2018 (6) TMI 929 - AT - Service Tax

Manpower recruitment and supply service - Liability of tax - the lower authorities did examine the various contracts but had failed to consider that the contract with M/s Garware Industries Ltd. was one with lumpsum consideration and not based on number of personnel deployed - Held that - It is found that while the recompense is specified so, a further provision makes any payment subject to furnishing of periodical bills indicating deployment. Therefore, these cannot be excluded from the liability to tax. We also take note that the terms of the remand order have been diligently complied with - the taxability of the consideration received by the appellants during the period in dispute is upheld. Benefit of cum-tax computation - appellants had discharged their tax liability before the issue of notice though not the interest liability - Held that - Service tax is an indirect tax and macroeconomic theory has it that indirect taxes are recovered from the end consumer. We have no quarrel with the theory but tax collection is required to be in accordance with law. Finance Act, 1994 does not prescribe collection from the customer; nor does it authorize the provider of the service to act as an agent of the State. Though Service Tax Rules, 1994 does prescribe that tax component be separately indicated in the invoice, tax was for the relevant period was to be computed for collection only against receipts. In these circumstances, the option to bear the incidence of tax vests with the provider. Extended period of limitation - Held that - There is no evidence of any suppression on the part of the appellants, which are proprietary concerns. The invoking of the extended period is not tenable. The penalties under section 78 of Finance Act, 1994 and the demands in excess of the amount appropriated by the original authority set aside. Appeal allowed in part.

Summary

Issues:
1. Tax liability under section 73 of Finance Act, 1994 for 'manpower recruitment and supply service.'
2. Examination of contracts for tax liability.
3. Applicability of cum-tax benefit.
4. Dispute regarding taxability of consideration received.
5. Penalties under section 78 of Finance Act, 1994.

Analysis:

Issue 1: Tax liability under section 73 of Finance Act, 1994
The appellants, M/s Sanjay Services, M/s Kamlesh Labour Contractor, and M/s Rutika Services, were confirmed with tax dues for providing 'manpower recruitment and supply service' under section 73 of the Finance Act, 1994. The Tribunal upheld the taxability of the consideration received by the appellants during the disputed period, emphasizing that the liability to tax was established for contracts where payment on a man-hour basis was involved.

Issue 2: Examination of contracts for tax liability
The lower authorities had examined the contracts but failed to consider crucial aspects, such as the nature of contracts with lump sum considerations. The Tribunal reviewed the contracts and concluded that the terms did not exclude them from tax liability, especially when payments were subject to deployment indicators. Compliance with the remand order and previous Tribunal rulings supported the decision to uphold tax liability.

Issue 3: Applicability of cum-tax benefit
While the appellants argued for cum-tax benefit due to not collecting tax from customers, the Tribunal clarified that failure to pass on the tax burden does not exempt them from discharging tax liability. However, in specific cases where contracts did not anticipate service tax, the consideration was deemed inclusive of tax, warranting full tax liability discharge with cum-tax benefit.

Issue 4: Dispute regarding taxability of consideration received
The Tribunal acknowledged that the appellants had paid tax before the notice issuance but had outstanding interest liabilities. Despite the appellants' contentions, the Tribunal emphasized that tax collection should align with legal provisions, and the provider cannot act as an agent of the State for tax collection.

Issue 5: Penalties under section 78 of Finance Act, 1994
The Tribunal set aside penalties under section 78 of the Finance Act, 1994, and demands exceeding the appropriated amounts by the original authority. The decision was supported by the absence of evidence indicating suppression by the appellants, rendering the extended period invocation untenable.

In conclusion, the Tribunal's judgment addressed the nuances of tax liability, contract examination, cum-tax benefit applicability, tax collection principles, and penalty imposition, ensuring a comprehensive analysis and resolution of the legal issues presented in the appeals.