2017 (9) TMI 362 - AT - Service Tax

Manpower recruitment service - case of appellant is that as per the definition of manpower recruitment services upto 15/06/2005, the supply of manpower was not covered under the definition, therefore, till this date no service tax demand is sustainable - time limitation - Held that - the period of demand is 2005-2006 and 2006-2007, whereas the show-cause notice was issued on 21/10/2010. The appellant in their ST-3 return clearly declared the amount of provident fund and ESI on which no service tax was shown to have been paid under the belief that the reimbursement is not taxable. The department was not prevented from raising the issue that such amount is also liable to be taxed - there is neither any suppression of fact nor any malafide intention on the part of the appellant - the demand is clearly time barred - appeal allowed only on limitation.

Issues:
1. Liability to pay service tax on provident fund and ESI collected from service recipient.
2. Applicability of service tax on reimbursement of actual expenses.
3. Time-barred demand due to absence of suppression of facts.
4. Imposition of penalty under section 78.

Analysis:

Issue 1: Liability to pay service tax on provident fund and ESI collected from service recipient
The case involved the appellants providing manpower recruitment services and not paying service tax on the amount of provident fund and ESI collected from the service recipient. The show-cause notice raised a demand for differential service tax on provident fund and ESI. The appellant argued that until June 15, 2005, the supply of manpower was not covered under the definition of manpower recruitment services, hence no service tax demand was sustainable. The appellant relied on various judgments to support this argument.

Issue 2: Applicability of service tax on reimbursement of actual expenses
The appellant contended that the amount collected on account of provident fund and ESI was a reimbursement of actual expenses deposited in the respective accounts and should not be included in the gross value of the service. Several judgments and circulars were cited to support this claim.

Issue 3: Time-barred demand due to absence of suppression of facts
The appellant argued that the demand was time-barred as there was no suppression of facts, citing the disclosure of the value towards provident fund and ESI in the ST-3 return for the financial year 2005-2006. It was emphasized that the appellant had no malafide intention to evade service tax, as evident from their regular discharge of service tax liability on other values.

Issue 4: Imposition of penalty under section 78
The appellant challenged the imposition of penalty under section 78, asserting that there was no malafide intention and hence the penalty was not sustainable. Reference was made to a Tribunal judgment to support this argument.

The Tribunal, after considering the submissions, ruled that the case could be disposed of solely on the basis of limitation. The demand period was 2005-2006 and 2006-2007, while the show-cause notice was issued in 2010. Since the appellant had disclosed the provident fund and ESI amounts in the ST-3 return without any suppression of facts or malafide intention, the demand was deemed time-barred. The Tribunal set aside the demand solely on limitation grounds without delving into the merits of the case.

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