2018 (9) TMI 1848 - HC - Service Tax

Waiver of penalty - Manpower Recruitment Supply Agency Services or manufacture - respondent not registered with the Department for rendering the service - non-payment of service tax - whether the authorities below could take recourse to Section 80 of the Finance Act 1994 in order to waive the penalty levied under Section 76, 77, 78 and 80 of the Finance Act 1994? HELD THAT - The supply of manpower cannot be said to be process which directly related to actual production. There is no inter connection between supply of labour and the manufacture by the service recepient. Manufacture is defined under Section 2(f) of the Central Excise Act 1944 - A process is a manufacturing process that it brings out a complete transformation for the whole components so as to produce a commercial diffferent article of commodity. Though it is well settled that the process itself may consist of several processes which may or may not bring about any agency at intermediate stage but the activities or the operation may be so integrally connected with the final result is the production of a commercial diffferent article. A perusal of the records would show the respondent No. 2 was obliged to submit the details of the wages paid by them to their employees. They were also required to provide the details of the Provident Fund ESI contributions etc. This was for the payment by the service recipient. The respondent No. 2 was therefore only to provide manpower for which they were to be paid by the service recepient. It may be that the requirement was for a particular type of personnel and that were to perform particular kind of work. When the definition is clear and unambiguous ignorance of law cannot be an excuse and the plea of genuine mistake in interpretation cannot hold good. The Tribunal with respect has erred in coming to the conclusion that it was not mere supply of labour was activity of the respondent but was also obliged to carryout other activity of unloading material to store/production area and packing the same - A manpower recruitment or supply agency is a commercial concern engaged in providing any service directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise to a client. What the manpower supplied would do will not alter the nature of services provided by a service provider and hence the services provided by the respondent No. 2 cannot come within the definition of manufacture. To invoke Section 80 the service provider must show reasonable cause for failure to pay Service Tax. Unless and until the reasonable cause is shown penalty levied under Section 76 and 78 cannnot be exempted - The respondent No. 2 has not shown any reasonable cause as to why Section 80 of the Finance Act 1999 should not be invoked. As discussed the excuse offered is only a complete afterthought and as stated earlier a lame excuse. The appellate authority and Tribunal have completely errred in removing the imposition of penalty. Supply of manpower cannot be mean to be a operation or activity in relation to manufacture. The mistake of interpretation cannot be accepted and cannot be termed as Reasonable Cause for not paying Service Tax. The order of the Tribunal and the appellate authority are set aside and the order of the assessing authority is restored - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the respondent's activities fall under the definition of "Manpower Recruitment & Supply Agency Services" and are taxable.
2. Whether the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, were justified.
3. Whether the benefit of cum-tax should be granted to the respondent.
4. Whether the invocation of Section 80 of the Finance Act, 1994, to waive penalties was appropriate.

Issue-wise Detailed Analysis:

1. Definition and Taxability of Services:
The respondent, engaged in providing "Manpower Recruitment & Supply Agency Services," did not register with the department or pay service tax. The agreement with M/s. Emox Device Company for supplying manpower fell within the ambit of "Manpower Recruitment & Supply Agency" as defined under Section 65(68) of the Finance Act, 1994, making the service taxable from 16.06.2005. The show-cause notices issued demanded service tax for the periods from June 2005 to November 2009 and December 2009 to June 2010.

2. Imposition of Penalties:
The Additional Commissioner confirmed the demand for service tax and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The penalties were based on the failure to pay service tax, non-filing of returns, and suppression of facts with the intent to evade payment.

3. Cum-tax Benefit:
The appellate authority held that the respondent was entitled to the cum-tax benefit, as the service tax was not separately shown in the bills. The gross amount paid by the service receiver was considered inclusive of service tax. The appellate authority directed the respondent to produce relevant documents to verify whether service tax was collected separately.

4. Invocation of Section 80:
The appellate authority waived the penalties by invoking Section 80 of the Finance Act, 1994, citing no mala fide intention and the payment of service tax during the proceedings as mitigating circumstances. The Tribunal affirmed this decision, noting that the show-cause notice did not properly examine the invoices to determine the exact nature of the services provided.

Judgment Analysis:
The High Court examined whether the authorities could waive the penalties under Section 80. It was determined that the supply of manpower does not constitute a manufacturing process under Section 2(f) of the Central Excise Act, 1944. The respondent's argument that their services fell under "manufacture" was rejected. The court emphasized that the definition of "Manpower Recruitment & Supply Agency" is clear and unambiguous, and the nature of services provided by the respondent did not alter this classification.

The court concluded that the respondent did not show reasonable cause for failing to pay service tax, and the plea of genuine mistake in interpretation was not acceptable. The orders of the Tribunal and appellate authority waiving the penalties were set aside, and the order of the assessing authority was restored. The appeal was allowed, and the penalties under Sections 76, 77, and 78 were reinstated.

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