2023 (8) TMI 1146 - AT - Service Tax

Levy of service tax - Manpower Recruitment or Supply Agency Service or not - fabrication of tugs and barges out of raw material like steel plates etc supplied by the clients - HELD THAT - In the contract, various works contracted with the client shows the labour charges. The Adjudicating Authority has completely mis-understood the term labour charges and concluded that manpower was supplied. In the trade parlance of construction service, there is a term labour charges and material cost . So, wherever there is a term labour charges is mentioned that does not mean that manpower supply and it is only service charges without material. Therefore, the entire case made out by the department is under assumption that since labour charge is mentioned in the contract it is manpower supply service whereas the Adjudicating Authority has ignored the important aspect of job work i.e. fabrication of barges on the material supplied by the client. This Tribunal has considered this issue in various judgments - reliance can be placed in SA ENGINEERING WORKS VERSUS COMMISSIONER OF CENTRAL EXCISE ST, VADODARA-II 2023 (6) TMI 699 - CESTAT AHMEDABAD where it was held that There is no evidence of supply of manpower with details of number and nature of manpower, duration and other conditions for such supply. In absence of such evidence, the job work charges cannot be taxed under Manpower Recruitment and Supply Agency Service . Hence, we are of the considered view that the adjudged demand confirmed on the appellant cannot be sustained. Thus, even though manpower was deployed by the service provider but the job is for specific activity such as manufacture, processing etc. and charges is paid on the basis of job and not on the basis of manpower, the activity was held not to be classifiable under Manpower Recruitment or Supply Agency Service. The ratio of the above judgment is directly applicable in the facts of the present case. The entire service tax demand (except the demand of service tax of Rs. 1,05,12,549/-) in respect of repair service) is not sustainable, hence the same is set-aside - Appeal allowed.

Summary

Issues Involved:
1. Classification of the appellant's activity as "Manpower Recruitment or Supply Agency Service."
2. Determination of whether the appellant's activity constitutes manufacturing.
3. Verification of service tax payment on the repair of barges.

Summary:

1. Classification of the Appellant's Activity as "Manpower Recruitment or Supply Agency Service":
The primary issue was whether the appellant's activity of fabricating tugs and barges falls under "Manpower Recruitment or Supply Agency Service" and is thus taxable. The department argued that the appellant's contract implied the supply of labor. However, the appellant contended that the contract was for the specific job of fabrication, not the supply of manpower. The Tribunal examined the contract and found that the appellant was responsible for fabricating, assembling, and erecting the hull machinery and equipment of the barge on a turnkey basis, with the entire raw material supplied by the client. The charges were lump-sum for the entire work, indicating that the service was for fabrication, not manpower supply. The Tribunal noted that the terms like "labor charges" in the contract referred to service charges without material, not manpower supply. The Tribunal concluded that the appellant's activity did not fall under "Manpower Recruitment or Supply Agency Service."

2. Determination of Whether the Appellant's Activity Constitutes Manufacturing:
The appellant argued that their activity was manufacturing, supported by the fact that they paid Central Excise duty on the manufacture of tugs and barges from 01.03.2011. The Tribunal agreed, stating that the appellant's activity of fabricating barges is a manufacturing activity. If the appellant were supplying manpower, their client would be considered the manufacturer, which was not the case. The Tribunal reinforced that the appellant's activity is manufacturing and not manpower supply.

3. Verification of Service Tax Payment on the Repair of Barges:
The appellant claimed they had discharged service tax on the value of Rs. 1,05,12,549/- related to the repair of barges. The Tribunal allowed the Revenue to verify this claim. However, considering the overall facts, the Tribunal found that penalties were not sustainable and set them aside.

Conclusion:
The Tribunal set aside the entire service tax demand (except the demand related to the repair service) and modified the impugned orders accordingly. The appeals were allowed with consequential relief as per law.