that date along with interest. The appellant would also be liable to penalty under the provisions of Section 76 of the Act for the default/delay in payment of service tax. No penalty under Section 78 is warranted - Decided partly in favour of assessee.

Summary

Issues:
1. Whether the appellant's activity constitutes supply of manpower for the purpose of service tax liability.
2. Whether the lower appellate authority's decision to drop the service tax demand for a specific period was correct.

Issue 1: Appellant's Activity as Supply of Manpower

The case involved two appeals, one by the appellant and the other by the Revenue, regarding service tax liability. The appellant, a sugar factory, leased out its plant and machinery to another company and provided staff under an agreement. The Revenue contended that this arrangement constituted supply of manpower, attracting service tax liability. The appellant argued that prior to June 16, 2005, the activity did not fall under taxable service as defined in the law. However, the Tribunal held that post-June 16, 2005, the widened scope of taxable service included supply of manpower, making the appellant liable for service tax. The Tribunal rejected the appellant's argument that they did not receive consideration for supplying manpower, emphasizing that service tax is based on the gross amount received by the service recipient. The Tribunal concluded that the appellant's activity constituted supply of manpower, holding them liable for service tax and interest.

Issue 2: Lower Appellate Authority's Decision

The lower appellate authority had dropped the service tax demand for a specific period, concluding that the services provided did not fall under manpower supply service. The Revenue appealed this decision, arguing that the lower authority had not considered a previous order and had not provided reasons for differing with it. The Tribunal upheld the Revenue's appeal, stating that the lower authority's decision lacked reasoning for its deviation from the previous order. Consequently, the Tribunal set aside the lower authority's decision and upheld the service tax demand for the disputed period.

In conclusion, the Tribunal held that the appellant's activity constituted supply of manpower post-June 16, 2005, making them liable for service tax and interest. The Tribunal also upheld the Revenue's appeal regarding the lower appellate authority's decision, reinstating the service tax demand for the disputed period. The Tribunal clarified the application of penalties under Sections 76 and 78 of the Act, noting that while penalty under Section 76 was warranted for default in tax payment, no penalty under Section 78 was justified in this case. The appeals were disposed of accordingly.