2019 (8) TMI 1028 - AT - Service Tax

Manpower Recruitment or Supply Agency Service or BAS service - nature of contract - services relating to supply of manpower for packing of goods at M/s. L T, Mysore - taxable service or not - HELD THAT - A bare perusal of the terms and contracts of the agreement shows that the contract which the appellant and M/s. L T have is one for packing of the meters manufactured by M/s. L T in the premises of M/s. L T. They do not have any contract for supply of any number of persons. In fact, M/s. L T is not concerned as to how many people they employ. The appellants get paid if they pack the meters as per the specifications on per piece basis - We do not find anything in the scope of the contract which can remotely suggest that it is a contract for supply of manpower to M/s. L T. There is a force in the argument of the learned counsel for the appellant that packing is a process incidental or ancillary to the manufacture and therefore should be considered as part of manufacture as per Section 2(f) of the Central Excise Act. Packing of goods per se may not be manufacture in itself but when it is done along with the manufacture in the factory of the manufacturer, packing is included in the process of manufacture. On the entire value of the goods including the cost of packing, M/s. L T is paying Central Excise duty. The demand on the appellant under the head of 'Manpower Recruitment or Supply Agency Service' cannot survive by any stretch of imagination - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the services provided by the appellant should be treated as taxable under "Manpower Recruitment or Supply Agency Service"?
2. Whether the demand for service tax, interest, and penalties imposed on the appellant is justified?
3. Whether the activity of the appellant constitutes manufacturing rather than a service of supplying manpower for packing?

Analysis:
1. The appellant was alleged to have provided "Manpower Recruitment or Supply Agency Service" to a company without discharging service tax. The show-cause notice raised questions regarding the taxable nature of the services provided, the demand for service tax, interest, and penalties. The lower authorities confirmed the demand, which was upheld on appeal except for the penalty under Section 76. The appellant argued that their work was limited to packing electrical meters and did not involve supplying manpower. The Tribunal analyzed the scope of work and contractual terms, concluding that the appellant's services did not constitute a contract for supplying manpower, thereby setting aside the demand.

2. The Departmental Representative contended that the appellant indirectly supplied manpower for packing, justifying the demand under "Manpower Recruitment or Supply Agency Service." However, the Tribunal observed that the contract between the appellant and the company was solely for packing meters, not for supplying manpower. The payment was based on a per-piece basis, indicating a manufacturing process rather than a service of providing manpower. Consequently, the demand for service tax, interest, and penalties was deemed unjustified and set aside.

3. The appellant's counsel argued that the nature of their work, involving packing of meters, should be considered part of the manufacturing process under Section 2(f) of the Central Excise Act. The Tribunal agreed, stating that packing, when done along with manufacturing, constitutes part of the manufacturing process. As the company paid excise duty on the entire value of goods, including packing costs, the activity was deemed a manufacturing process, not a service of supplying manpower. Relying on relevant case laws, the Tribunal allowed the appeal, setting aside the impugned order and providing consequential relief.

In conclusion, the Tribunal found that the appellant's services were part of the manufacturing process, not a service of supplying manpower. Therefore, the demand for service tax, interest, and penalties was set aside, and the appeal was allowed.