2014 (8) TMI 449 - AT - Service Tax

Manpower recruitment or supply service - The plant and machinery owned by PTL, the present appellant, was taken on lease by ATL but PTL with their employees were undertaking the actual manufacturing operations of the tyres and tubes meant for ATL - Revenue contends that employees of appellant were utilized for manufacture of tyres for ATL, the payments received towards salary and other dues of the employees should be treated as payments towards manpower recruitment or supply service - Held that - The agreement for joint operation enabled ATL to manufacture of tyres of Apollo brand in the plant and machinery owned by the appellant and the same was in pursuance of the scheme approved by the BIFR. The ATL is clearly manufacturer of excisable goods and, undisputedly, duty is being paid by them. On a close perusal of the agreement, we do not agree with the submission that the same should be treated only as an agreement for supply of manpower. Even otherwise, we, prima facie, agree with the views expressed by the learned senior advocate that whatever service tax to be paid on the alleged manpower recruitment or supply service was available as credit to ATL in respect of the goods manufactured in the same premises and, therefore, it is a clear case of revenue neutrality - Stay granted.

Summary

Issues:
Interpretation of agreement for joint operation, Taxability of payments towards salary and dues, Availability of Cenvat credit, Justification for invoking extended period of limitation, Imposition of penalties.

Interpretation of agreement for joint operation:
The appellants were running a factory manufacturing automobile tyres and tubes under a scheme approved by BIFR. M/s. Apollo Tyres Ltd. (ATL) entered into an agreement with the appellants to use the plant and machinery for manufacturing tyres in the brand name of 'Apollo'. The agreement involved ATL utilizing the manufacturing facility, including workers employed by the appellants, for manufacturing activities. The Central Excise registration was transferred to ATL, and goods were cleared in ATL's name. The Tribunal held that the agreement was not merely for supplying manpower but for joint operation enabling ATL to manufacture excisable goods, and duty was being paid by ATL.

Taxability of payments towards salary and dues:
The Commissioner held that payments received by the appellants towards salary and other dues of employees should be treated as payments for 'manpower recruitment or supply service', leading to a demand for service tax. The appellants argued that the payments were part of a composite agreement for utilizing the manufacturing facility and work force directly employed in the factory for manufacturing activities. They contended that the payments could not be segregated and taxed separately. The Tribunal agreed with the appellants' interpretation, emphasizing the primary purpose of the agreement for utilizing the manufacturing facility for manufacturing tyres.

Availability of Cenvat credit:
The appellants argued that if service tax was paid on payments towards salary and dues, treated as 'manpower recruitment or supply service', the same was available as Cenvat credit to ATL for payment of duty on the manufactured goods. They claimed this arrangement ensured revenue neutrality. The Tribunal concurred, noting that the service tax paid was available as credit to ATL for duty payment on goods manufactured at the same premises, establishing revenue neutrality.

Justification for invoking extended period of limitation and imposition of penalties:
The Commissioner imposed penalties and invoked an extended period of limitation. The appellants contended that the entire arrangement of joint operation was known to the Department, justifying no extended period of limitation or penalties. The Tribunal found no justification for invoking an extended period of limitation or imposing penalties, considering the known arrangement of joint operation and the revenue neutrality of the transactions.

In conclusion, the Tribunal waived the pre-deposit of dues and stayed the recovery pending the appeal's disposal, based on the findings that the agreement was for joint operation enabling manufacturing activities, payments towards salary and dues were not separately taxable, Cenvat credit was available, and no justification existed for penalties or extended limitation period.