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2019 (10) TMI 1245 - AT - Service TaxNature of activity - sale or service - appellant were required to carry out the process of converting the raw-material into detergent/cake in the factory premises of M/s Nirma Ltd, Bhavnagar - manpower supply services or not - whether the appellant is liable to pay service tax or the activity carried out, constitutes manufacturing activity? - Revenue Neutrality - HELD THAT - The ultimate activity which is to be performed by the appellant is to convert rawmaterial and packing material into packed detergent/cake irrespective of the fact whether the same is carried out in the appellant s premises or at the premises of the service recipient i.e. M/s. Nirma Ltd. Even as per the agreement the clear understanding between the appellant and M/s Nirma Limited is not for supply of man power but to carry out manufacturing activity of detergent/cake, therefore, in our view it is clear contract of manufacturing of excisable goods. There is no dispute that the appellant after carrying out the manufacturing handed over the excisable goods to M/s. Nirma Ltd who ultimately cleared the said goods on payment of excise duty - there is no contract between the appellant and M/s. Nirma Ltd for supply of man power. The activity carried out by the appellant is at the most considered as production or processing of goods on behalf of the client which is covered under the service head of Business Auxiliary Service . If this be so, then the service is exempted under N/N. 8/2005-ST. Since, the demand was raised under wrong head i.e. Man Power Recruitment and Supply Agency Service, for this reason also the demand is not sustainable. Reliance can be placed in the case of RAMESHCHANDRA C. PATEL VERSUS COMMR. OF SERVICE TAX, AHMEDABAD 2011 (11) TMI 415 - CESTAT, AHMEDABAD from it can be settled that when the contract between the service provider and service recipient is admittedly of contract manufacturing in such case demand under man power supply cannot be made. Revenue neutrality - HELD THAT - It is a case of Revenue neutral and by not paying the service tax by the appellant the Government Exchequer is not at any loss, however, since, we have already decided the issue on merit, we are not giving our concluding opinion on Revenue Neutral position. The issue of jurisdiction raised by the appellant is also kept open. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Classification of services provided by the appellant. 2. Jurisdiction of the adjudicating authority. 3. Revenue neutrality and availability of CENVAT credit. 4. Applicability of service tax under "Manpower Recruitment and Supply Agency Services." Issue-wise Detailed Analysis: 1. Classification of Services Provided by the Appellant: The appellant entered into agreements with M/s Nirma Limited to manufacture detergent on a job work basis. The department argued that the appellant provided manpower for manufacturing detergent, thus liable for service tax under "Manpower Recruitment and Supply Agency Services." However, the appellant contended that their activity was manufacturing, as they were paid based on the quantity of goods produced, not the number of workers. The Tribunal observed that the agreements indicated a contract for manufacturing excisable goods, not manpower supply. The appellant’s activity was deemed "production or processing of goods on behalf of the client," which falls under "Business Auxiliary Service" and is exempt under Notification No. 8/2005-ST. The Tribunal concluded that the demand raised under "Manpower Recruitment and Supply Agency Service" was not sustainable. 2. Jurisdiction of the Adjudicating Authority: The appellant argued that the proceedings were beyond the jurisdiction of the proper authority, as the jurisdictional commissionerate was Ahmedabad-I, but the proceedings were carried out by Ahmedabad-III. The Tribunal noted this issue but did not provide a concluding opinion, as the primary issue was decided on merit. 3. Revenue Neutrality and Availability of CENVAT Credit: The appellant argued that even if service tax was payable, it would be available as CENVAT credit to M/s Nirma Ltd., making the exercise revenue neutral. The Tribunal acknowledged this argument, noting that the appellant submitted details showing significant excise duty payments by Nirma Ltd. from PLA/cash, indicating no loss to the government exchequer. However, the Tribunal did not give a concluding opinion on this issue since the primary issue was resolved on merit. 4. Applicability of Service Tax under "Manpower Recruitment and Supply Agency Services": The Tribunal referred to several judgments to support the view that when a contract is for job work and not for manpower supply, service tax under "Manpower Recruitment and Supply Agency Services" cannot be levied. The cited cases consistently held that such contracts should be classified based on the nature of the activity performed, which in this case was manufacturing. The Tribunal concluded that the appellant’s activity did not fall under the category of manpower supply. Conclusion: The impugned order was set aside, and the appeals were allowed with consequential relief. The Tribunal held that the appellant was engaged in manufacturing excisable goods and not in supplying manpower, thus not liable for service tax under "Manpower Recruitment and Supply Agency Services." The issue of jurisdiction was left open, and the argument of revenue neutrality was acknowledged but not conclusively addressed.
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