2023 (5) TMI 245 - AT - Service Tax

Classification of services - manpower supply services or Business Auxiliary Service (BAS) - unloading of raw materials and other materials, loading of finished goods as required by the management and housekeeping in and around the factory, maintenance of garden and canteen and maintenance of machineries and other equipment - applicability of N/N. 8/2005-ST dated 01.03.2005 - penalties - HELD THAT - The contractor shall provide to his personnel, at his own cost, uniforms, shoes, monsoon wear, and any other essential equipment and tools such as brooms, scrubbers, detergent etc. as may be required to provide proper packing, loading/unloading, cleaning and maintenance and the contractor is required to pay to his employees all dues as per the provisions of the Payment of Wages Act 1936 and the wages paid should not be less than the Minimum Wages Act. The contractor is responsible for deducting and remitting provident fund and ESI contributions and also for payment of bonus and other dues, and also shall require to maintain records and registers, obtain any license or registration required by law for supply of workmen/labour - All these conditions will indicate that the consideration paid for the services is depending upon the number of people deployed in the factory of M/s. Godrej by the appellant. The service charges paid are computed on the basis of the wages paid by the appellant plus pre-determined commission. Even the scrutiny of the bill raised by the appellant indicates that the charges are on the basis of number of workmen deployed. The tenor of the contract clearly indicate that the Agreement entered into by the appellant s with M/s. Godrej Household Products Ltd., Karaikal, is a Labour Supply Contract and so the services rendered would fall under Manpower Recruitment or Supply Agency service - demand of tax upheld. The appellant s reliance on the decisions rendered by the Tribunal in the case of DIVYA ENTERPRISES VERSUS COMMISSIONER OF CENTRAL EXCISE, MANGALORE 2009 (12) TMI 155 - CESTAT, BANGALORE and RITESH ENTERPRISES VERSUS COMMISSIONER OF CENTRAL EXCISE 2009 (10) TMI 182 - CESTAT, BANGALORE are not applicable to the facts of the case as the contracts involved there in were for execution of work on piece rate basis. Penalty - HELD THAT - M/s. Godrej is computing the service charges payable to the appellants on the basis of sum total of wages paid to the workers employed plus cost of uniform, shoes, monsoon wear, detergents etc. According to the agreement, the appellant was paid service charges of Rs.7/- per manpower for 8 hours shift. On these peculiar facts of this case, computation of tax should be with reference to the service charges paid to the appellant. Considering the appellant being a small entrepreneur and there was confusion as to the classification of many services under various clauses of Section 67 of the Finance Act, 1994, penalties imposed are set aside. The demand of service tax on the service charges paid to the appellant is upheld and penalties imposed are set aside - appeal allowed in part.

Summary

Issues Involved:
1. Classification of services rendered by the appellant.
2. Determination of the value on which service tax is payable.
3. Applicability of penalties under the Finance Act, 1994.

Summary:

1. Classification of Services:
The appellant, M/s. Shri Vinayaga Enterprises, contended that their services, which included unloading raw materials, loading finished goods, housekeeping, maintenance of garden and canteen, and machinery maintenance, should be classified under Business Auxiliary Service (BAS) rather than Manpower Recruitment or Supply Agency service. They argued that their work involved specific tasks with responsibilities beyond mere manpower supply.

The Tribunal, however, after examining the agreement with M/s. Godrej Household Products Ltd., concluded that the services rendered were indeed classifiable under "Manpower Recruitment or Supply Agency" service. The contract's terms indicated that the appellant was paid based on the number of people supplied, which aligned with the definition of manpower supply services.

2. Determination of Value for Service Tax:
The appellant argued that service tax should only be levied on the service charges (Rs. 84,027/-) and not on the entire amount received (Rs. 15,87,599/-), citing the Delhi High Court's decision in Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. UOI. They contended that reimbursements for wages paid should not be included in the taxable value.

The Tribunal agreed that service tax should be computed based on the service charges paid to the appellant, considering the peculiar facts of the case and the agreement's terms, which specified service charges of Rs. 7/- per manpower for an 8-hour shift.

3. Applicability of Penalties:
The appellant claimed a bona fide belief that their services were not liable to service tax due to their classification under BAS and sought waiver of penalties under Section 80 of the Finance Act, 1994.

The Tribunal acknowledged the appellant's status as a small entrepreneur and the prevailing confusion regarding service classification. Consequently, it set aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994.

Conclusion:
The Tribunal upheld the demand for service tax on the service charges paid to the appellant but set aside the penalties imposed. The appeal was partly allowed to this extent.