2014 (12) TMI 1420 - AT - Service Tax

Non-payment of service tax - appellants had supplied labour but did not pay service tax under manpower recruitment or supply agency service - Extended period of limitation - HELD THAT - As per the agreement the appellants were being paid for operating the mill @ Rs. 160/- PMT of the quantity of gods produced It is thus evident that the payment was based on production as a result of operation of the mull. Under Section 65(68) of the Finance Act 1994 manpower recruitment or supply agency means any person engaged in providing any service directly or Indirectly in any manner tor recruitment or supply of manpower temporary or otherwise in any manner It is evident that the activity rendered by the appellants does not fall in the said definition inasmuch as they did not supply any manpower to any other person and merely engaged the manpower themselves to operate the mill and. got paid on the basis of production on per metric ton basis It also comes out that the activity done by them amounted to manufacture. Extended period of limitation - extended period has been invoked on the ground that the appellants had never disclosed these facts and non-payment of service tax which came to notice of the department only at the time of audit and thus the appellants had intentionally not paid service tax with indent to evade the same - HELD THAT - It is thus evident that mere son-payment of service tax has been ipso fact equated with the Intention to evade which as is too well settled to need citing of precedent is legally unsustainable. In the case of the Rameshchandra C. Patel CST Ahmedabad 2011 (11) TMI 415 - CESTAT AHMEDABAD it was held that the Agreement between parties talking about products to be manufactured sad payments to be made. and silent about number of men or labour to be used or manner in which they have to be used or quantum of payment to be made to them would not be covered under manpower recruitment or supply agency service. The requirement of pre-deposit is waived - appeal allowed.

Summary

Issues:
1. Whether the appellants are liable to pay service tax under 'manpower recruitment or supply agency service' for providing labor without payment?
2. Whether the appellants' activity falls under the definition of 'manpower recruitment or supply agency service' as per Section 65(68) of the Finance Act, 1994?
3. Whether the extended period invoked for non-disclosure of facts and non-payment of service tax is legally sustainable?
4. Whether the appellants' activity amounts to manufacture and exempts them from liability under 'manpower recruitment or supply agency service'?

Analysis:

1. The appeal was filed against an Order-in-Appeal upholding a duty demand for the period 2007-2008 and 2008-2009 due to non-payment of service tax under 'manpower recruitment or supply agency service.' The appellants argued they were not supplying manpower but were engaged in job work for a specific production task. The Commissioner held them liable as they were provided facilities by the principal company. However, the appellants contended that they were paid based on production and not for supplying labor.

2. The Tribunal analyzed the agreement and payment terms, concluding that the appellants were paid based on production, indicating their activity did not fall under the definition of 'manpower recruitment or supply agency service.' The appellants engaged labor for operating the mill themselves and were paid per metric ton produced, which was more aligned with a manufacturing activity rather than a service involving supply of manpower.

3. Regarding the extended period invoked for non-disclosure and non-payment of service tax, the Tribunal found that the mere non-payment of service tax cannot be equated with an intention to evade tax. Citing precedent, the Tribunal emphasized that agreements focusing on products to be manufactured and payments made, without specifying labor details, do not fall under 'manpower recruitment or supply agency service.'

4. Ultimately, the Tribunal waived the pre-deposit requirement and allowed the appeal, considering that the appellants' activity did not fit the definition of 'manpower recruitment or supply agency service' as they were engaged in manufacturing and not in supplying labor. The judgment highlighted the importance of specific contractual terms and activities performed in determining the applicability of service tax liabilities.