2019 (3) TMI 42 - AT - Service Tax

Classification of services - Man Power Recruitment or Supply Agency Service or not - works related to manufacture of tractors within the manufacturing vicinity of M/s. Tractors and Farm Equipments Ltd. - According to the department, the appellants not being independent contractor and worked under the supervision of M/s. TAFE they are to be considered as man power supply agent - Held that - The appellant is an independent contractor appointed for executing work that are entrusted to him by TAFE. So also, at clause 3 as well as clause 7, it is stipulated that appellant shall be responsible for the defect in executing the works. Appellant executes the works along with other workers and merely because he has engaged other workers in executing the work, it cannot be said that he is the supplier of man power. In clause 11 of the agreement, it is stated that the company will have privity of contract with the contractor only and will give instructions only to the appellant/contractor and has nothing to do with the conditions of employment of the workers who work with appellant. Reliance placed by the department in clause 14, in our view, is misconceived. It can be seen that while the workers are engaged to work within the manufacturing activity premises they have to abide by certain labour legislations. Merely taking such licence or abiding by such labour law, it cannot be said that the contract for executing works within the manufacturing activity would be supply of man power. The conclusions that have been arrived by lower authorities can at best be termed as presumptive without any evidential or legal basis - appeal allowed - decided in favor of appellant.

Summary

Issues:
Determining whether the appellants are to be considered as man power supply agents based on their activities related to the manufacture of tractors outsourced by M/s. TAFE, and whether the demand for service tax under the category of Man Power Recruitment or Supply Agency Service is justified.

Analysis:
The issue at hand revolves around whether the appellants, engaged in works related to the manufacture of tractors within M/s. TAFE's manufacturing vicinity, should be classified as man power supply agents. The department alleged that the appellants, not being independent contractors, should be considered as man power supply agents due to their work supervision by M/s. TAFE, treating their contract as a labor contract. Show cause notices were issued, leading to demands for service tax, interest, and penalties confirmed by the original authorities. The Commissioner (Appeals) upheld these decisions, prompting the appeals.

During the proceedings, the appellants argued that they were not man power suppliers but independent contractors performing job works on behalf of TAFE. They highlighted specific clauses in the agreement, emphasizing that payment was based on piece rate or work executed, not man hours or persons supplied. They referenced a circular clarifying the distinction between job work and man power supply, along with legal precedents supporting their stance.

On the contrary, the department contended that the contract resembled a labor contract, indicating man power supply. They referenced a tribunal decision to support their argument that the ultimate use of labor in the factory should determine the nature of the contract.

After hearing both sides, the tribunal analyzed the agreement, emphasizing clauses showing the appellants' independent contractor status, responsibility for work defects, lack of control by TAFE over workers, and the absence of an employer-employee relationship. The tribunal found the department's reliance on certain clauses misconceived and lacking evidence to disprove piece rate payments. They concluded that the demand lacked legal and evidential basis, overturning the lower authorities' decisions. Citing relevant legal precedents, the tribunal allowed the appeals, setting aside the impugned orders.

In conclusion, the tribunal ruled in favor of the appellants, determining that their activities did not fall under the category of Man Power Recruitment or Supply Agency Service. The decision highlighted the importance of contractual terms, payment structures, and lack of employer control in establishing the nature of the relationship between the parties involved.