2017 (4) TMI 895 - AT - Service Tax

Taxability - manpower recruitment and supply services - payments received by lessor on behalf of the workers used by the lessee of a factory for carrying out their operations in the category of manpower recruitment and supply services - Held that - we do not find any role for the respondent as an intermediary. The employees originally recruited by the lessor were placed at the disposal of the lessee as part of that agreement which allowed the latter to operate the distillery. It would appear that the terms of remuneration are also not the subject of the agreement between the lessor and the lessee and we do not find any clause that specifies period of employment of these workers with the lessee - nature of the transaction between the respondent and the lessee and its failure to conform to the description of the taxable service takes the service out of ambit of taxable service - appeal dismissed - decided against Revenue.

Summary

Issues:
Taxability of payments received by lessor on behalf of workers used by lessee for operations in the category of 'manpower recruitment and supply services'.

Analysis:
The appeal dealt with the taxability of payments received by a lessor on behalf of workers utilized by a lessee for operations in the category of 'manpower recruitment and supply services'. The Commissioner of Central Excise (Appeals) had dropped the demand for tax, interest, and penalties. The lessor operated a distillery that was handed over to the lessee for a specified period, with the lessee utilizing 108 employees of the lessor for operations. The lessee was responsible for operational expenses and salary disbursement to the workers. The taxation authorities sought to levy tax on the entire salary amount for the workers for the years 2005-06 and 2006-07.

The first appellate authority held that no justification existed for levying tax as the factory was handed over on lease, not a sale involving employee operations. It was also noted that no amount was retained as consideration for service. The Revenue challenged the order on the grounds of an expanded definition of taxable service and reliance on a previous case. The Tribunal found that the taxability of temporary placement of workers with the lessee was sustained based on a final order in a related matter.

The circular clarified that service tax was leviable on temporary supply of manpower by recruitment agencies. The transaction sought to be taxed involved the supply of manpower for specific periods or projects, where staff were not directly employed by the recipient but worked under their direction. The Tribunal found that the agreement did not involve the respondent as an intermediary, and the terms did not specify the period of employment with the lessee. A portion of the amount received was withheld as per financing agency directions, not as consideration for service, aligning with a previous Tribunal decision.

The Tribunal rejected the Revenue's appeal, finding no merit in the arguments presented. The decision was pronounced on 17/03/2017.