2019 (5) TMI 1102 - AT - Service Tax

Classification of services - Man Power Recruitment and Supply Services or not - appellant engaged in deputing labour force for activities of packing, loading, un-loading, bagging, handling to their clients - time limitation - HELD THAT - The appellants were engaged in the supply of labour to various pharmaceutical companies and were raising bills by mentioning various activities undertaken like packing, loading, un-loading, bagging, handling etc. However it is a fact that the charges of services were determined based on the number of persons or hours worked for rendering services and charging service charges. The appellants also received performance production incentives for the services rendered. Even though the appellants may be mentioning the nature of services rendered by them to the service recipients, however it is an accepted fact that the charges for the services were recovered by them on the basis of number of persons or hours worked for rendering the services. In such case, the services rendered by the appellants would fall under the category of Manpower Recruitment or Supply Agency services for the impugned period which is liable for service tax. Extended period of Limitation - Penalty - suppression of facts or not - HELD THAT - There is no charge of deliberate non-payment of service tax due to suppression of facts or malafide intention of the Appellants has been proved -The extended period of limitation for raising demands can be invoked only when the person liable to pay tax has intentionally or deliberately involved in evasion of service tax - It is clearly appearing from the statements of the proprietors that they did not take service tax registration being unaware of the service tax liability and were under the bona fide belief that their services are of packing, loading, unloading and other activities, which do not fall under the category of Manpower Recruitment and Supply Agency Service - extended period of limitation and penalty cannot be invoked. The demand is hit by limitation of time and is not sustainable to the extent the same has been made by invoking the period of limitation i.e. beyond one year from date of show cause notice - demand alongwith interest and penalties do not sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability of service tax on Man Power Recruitment and Supply Services.
2. Invocation of extended period of limitation for demanding duty.
3. Interpretation of service classification.
4. Applicability of penalties under Section 76, 77 & 78.

Issue 1: Liability of service tax on Man Power Recruitment and Supply Services:
The Appellants were engaged in deputing labor force for various activities and were issued show cause notices for allegedly providing Man Power Recruitment and Supply Services. The demands were based on the consideration received by them, along with interest and penalties under the Finance Act, 1994. The Appellants contended that their services of packing, loading, un-loading, etc., did not fall under labor supply services. They argued that they did not collect service tax from customers as they were unaware of the liability and believed their activities were not taxable. The adjudicating authority confirmed the demands, but the Appellants appealed, citing lack of intention to evade tax and claiming the demands were not sustainable due to lack of suppression of facts.

Issue 2: Invocation of extended period of limitation for demanding duty:
The Appellants disputed the invocation of the extended period of limitation, arguing that they were not aware of the service tax liability and had a bona fide belief that their services were not taxable. The Revenue contended that since service tax was not paid initially, the extended period was justifiable. The Tribunal found that the Appellants' lack of awareness and confusion regarding the tax liability, along with their proper record-keeping and lack of deliberate evasion, supported the argument that the demands were hit by the limitation of time. The Tribunal held that the demands beyond one year from the show cause notices were not sustainable, setting aside the demands based on the extended period.

Issue 3: Interpretation of service classification:
The Appellants argued that the services they provided did not fall under Manpower Recruitment or Supply Agency services, as they were undertaking specific jobs under their control, even though charges were based on the number of persons or hours worked. The Tribunal found that despite the nature of services mentioned, the charges were determined based on manpower deployed, categorizing the services under Manpower Recruitment or Supply Agency services liable for service tax. The Appellants' lack of deliberate evasion and their belief that their services were not taxable supported their argument against the classification.

Issue 4: Applicability of penalties under Section 76, 77 & 78:
The Appellants were not found to have intentionally or deliberately evaded service tax, as they were unaware of the tax liability and had a bona fide belief that their services were not taxable. The Tribunal held that mere failure to pay service tax without evidence of malafide intention did not constitute willful evasion. Citing precedents, the Tribunal noted that the lack of suppression of facts and the proper documentation of transactions in the books of account supported the Appellants' argument. Consequently, the penalties under Section 76, 77, and 78 were set aside, as there was no suppression of facts with intent to evade service tax.

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